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P&G Keeps Expanding Its Far-Flung Empire

January 10, 2007

Hair removers and car washes may not seem like obvious links, but for Procter & Gamble, they represent new opportunities to generate growth. In recent weeks, the company received approval to market a new hair removal device and announced that it will open a new car wash near its headquarters in Cincinnati. They’re both small parts in P&G’s plan to become less reliant on beauty, home and health care and build a more balanced portfolio.

The light-based hair removal device developed by a Massachusetts firm in partnership with Procter & Gamble Co., has received clearance from the U.S. Food and Drug Administration.

The device, invented by Burlington, MA-based Palomar Medical Techno- logies Inc. and targeted to women, was approved for over-the-counter sales.

Palomar received FDA approval in 1997 to market the device to the professional hair-removal market. It worked on a home-based version for several years in conjunction with Gillette Co., and the work continued after Gillette became a unit of P&G.

In September, the company said that within 30 days of receiving over-the-counter marketing clearance from the FDA, it will receive a development completion payment of $2.5 million from Gillette.

In an unrelated announcement, P&G gained zoning approval last month for an 8,900-square-foot Mr. Clean Performance Car Wash, including a gift shop and coffee bar, in Deerfield, a northern Cincinnati suburb. P&G will apply for a building permit and hopes to begin construction in time for a spring opening. A P&G spokesperson described the project as a learning lab to help determine whether P&G will build the branded car wash into a national chain.

“After we’ve had a chance to operate and understand the viability of the model, we would expand it to other locations,” explained spokesman Glenn Williams.

He said he wasn’t aware of any similar business plans for P&G products, but that the company saw an opportunity for its Mr. Clean icon. The car wash will employ some 50 full- and part-time employees.

“Consumers want a very high-quality wash,” Mr. Williams said. “This will have the latest and greatest state-of-the-art equipment and a level of service not commonly found in car washes.”

In recent years, P&G has rejuvenated the Mr. Clean brand, which dates back nearly five decades. Among the new products have been the Magic Eraser, a wall spot cleaner, and Mr. Clean’s AutoDry for home car washing.

The car wash business will have a number of amenities; including the gift shop, a lounge serving P&G’s Millstone coffees and big-screen televisions. Children can help wash the car with play guns that will shoot foam and water, Mr. Williams said. Other details, including prices for the high-end car wash, are being worked out as P&G researches consumer preferences.

By experimenting in such disparate fields as car wash and hair removal, it’s clear that P&G is positioning itself for growth even as its established brands mature. That forward thinking may explain why Procter & Gamble Co.’s top executive recently told almost 100 analysts that his company is sharply more attractive today than it was five years ago, and he pledged to be stronger worldwide in all product categories by 2010. In a three-hour meeting held Dec. 14, CEO A.G. Lafley and other key officers detailed improvements in the company’s vast spectrum of operations. They touched upon pending product launches—such as the Venus Breeze shaver in early 2007—Procter’s progress in expanding into new types of retailers and reaching consumers through the internet as well as television.

“We are building the capabilities today that we will need three to five years from now,” explained Mr. Lafley.
He noted that business in developing markets represented 26% of sales in 2006, up from 20% in 2001. That figure is projected to grow to 30% in 2010. By then, P&G will reach four billion consumers around the world, up from three billion in 2006.

Sales are expected to advance from 5-7% annually through 2010, while the product lineup is shifting to be less reliant on specific categories. In 2001, 60% of Procter’s total sales were generated from beauty, home and health care. Today that figure is 47%.

A more balanced portfolio, both in product mix and geography, is one of three ways Mr. Lafley expects to maintain Procter’s good standing with analysts, investors and consumers. The company, for instance, can now transfer what it knows about consumers across 40 product categories to 40 nations. It learned, for instance, that low-income women in China wash their hair once a week, so it reformulated a popular Asian brand of shampoo to keep hair clean longer. By spending time with consumers in their homes and on their shopping trips, the company has picked up on the unarticulated reasons why a person might buy a product. A certain smell might remind her of an old boyfriend, for example.

“We give them what they want and nothing more,” Susan Arnold, vice chairwoman of beauty, told analysts. “Zero waste.”