P&G's China Turnaround Fueled By Premium Skin-Care Gains, Hair Innovations
This article was originally published in The Rose Sheet
Executive Summary
SK-II sales jumped 40% in China during the firm's fiscal 2018 first quarter, and Olay also was up in the mid-teens, P&G reports. Execs discussed hair-care innovations in the country and the importance of engaging Chinese millennials during the firm's Q1 call with analysts.
Procter & Gamble Co. leadership focused on China during the firm's fiscal 2018 first-quarter earnings call Oct. 20, highlighting beauty brands and innovations that are driving its turnaround in the country.
Overall sales were up 1% for the quarter to $16.7bn, P&G reported, citing a decelerating global market and challenging comparisons. But the quarter marked a sharp uptick in the Cincinnati-based firm's China business, with sales climbing 8% in organic terms.
That compares with 1% organic growth in fiscal 2017 and a 5% decline the year before.
P&G's super-premium SK-II line continues to fuel gains, with sales up more than 40% in the first quarter, ended Sept. 30. CFO Jon Moeller attributed the surge in part to the brand's successful #INeverExpire digital campaign, tackling the pressures women feel regarding aging and societal expectations for attaining milestones such as marriage.
Olay also saw growth in the mid-teens, according to the exec. He pointed to premium Pantene and Head & Shoulders innovations as additional contributors to the company's progress in China.
R&D Vice President Sumit Bhasin noted that China's $8bn hair-care market is the biggest in the world, and P&G leads it "by a distance," weighing in at three times the size of the closest competitor, with four of the five top hair-care brands in the country.
He gave Pantene's 3 Minute Miracle Moisture Renewal Deep Conditioner and Head & Shoulders Supreme Strength Shampoo as examples of innovations that are keeping P&G's brands relevant in China and fueling advances, with 5% growth reported from the firm's Chinese hair-care business in the first quarter.
"We have a strong portfolio of brands that cater to the most important needs in the category," Bhasin asserted. "We have now gone end-to-end and have sufficient resources on the ground – we're empowered to make decisions. We have significantly increased speed to market and are now bringing innovation from idea to market in less than six months. And we have attractive margin structure."
He concluded, "These interventions set us up as a thought leader in the industry and in a very strong position in China hair care."
E-commerce is a vital component of P&G growth strategy in China, and its online sales there soared roughly 60% in the first quarter. The firm either held or increased its share of the exploding e-commerce market in seven out of 10 categories and subcategories in which it competes, according to Moeller.
Jasmine Xu, who heads up e-business and brand operation in Greater China, emphasized the importance of premiumization and robust consumer engagement in China's e-commerce market and larger digital environment.
Millennials represent a key demographic, and P&G knows how to speak their language. "In fact, 80% of my team is millennials," Xu noted. "We're doing more authentic storytelling instead of traditional advertising. We understand that millennials prefer a more personalized experience."
She continued, "For example, consumers can buy the Oral-B power brush, which comes with their names and horoscopes printed on the handles."
P&G's oral-care business rose 7% in China for the quarter. The firm is shooting for mid-single-digit growth in China for the full year, which will help drive the overall organic growth of 2% to 3% that P&G is projecting for fiscal 2018.
The firm's Beauty unit likely will continue to play a key role in propelling gains, after recording 5% organic growth for the quarter, with total sales of $3.14bn.
Grooming, on the other hand, remains a challenge, with Q1 sales declining 5% to $1.58bn due largely to price reductions in the US shave-care market, P&G says.