At face value, P&G's announcement actually sounds more dramatic than it really is. When you look inside the portfolio, there are well over 100 brands that are below $100 million in sales. Even when these brands are achieving strong growth, they cannot make a material impact on P&G’s overall business results. Conversely, these brands take a disproportionate amount of corporate resources in relation to their value. So while on paper these brands might be profitable, there is a significant opportunity-cost because they dilute P&G’s focus on their brands that really drive market capitalization.
This decision, while notable, is consistent with past behavior and P&G’s long-term strategy. They divested their food brands because P&G did not see the adequate potential for growth and value creation, allowing them to up their investment in performance-based categories where they can better leverage their research and development capabilities like health & beauty and household products. In part, this has allowed P&G to build relatively new trademarks like Swiffer and Febreze into billion dollar brands and breathe new life into an older brand like Old Spice.
A portfolio with fewer, larger brands will definitely help P&G in their dealings with retailers. While their sales force already focuses more energy on their top products, each of these smaller brands still requires a significant baseline level of attention. Reallocating those resources to create larger opportunities with key retailers should pay big dividends, especially at a time when channel proliferation is adding another layer of complexity. Dollar Stores, Mass and Club retailers are looking to manufacturers for new pack types and product formats to differentiate their offerings from other channels.
While most small, low growth brands will be divested, there are several factors that could put bigger brands into play. P&G is a global company and trademarks that don’t travel well across multiple markets could be up for sale. Brands that fall outside of the top two of their category are under increasing pressure from private label and will be considered. This may include strategic brands that serve as flankers for their top brand like Cheer detergent or Luvs diapers. Ultimately, they will need to sell a few sizable brands to create the war chest that P&G will need for reinvestment.
The ultimate question is what will P&G do with the proceeds of this divestiture? Beyond the announced increased investment in larger brands, they will likely also look at strategic acquisitions that fill portfolio gaps or place them in high growth categories. P&G may also have another Febreze or Swiffer in their innovation pipeline and use some of the funds to launch a totally new brand that they believe has the potential to be their next $1 billion global brand