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P&G, Avon Talk Beauty Turnarounds at Deutsche Bank Conference

Executives from both companies addressed their underperforming beauty activities at the annual Paris investor event.

PARIS — Several weeks after announcing a major shake-up in its top management, Procter & Gamble Co. addressed concerns about its underperforming beauty business on Wednesday at Deutsche Bank’s 10th Annual Consumer Conference here.

“If we were growing our beauty business at the rate of the category growth, we would be adding a point to our top-line growth on a total company basis every quarter. Olay and Pantene today comprise about 80 percent of that point, so…that’s clearly where the focus needs to be,” P&G’s chief financial officer Jon Moeller told attendees.

He added, “Pantene and Olay are losing share. They’re underperforming.…We need the right innovation.”

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P&G, which saw beauty sales decline 2 percent to $4.8 billion in the quarter ended March 31, has introduced several innovations over the past 12 months, including the higher-end Pantene Expert Collection, which is currently being rolled out in 65 countries, and Olay Fresh Effects for younger consumers, as well as addressing the midtier segment in which its competitors — including L’Oréal and Unilever — have a stronger position.

P&G has also been transferring part of its media spend to digital, which offers higher returns and frees up greater budgets for innovation, Moeller said.

The Pantene and Olay brands account for $5 billion in annual sales, or approximately 25 percent of the group’s beauty revenues, hence the importance of turning them around, Moeller added.

“We’re continuing to bring products to market,” he said, declining to give details of the company’s upcoming innovation pipeline. “It’s early days, so I wouldn’t say the [market] share needle has moved yet, but it should follow.”

Innovation was also a buzzword in Avon chief financial officer Kimberly Ross’ presentation later in the day. It was the first time in five years the ailing direct-sales firm had presented at the conference.

In skin care particularly, in which Avon claims to be the third-largest global player, Ross said that innovation would be an avenue for growth.

“Innovation has not been incremental,” she said, bemoaning the fact that the company had lost its leading position in antiagers, which it held via the Anew brand as recently as 2006.

“We’re underdeveloped in mass moisturizers and cleansers,” she added, saying that initiatives in the segment would be to win back the company’s antiaging leadership and target the mass-market category, as well as better train its representatives to sell the advice-dependent skin-care category.

Company-wide, Ross highlighted that one of the firm’s failings in recent years had been a one-size-fits-all approach, and that increasingly power was being given back to local operations to “really deliver relevant products to the local market,” all the while maintaining a consistent global brand image.

Since chief executive officer Sheri McCoy joined the company to initiate its turnaround last year, regional heads have begun reporting directly to her for a more hands-on approach, Ross explained.

In Russia, for example, the locally developed Natural Botanicals line, launched a month ago, has seen sales 200 percent above expectations since its introduction, said John Higson, Avon’s senior vice president and president, Europe, Middle East and Africa.

“Getting the right product and merchandising techniques is really paying off,” he said.

Avon’s turnaround “is not linear. It is country by country, and each has its own starting point,” Higson added.

Avon does 75 percent of its business in developing markets.

Despite signs of overall improvement in fourth-quarter 2012 and the first quarter of 2013, Ross continued, “We have a lot of work to do yet, and there may be bumps on the road… We are confident we can restore Avon to its rightful position.”

She reiterated the company’s previously announced 2016 targets of constant-dollar revenue growth in the midsingle digits and double-digit margin growth.

As reported, in the first quarter of this year Avon’s net revenues declined 3.9 percent to $2.48 billion. The company saw a net loss of $13.7 million, compared with net income of $26.5 million in the prior-year quarter.