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P&G Chief Targets Emerging Markets

P&G's Bob McDonald said emerging markets, such as India and Mexico, are a key future growth driver for the firm during his first annual meeting of shareholders.

Bob McDonald, Procter & Gamble Co.’s president and chief executive officer, said emerging markets are a key future growth driver for the firm during his first annual meeting of shareholders as ceo Tuesday morning.

This story first appeared in the October 14, 2009 issue of WWD.  Subscribe Today.

McDonald, who took the helm of the Cincinnati-based consumer products giant on July 1 when former ceo A.G. Lafley assumed the role of chairman, identified markets such as China, India and Mexico and reaching “underserved consumers around the world” as focus areas.

“We summed up this strategy in a very simple phrase,” McDonald told shareholders. “‘Touching and improving more consumer lives in more parts of the world more completely.’

“Right now we’re touching about four billion people around the world with our products and services [and], over the next five years, we want to add another billion consumers to that,” he said. “A good number of these people will be in developing markets. We’re calling our new strategy ‘purpose-inspired growth.’”

Globally, the average consumer spends $12 a year on P&G products, noted McDonald, who said he would like to see that number at $14 by 2015. In Mexico, the average consumer spends $20 a year on P&G; in China, where P&G is in 12 product categories, that number is $3, and in India, it is less than $1. (By comparison, in the U.S., where P&G is in about 25 product categories, the average American spends $100 a year on P&G products.)

“If we only took China and India and got [spending on P&G products] up to the level of Mexico at $20 a year, that would add 50 percent more sales to our business, another $40 billion,” he said. “The potential for growth is amazing.”

To reach these consumers, he said, the firm must have “a full portfolio of products” that ranges from superpremium-priced items, such as Olay Professional beauty care items, “all the way down to lower-priced products that are in the value tier.” The firm is expanding “value tier” offerings in its top 17 countries to fill out its portfolio of products, according to McDonald.

The mantra for the firm’s transition under McDonald is “continuity with change,” he said. This means preserving and building the firm’s core businesses like “leading global brands, billion-dollar brands and half-billion-dollar brands.” It also means focusing on “our five core strengths: consumer understanding, innovation, brand building, go-to-market capability and global scale.”

Lafley kicked off the meeting, saying that to support future growth, P&G plans to add 20 new manufacturing facilities worldwide over the next five years, including a new family care plant in Utah. The firm is also renovating its South Boston Gillette facility to collocate its commercial shaving operations, manufacturing operations and a new global shaving innovation center in one place all together.

These and other projects represent an investment of $1 billion in capital in the U.S., said Lafley.

Additionally, he noted that Ed Shirley was named vice chair for beauty and grooming in the past year, joining a “leadership team that will guide the company into the next decade.”

Looking back, Lafley said, “Fiscal year 2009 [ended June 30] was tough by any measure. It was probably the toughest year P&G has faced since World War II and perhaps since the Great Depression.

“Oil reached an all-time high of $147 a barrel and commodity and energy costs increased by about $2 billion — on top of more than a $1 billion increase in the prior fiscal year. Foreign exchange rates moved dramatically against us, negatively impacting sales by about $4 billion and profit by more than $1 billion.

“Despite all these difficulties,” he added, “the company was still able to grow.”

McDonald noted that during the last nine years, under Lafley’s leadership, the former ceo focused the firm on “faster growing businesses like beauty and health.” McDonald also said P&G more than doubled its sales during Lafley’s tenure.

The company ended fiscal 2009 with revenues of $79 billion.