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Procter & Gamble Co. — the largest advertiser in the world, having spent $8.7 billion in fiscal 2008 — has a lump of coal for Madison Avenue and the entire media industry.
Standing in the The Times Center, home of The New York Times, P&G’s chairman and chief executive officer A.G. Lafley told analysts on Thursday, “This media environment is a big ‘O’ opportunity for us, because we’re the biggest advertiser in a lot of these countries, and we can just walk in and tear up the contract.”
He added, “Everything is getting renegotiated, and we’d like to get ahead of the curve as commodity and energy costs come down.”
The gloomy declaration — at least for the media — from the otherwise sunny and upbeat ceo, elicited nervous chatter among those in the press section at the company’s 2008 analyst meeting.
P&G’s muscle-flexing on the media front ties into the firm’s heightened focus on increasing productivity and driving out costs at a faster clip.
For instance, to free up investment dollars to grow its consumer health care business, which includes brands like Vicks, Metamucil and Pepto Bismol, Lafley said P&G has halted new pharmaceutical development.
The company also continues to tweak its portfolio to further maximize its core capabilities and shift to higher margin businesses. Over the last two years, in the beauty space, P&G acquired DDF, Fekkai and Nioxin, boosting its profile upmarket. As P&G has worked to fortify its position in the mass market and blaze a trail into prestige, the company’s beauty and grooming sales have rocketed to $28 billion in 2008, up from $9 billion in 2003.
Despite the heavy, gray clouds hovering outside and over the beleaguered economy, Lafley drove his comments with optimism.
“Brands matter most when every dollar counts,” he told analysts, referring to the firm’s arsenal of 23 billion-dollar brands.
Reiterating P&G’s trade-up pricing strategy, particularly in developing markets where the company said it has yet to court higher income consumers, Lafley said, “The purchase outlay is modest. We’re not talking about trading up from a Chevrolet to a Mercedes. We are talking moving from two pennies per use to four pennies, then from four pennies to seven cents a use.”
With consumption in many retail channels trending downward, Lafley reminded analysts that P&G has the tools needed to boost consumer spending.
“We’ve found if we run a program that is targeted specifically at lifting consumption, we can do it,” said Lafley. “We’re just scratching the surface.”
But in this environment, no company is immune to consumers’ steely sense of practicality. P&G reiterated its long-term organic growth range of 4 to 6 percent, but acknowledged its second-quarter organic sales will fall below that long-held rate.
Despite his upbeat demeanor, Lafley said the company will operate with greater discipline, more scrutiny and intensified expectations on return on investment.
Lafley, 61, said, “The best companies grow market share profitably.”
Asked by an analyst about his retirement plans, Lafley said, “We have a great team and a great business. We’re going to stay together. We have a lot left to do.” He added, “We have a ton of opportunity in this industry. I think there is tremendous upside, and I want to be part of it.”