By and  on August 12, 2011

Bob McDonald wants seven billion customers.

As the leader of the multibillion-dollar consumer products giant Procter & Gamble Co., McDonald has the world within his reach. And his goal is as immense and vast as P&G’s $82.56 billion global business: Convert every person on the planet into a customer, and get every one of the firm’s categories into every country.

His sights are set on the developing world, where razors and shampoo are not commodities but aspirational luxuries.

“There’s no question that 30 years from now, when people look back at this moment in time they are going to ask, ‘Did the [P&G] leadership team properly move the center of gravity of the company more toward Asia and Africa where the babies are being born, or in this country to the Hispanic population, or in the Middle East to the Islamic population?” said McDonald, P&G’s chairman, president and chief executive officer, during an exclusive interview.

He also wants current customers to spend more.

“The average American spends roughly $100 on P&G products every year [across 35 product categories in the U.S.]. In China — where we are the number-one consumer goods company and do $5 billion in sales, over half of which is beauty — the average Chinese consumer spends less than $3 a year on P&G products across 15 categories. You can see the tremendous opportunity,” he said. McDonald ultimately sees Chinese customers spending much more per head on P&G products.

When it comes to beauty, the company said the average U.S. household spends $270 a year on female beauty products in general across all distribution channels, with $66 of that total dedicated to P&G beauty products, and $290 on beauty and grooming for women’s and men’s products combined, with $81 spent on P&G items.

McDonald, who like most P&G executives deftly rattles off P&G-centric figures and statistics, said the firm’s growth hinges on selling more of its 38 product categories in more parts of the world. The Cincinnati-based company currently sells an average of 19 product categories in 180 countries where it does business. “By the end of 2015, we want to have 25 categories on average. Many of those are beauty categories,” he said.

The company already is in hot pursuit of this strategy. In fiscal 2011, P&G expanded Olay to 16 countries, including Brazil and South Korea. “If you look at the previous five years, we wouldn’t have done five countries,” he said.

The big global milestones for 2011 include Pantene becoming a $1 billion brand in Asia alone, and P&G becoming the number-one hair company in Japan.

For P&G — a company known for peeking into consumers’ medicine cabinets — selling to more people means building relationships. “We came up with our purpose-inspired growth strategy, where we want to touch and improve the lives of more consumers in more parts of the world more completely,” said McDonald.

In fact, the phrase “touch and improve lives” is seamlessly — and often — interwoven into McDonald’s language, and is one of the most heavily used phrases in the company’s vernacular by many of its top guns. It also translates into a quantitative goal: Reach a total of five billion consumers by 2015 — and then go to reach the world’s seven billion inhabitants.

When McDonald took the helm from his predecessor, A.G. Lafley, in 2009, P&G counted 3.8 billion people as customers. Today, 4.4 billion consumers buy P&G products, ranging from diapers to high-end skin care.

Much of P&G’s growth plan focuses on growing brands vertically into more price tiers, and horizontally into more category opportunities. As McDonald sees it, growing vertically — meaning one can buy Olay Complete moisturizer for $6 or Olay Pro-X firming cream for $45 — will grow share. Tackling adjacent categories, a given in beauty, is key to horizontal growth. P&G’s move in this direction includes Dolce & Gabbana’s reach into color cosmetics from fine fragrance (see related story on page 6), and Olay’s recent entry into acne and depilatories.

Gina Drosos, group president, Global Female Beauty, explained that P&G’s drive to enter new countries with new categories is a “very deliberate and strategic process.” P&G’s advantage, she said, is “we have more breadth across a woman’s regimen and we can serve more needs from head to toe. So we try to leverage that. Getting more categories into new markets.”

For all of P&G’s might and success in the beauty industry, a number of Wall Street analysts say they’re growing increasingly impatient as they wait for the consumer products giant to jump-start more aggressive growth in the category. For the three-month period ended June 30, the company’s most recently reported quarter, P&G’s organic sales in the beauty division gained 3 percent and grooming’s organic sales ticked up 1 percent. The two categories were outpaced by health care, which grew 7 percent; fabric and home care, up 4 percent, and baby and family care, up 10 percent. Snack and pet care declined 1 percent.

Further raising eyebrows was a string of management changes earlier this year, precipitated by a number of executives vacating key beauty and grooming posts. At least five beauty executives have left the company so far in 2011.

P&G has emerged from the changes with a leaner organizational structure, an outcome McDonald views as a positive one.

That said, the departure of Ed Shirley — who was vice chairman of Beauty & Grooming and seen as a rising star within the company as the chief architect of P&G’s “him” and “her” beauty strategy — rattled some industry observers, who suggested McDonald was under growing pressure to fix the beauty business.

As of July 1, Shirley’s role has been overseen by Dimitri Panayotopoulos, the former vice chairman of Global Household Care, who as part of the changes was named vice chairman, Global Business Units. “The leadership turn is nothing to sneeze at,” said Deutsche Bank analyst Bill Schmitz. “P&G has lots of opportunity and an amazing geographic footprint. But I’d love to see someone take accountability for the beauty business and stick his [or her] neck on the line.”

He suggested should the company decide to appoint Drosos as the head of beauty, it would signal that “P&G is serious about beauty.”

RBC Capital analyst Jason Gere approved of P&G’s move to flatten the organization with one exception. “For beauty, you need the right reinforcement. You have to have a seasoned and focused executive there,” he said. “There’s been a lot of change over at P&G. It feels like this is one business where P&G hasn’t figured out the right recipe for success.”

McDonald sees the changes as part of the normal ebb and flow of a large corporation.

Referring to Shirley’s departure, he said, “Ed wanted to retire and we supported that. He contributed greatly to this company. He is a good friend. And we felt like this was an opportunity once Ed made that decision to flatten the organization.…It used to be beauty was a division of P&G.” He notes that if you include segments such as oral care and feminine care within beauty and grooming, the business accounts for nearly 50 percent of P&G’s sales, saying, “So why wouldn’t I want to be more engaged in 50 percent of the company?”

He added, “Since I became ceo, what I have been trying to do is flatten the organization and simplify the way we work. We have gone from seven layers to five. We now have 50 percent fewer vice chairs and vice presidents and 15 percent fewer directors.”

McDonald emphasized the current structure, namely the “him” and “her” beauty set up, as appropriate for the moment. “I can’t predict what P&G’s structure will look like in the future, but I can predict it will change,” he said. “I tell young people in the organization about the importance of having a purpose in life and not to make it as narrow as being in a [certain] position at P&G because by the time you’re ready for it, we will have reorganized and the position won’t exist anymore.”

When asked if P&G plans to name a new head of beauty, McDonald chuckled, “Who is the leader of the beauty business? Well, the ceo of the company is the leader of the beauty business. You can’t delegate that big a piece of the business.”

Stifel Nicolaus analyst Mark Astrachan said, “The whole leadership team is talking about how wellness and beauty is a priority,” adding it’s a message that helps to assuage investor concerns. “This is a category you should keep your focus on.”

In fact, analysts have said P&G often refers to beauty as “the path of least resistance for growth.”

For McDonald, a graduate of the U.S. Military Academy at West Point and a former U.S. army captain, years of globe-trotting have informed his international world view, particularly about beauty. The ceo, who was born in Gary, Ind., left his small-town roots behind during his time in the military, which took him to Belgium, France and Panama. He left the army in 1980, taking a job with P&G. The company’s growing interests overseas led him to take posts in Canada, the Philippines, Japan and Belgium. McDonald, who speaks four languages — English, Japanese, French and a bit of Filipino (or Tagalog) — says his two adult children, Jennifer and Robert, didn’t attend school in the U.S. until college.

He is teeming with anecdotes from his years spent abroad and, despite the demands of the corner office, is an avid student of history. In fact, he said he was about 300 pages into Ron Chernow’s biography on George Washington, called “Washington: A Life.”

“I didn’t want to read it,” he admitted. “I felt like I knew everything there was to know about George Washington. Boy, was that a mistake. It’s a great book.”

Asked about his take on Washington’s military success, which some have questioned, McDonald said, “He lost a large number of battles. He ended up winning the war, so it’s hard to discredit him. But the thing that impressed me the most about him is the way he learned. He never made the same mistake twice. One of the things I teach employees and the groups I teach to is the single biggest thing that differentiates those who succeed are those who are continually learning.”

During the decade he spent in Asia, McDonald developed a fondness for the beauty category. “I spent nearly five years of my life running the hair care business, from 1991 to 1995, at a time when we created Vidal Sassoon in the red bottle,” he said.

It may be fortuitous that hair care is P&G’s largest beauty category (while the industry’s is skin care), since McDonald was on the team in Asia that helped launch Pantene in the Nineties.

“I remember Pantene when it was a $50 million brand with a gold cap and a group of people I worked with in Taiwan and Japan came together and created something unique. What we figured out is that every woman in the world thought her hair was damaged — that wasn’t new news really — and we figured out a formula that made the hair healthy, but the key was to be able to show the difference in shine,” he said.

Hair, one the most marketing sensitive categories, McDonald said, is of course driven by technology, but new ideas are what can change the course of a hair brand.

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