A.G. Lafley used The Procter & Gamble Co.’s annual meeting Tuesday to both rally the troops and deliver some straight talk from Cincinnati.
The chairman and chief executive officer, who retook the helm at P&G last year, is in the midst of a dramatic effort to refocus the company by cutting its brand portfolio in half.
That’s a massive restructuring under any circumstances, and P&G is also contending with what Lafley described as “a period of economic slowdown in the world.”
“There is no doubt that we are in a stretch of volatile and uncertain political and economic times,” Lafley said, noting that he has regular meetings on hot spots such as Venezuela and the Ukraine. The outlook for weakening currencies is also a topic of constant discussion.
But Lafley reminded investors P&G has increased its dividend payment for 58 straight years and hit its own financial targets last year, although he was also careful to acknowledge that more can be done.
“We need to continue to get closer to consumers and shoppers, to understand their needs, better make sure our brands and products are really preferred,” Lafley told shareholders at the meeting, which was Webcast. He said P&G would do more to play to its core strengths, focusing on about a dozen businesses in four industry sectors, although he offered no updates on which businesses were staying and which were leaving.
In August, Lafley laid out his plan to cut 80 to 90 of the company’s 160 brands. P&G’s portfolio includes Pantene, Head & Shoulders, Herbal Essences, Vidal Sassoon, Old Spice and others.
During the question-and-answer session, one shareholder worried that P&G might hold a “fire sale” and that the idea of cutting brands appeared to have been first proposed by a Wall Street analyst.
“You can sell off parts of an automobile and make money, however you don’t have a functioning automobile anymore,” the investor said.
Lafley countered that, “The core brands we keep have the potential to grow sales a little bit faster and deliver value creation.”
He also noted that P&G has stood the test of time because “we have been willing to change the mix of business and brands and product lines that we’re in to follow the changing needs and wants of our consumers. That’s the real intent here. This is not a fire sale.”
Lafley also noted: “This is not about being big, it is about being better, best. We’ll create a faster-growing, more profitable company that is far simpler to manage.”
In addition to selling off brands, brand building functions will be consolidated and the firm’s supply chain will be rejiggered in order to be closer and more responsive to consumers.
A focus on productivity will be made “systemic,” he said.
“Over the next 18 to 24 months, we will be creating a new P&G,” Lafley said. “The new P&G will grow sales faster and more sustainably and create value, sales, profit and cash growth more reliably.”