P&G’s Japan Efforts Can Help Grow its Asian Business

Consumer and personal care giant Procter & Gamble (NYSE:PG) won’t be impacted longer-term from a drop in demand following Japan’s earthquakes given the company’s size and how much Japan contributes to its overall business. Smaller beauty and consumer focused companies like Revlon (NYSE:UL) and L’Oreal (PINK:LRLCY) could be impacted more that larger conglomerates Colgate (NYSE:CL) and Unilever Group (NYSE:UL). We currently value Procter & Gamble with a $75.25 Trefis price estimate of its stock, which is around 20% ahead of the market price.

Plants are Operational, Locals Suppliers/ Distributors Uncertain

P&G’s fabric care plant in Takasaki, which was closed briefly as a precautionary measure is now running again along with P&G’s other two plants in Japan which did not suffer any damage. P&G’s 4,000-plus employees have also been reported sage ^[1]. So, P&G’s manufacturing base in Japan is well intact.

However, we still do not rule out impact on the supply network, which shall depend on how P&G’s local suppliers and customers have been affected. Even if the supply of raw material were routed from neighboring countries, where again P&G has a strong manufacturing footprint, the erosion on gross margins due to increased logistics and duties cannot be ignored.

Impact on Demand Side

Asia, including its growth engines, China and India, accounts for 15% of P&G’s global revenues of around $80 billion. While China and India, have clearly been P&G’s focus as it embarked on its ambitious goal of acquiring one billion additional consumers by 2014-15, Japan never lost its prominence in P&G’s portfolio and in fact doubled P&G’s sales in the past decade!

The northern part of Japan has been severely impacted and while we do not see consumers doing away with necessities such as toiletries and personal care products, the damaged distribution network could notably reduce sales in the near term.

Window of Opportunity

While the world offers aid to the people of Japan, P&G could well use its mission of Touching Lives and Improving Life to not just extend a helping hand but increase its presence in Japan. P&G is already donating $1.2 million, partly in the form of its products such as diapers, hair and skin care and feminine care. Heavily discounting its products through promotions in Japan at this point could go a long way in gaining market share.

See our full analysis for P&G.

1. P&G says japan employee safe plants operating, CNBC, March 14′ 2011 [↩]