P&G’s Delay Increases Risk for Tide Pods Launch

Procter & Gamble (NYSE:PG), the world leading consumer goods giant has decided to postpone the launch of Tide Pods liquid laundry tablets from September to early 2012 on grounds of supply constraints to meet the strong demand forecast projected for what the company believes to be biggest innovation in laundry in decades. ^[1] P&G competes with other leading personal and homecare players such as Unilever (NYSE:UL), Colgate-Palmolive (NYSE:CL) and Kimberly-Clark (NYSE:KMB).

We value P&G with a $68.41 Trefis price estimate of its stock, at roughly 5-10% premium to its current market price.

Why Tide Pods was delayed & our concerns

A mega launch such as the one planned for Tide Pods warrants heavy marketing and advertising spending. But a huge $150 million marketing budget allocated for Tide Pods’ launch could be a waste if it could not meet the potential demand, which is  one of the reasons the company cited for the delay.

In the very competitive fabric care market any delay in what is believed to be a ‘breakthrough’ launch gives competition a window to respond with a similar product launch. Henkel and Unilever already sell similar highly condensed liquid-filled laundry tablets in Western Europe. Water-soluble tablets for dishwashers that can be easily adapted for laundry products also already exist. So the concern is that competition can catch up with P&G’s launch in no time and in fact benefit from the demand for laundry tablets stirred by P&G’s marketing spend.

Most of P&G’s competition such as Unilever has a January-December fiscal year and is armed with fresh advertising budget in the beginning of the year. P&G on the other hand operates on a July-June fiscal. By depleting marketing budgets towards the beginning of the calendar year along with other new launches normally scheduled around that time of the year, P&G’s resources can be expected to be thinly spread.

Building up significant production capacity ahead of a new and completely different product launch exposes the company to that much more risk as opposed to scaling up supply gradually in line with increasing demand, which limits the downside if the consumers do not respond favorably to the product.

View our detailed analysis for Procter & Gamble

1. P&G Delays Tide Pods Launch Until 2012, Citing Heavy Demand Forecasts, Advertising Age, May 26’ 2011 [↩]