Colgate-Palmolive (NYSE:CL), the global leader in oral care, has managed consistent year-on-year growth over the past few quarters, a commendable feat considering the current hostile global economic environment. Although the nature of its products make the company relatively recession-proof, an effective business strategy has also played a large part in its solid performance. The company manufactures and sells oral care, personal care, home care and pet nutrition products.
Advertising and product innovation have formed the base of the company’s business strategy, which has enabled it to maintain its status as the global market leader in oral care over the years while proving a formidable competitor to the much larger FMCGs such as Unilever (LON:UL) and Procter & Gamble (NYSE:PG) in the personal care and home care domains.
Advertising Drives Top-Line Growth
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The company has a strong brand portfolio which includes Colgate, Palmolive, Softsoap, Irish Spring and Hill’s. One of the core tenets of its strategy is to build these brands through advertising and marketing efforts.
Advertising expenses for the first half of 2012 stood at around $900 million, an increase of almost 11% since the first half of 2010. This played a large part in the 11% increase in net sales during the same period. Furthermore, Colgate’s market shares in the global toothpaste and manual toothbrush markets reached record highs of around 45% and 33%, respectively, as of the most recent quarter.
Innovation Captures Market Share and Allows for Higher Pricing
The company also looks at product innovation as a key strategy to drive growth. It has developed innovative products such as the Colgate Enamel Optic White range in oral care, Softsoap Citrus Splash handwash in personal care, and Palmolive Fresh Infusions dish liquid in home care, which have helped drive the company’s market share growth in these segments. Further, the unique features of these products allow for higher pricing, which favorably impacts margins.
Emerging Markets Contributing Progressively Larger Share of Revenues
Emerging markets now make up over half of Colgate’s annual sales. The company made inroads into these markets earlier than its competitors and has established itself as a key player through various strategies including advertising and marketing efforts, product placement in stores, innovation and packaging.
Sales in the Latin America and Greater Asia/Africa regions, which constitute the majority of Colgate’s emerging market operations, made up around 48% of its total sales in 2011, compared to 45% in 2009. Revenue growth in these markets has been primarily driven by volume growth in countries like India and China.
We currently have a Trefis price estimate of $105 for Colgate-Palmolive, which is in-line with the market price.