Proctor & Gamble’s Fabric Care Business Hinges on Emerging Markets Growth

by Trefis Team
Procter & Gamble
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Proctor & Gamble (NYSE:PG) leads the global laundry detergent market with a share of around 30% as of 2009. [1] The market share has kept increasing consistently over the years led by acquisitions, aggressive marketing and constant innovation.

Under its fabric care business, P&G sells laundry detergent products like Tide, Gain and Ariel – each brand contributing above $1 billion in annual sales – as well as fabric softeners like Bounce and Downy, and bleach products. It competes with Unilever (NYSE:UL), Clorox (NYSE:CLX), and Colgate-Palmolive (NYSE:CL) in the fabric care market.

As consumer demand in developed markets like US and Europe is getting saturated, developing markets like Asia and Latin America will be key for P&G’s future growth prospects.

While we expect P&G’s share in the laundry market globally will hover around 32% in the coming years, Trefis members are confident that the share will reach 35% by 2016. We currently have a Trefis price estimate of $83.81 for Procter & Gamble’s stock, about 31% above the current market price of $64.05.

Shifting Demand from Developed to Developing Markets

Developed markets like the US, Western Europe and Japan, where P&G leads the laundry market, are witnessing saturated consumer demand and have relatively lower population growth rates, which means there is limited growth potential. In comparison, developing countries like India and China with their huge population size and rising middle class incomes are the key growth markets for P&G and other producers of home care products.

According to Euromonitor International, laundry care products accounted for 53% of the overall home care industry sales in 2009, with Asia and Latin America being the key drivers. The report also noted value declines from Spain, France, Germany and the US markets. [2]. P&G lowered its prices of diapers, shampoo and laundry products in India to gain share from market leader Unilever in 2009. Lowering of prices has increased P&G’s share in India to 6% in 2009 from 3.7% in 2004. [3]

Aggressive Marketing and Product Innovation are P&G’s Forte

The main reason for P&G’s market leadership in laundry products is its keen understanding of consumer needs and cultural orientations. P&G has created products such as Downy Single Rinse, a low-water volume detergent, for developing countries where consumers are conscious about water consumption.

The company recently started its Future Friendly campaign in the US to raise awareness about greener products and greener practices. As part of the campaign, P&G has set a target of selling $50 billion “sustainability driven” products by 2012. [4]

The Trefis community predicts that P&G’s global market share for laundry products will increase from 34% in 2010 to 35% by 2016, compared to the baseline Trefis estimate of around 32% during the same period, implying a small upside of 1% to the Trefis price estimate for P&G’s stock.

Our complete analysis for Procter & Gamble’s stock is here.

  1. Estimated based on data from the company’s annual report []
  2. Emerging markets light up a dark year for home care []
  3. P&G Profit May Top Analysts’ Estimates on India Gains []
  4. Behind Procter & Gamble’s Sustainability Vision []
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