There is a lot of talk about how oversaturated Western economies are with consumer goods and how it's tough for stalwarts like Procter & Gamble (NYSE: PG ) to grow their bottom line in these markets. It's every investor's dream to see a huge company like P&G be able to somehow grow its revenue in a developed market and in developing markets abroad. And yet, quietly, that's exactly what Procter & Gamble is doing.
How P&G is growing at home
Ten years ago, Tide was the most well-known laundry detergent. Today, it is still the most well-known laundry detergent. Not much has changed in those 10 years, except that P&G doubled Tide's annual revenue. Keep in mind this is a nearly 60-year-old laundry detergent we're talking about.
How does something like this happen? Part of the reason is that Procter & Gamble takes innovation very seriously. It spends $2 billion a year on research and development, almost 50% more than its closest competition. For perspective, Clorox (NYSE: CLX ) spent $119 million in 2010, Colgate-Palmolive (NYSE: CL ) threw down $256 million, and Church and Dwight (NYSE: CHD ) paid out $54 million. And the P&G number doesn't even include the $400 million it spends on consumer research! The company runs 20,000 studies in close to 100 countries every year. If there's an idea out there, P&G will find it.
Take Tide Dry Cleaners, for example. Hoping to capitalize on that solid Tide brand, P&G opened a dry cleaning operation outside of Kansas City. The result for the pilot store was $1 million in annual sales, almost four times the industry average. Not bad, Tide.
Meanwhile, abroad...
Obviously, doing business in the developing world calls for a different model. Though many will try, it takes a special company to be strong enough and smart enough to succeed in both markets.
Procter & Gamble has been criticized for its approach to India, a country where consumer goods foe Unilever (NYSE: UL ) completely dominates the industry and where companies like Kraft (NYSE: KFT ) have seen recent growth as high as 40% for some of its brands. Procter & Gamble has revenue of about $1 billion in India, and critics are quick to point out that P&G generates more revenue ($5 billion) and invests more money ($1 billion over the next five years) in China and that the company is wasting a great opportunity in India.
To investors' delight, P&G has set ambitious goals in India, planning to double the number of Indians who use its products and quadruple net sales over the next four years. P&G has consistently grown sales in India by 20% annually, but this still seems like an ambitious goal. To achieve it, the company plans to focus on distribution. Right now, Unilever reaches 1.6 million outlets, while Procter & Gamble only reaches 1.3 million. By pushing its products deep into rural villages and stepping up community-led programs, P&G hopes to increase brand awareness and thereby increase sales.
Bottom line
We all know companies can say whatever they want, but what they actually do, on the other hand, is another story. Procter & Gamble's history of success and its commitment to R&D are two reasons that give me faith the company will continue to perform domestically and be able to reach its goals in India and in other developing markets.
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