Can Procter & Gamble Defeat the Private Labels?

Last week The Wall Street Journal reported that Procter & Gamble (NYSE: PG  ) is launching a new marketing campaign that it's calling "Have you tried this yet?" The idea is to get North American consumers to try some of the new products that P&G has introduced over the past 18 months. The campaign is a part of the company's overall push to reinvigorate sales growth in its largest market.

For investors though, the focus on this particular region is a bit of a mixed bag. On the downside, the push is a glaring reminder that sales in North America have been challenged by consumers' growing interest in private label brands. Just last month, Sears Holding's (Nasdaq: SHLD  ) Kmart stores introduced the Smart Sense line of private label products, joining competitors like Target and Costco (Nasdaq: COST  ) which sell their Archer Farms and Kirkland brands, respectively.

And as the retailers increasingly smell blood -- and profits -- they're only doubling down on their private label efforts. Last month Kroger (NYSE: KR  ) , which already has a robust private label business, said that it's in the market to buy a plant that produces lower-cost private label goods.

This, of course, isn't just a problem for P&G, but for the whole band of branded consumer staples producers that also includes the likes of Clorox (NYSE: CLX  ) , Colgate-Palmolive (NYSE: CL  ) , and Kimberly Clark (NYSE: KMB  ) .

But it's not all bad for P&G and its ilk. Private label competition is nothing to shrug off, but if the recession has truly had a significant role in pushing consumers toward private label products, then they may relish the idea of trading back up to branded products when they're feeling a bit better about their financial situation.

Also, as The Journal article highlighted, though North America is already a highly penetrated market for P&G, small wins with loyal customers can definitely move the needle. An ongoing campaign called "Just One More" focuses on getting the 8% of North American households that already use 10 or 11 P&G products to use one additional company product. As the head P&G's North American market explained it: "If I got that same 8% of households to carry 11 to 12 P&G products, instead of 10 to 11, that's another $1 billion to $3 billion." Even for a company that's P&G's size, that ain't chump change.

For a global company like P&G, which has significant runway abroad -- The Journal notes that annual per-capita spending on P&G products in the U.S. is $100 versus $3 in China -- it seems like it might be tempting to ignore the core North American market in favor of the emerging regions. But with private label competition thriving in the tough economic times, it strikes me as pretty savvy that the company is focusing on not only defending its home market share, but also trying to expand its relationship with customers that already trust P&G brands.

Of course we won't see the impact of the latest campaign when P&G announces earnings on Wednesday, and it's unlikely that there will ever be any huge bump in financials from this or any other single campaign. However, over the long term, it's brand defending and building like this that will keep a solid foundation for future growth.

The shake-up from private label products isn't the only big change going on in the retail market. Click here and enter your email address to get a free report on the cash kings changing the face of retail.

Costco Wholesale is a Motley Fool Inside Value recommendation. Costco Wholesale is a Motley Fool Stock Advisor selection. Clorox, Kimberly Clark, and Procter & Gamble are Motley Fool Income Investor choices. The Fool owns shares of and has written covered calls on Procter & Gamble. The Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


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