Many global consumer-goods giants like Unilever (NYSE:UL), Procter & Gamble (NYSE:PG), and Colgate-Palmolive (NYSE:CL) have been relying on emerging markets to drive their business growth. However, the emerging markets have recently signaled a slowdown, forcing all three companies to find more internal solutions to enhance their operating performance and profitability. The common theme has been to focus on cost-saving initiatives for lower costs and higher efficiency.
Unilever aims to save more in advertising and promotional expenses
Unilever targeted its cost-savings initiatives by enhancing gross margin, improving returns on marketing investments, and reducing overhead. In the near future, Unilever will trim the marketing headcount by 12% worldwide, or more than 800 jobs, especially in the U.S. To further cut back agency and commercial production expenses, the company is going to reduce the SKUs (stock keeping units) by as much as 30% by the end of 2014.
During the past three years, Unilever reduced its non-working media, which is the cost of production, promotions, and fees to ad agencies, from 32% of total advertising and promotion (A&P) spending expenses in 2010 to 24% in 2013. In the long run, Unilever expected this non-working media would account for only 20% of the total company's A&P. Most of its media-spending savings would be from doing fewer but bigger marketing and promotional activities with higher quality and a greater impact to consumers. By next year, CEO Paul Polman set the target of saving as much as €500 million ($683 million), including job cuts, supply chain improvement, and other process efficiencies.
Procter & Gamble is on track for its $10 billion savings program
Procter & Gamble has also planned for significant cost reductions since the beginning of 2012. It has set out to save as much as $10 billion in the period of 2012-2016. A $10 billion cost-savings package includes $6 billion in cost of goods sold, $3 billion in overhead expenses, and $1 billion in marketing spending. The company seems to be on track for its huge cost-savings program--so far, the total savings has amounted to $1 billion for the past two years.
Moreover, according to a Bloomberg report, Procter & Gamble was thinking about merging its Western European unit with the Central and Eastern European businesses. The Indian unit would also be merged with the Middle East and Africa businesses. The geographic business restructure would help the company enhance sales growth and reduce costs further to improve the overall profitability and cash flow.
Colgate-Palmolive also invests to save more operating costs
Following Unilever and Procter & Gamble, Colgate-Palmolive has stepped up to implement its four-year restructuring program to fight back the slowing global economy. It announced it will reduce its global workforce by 6%, or around 2,300 jobs, improve the supply chain, and take advantage of global data and analytic capabilities.
Moreover, Colgate-Palmolive could also generate significant savings by decreasing packaging material and enhancing manufacturing efficiency with the reduction in the number of SKUs. While the global restructuring program could cost Colgate-Palmolive around $1.1 to $1.2 billion, the company expects a three to four year cash payback, with the targeted after-tax rate of return of more than 30%.
My Foolish take
By realizing the global economy slowdown, especially in the emerging markets, Unilever, Procter & Gamble, and Colgate-Palmolive have turned their focus on initiating more savings and operational efficiency. In the long run, all of those three businesses, with their global leading positions and the improvement in operating performances, driven by these savings initiatives could deliver sweet returns for their shareholders.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever. 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. The Motley Fool has a disclosure policy.