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It's no secret that Procter & Gamble faces serious challenges. The owner of the ubiquitous Tide, Gillette, and Olay consumer brands has reported declining volume on the heels of price increases, and management expects fiscal 2010 earnings to be flat or slightly up as it invests in rebuilding market share. Given the shaky economy and uncertain consumer habits, there's reason for caution in that situation alone, but what really has me concerned is the company's official launch of Mr. Clean Car Wash and Oil Change, a questionable venture that's been in the works for years.
Operated through P&G's franchising subsidiary Agile Pursuits Franchising, 13 Mr. Clean locations opened on July 1st in the Atlanta area. I don’t see anything particularly nimble in this move; frankly, I think it's borderline gimmicky. Unlike Clorox's
Moreover, the car-wash business is no slam-dunk: Challenges include inconsistent cash flow and potentially unfriendly municipal regulations. Bruce Arnett Sr., founder of the Carnett's Car Wash chain, which was acquired by P&G, was quoted in 2007 as saying, "A car wash is far more complex than anyone thought … It’s underestimated by even the smartest executives.”
Failed growth initiatives in P&G's past include the decades-long struggle to commercialize fat substitute olestra, and an aborted joint venture with Coca-Cola
Sure, my sense of doubt about P&G could be misplaced. Maybe the company will achieve operational synergies by offering free samples of the next Gillette razor with every second wash at Mr. Clean. (A nine-bladed Mach 50, anyone?) But in all seriousness, if the corporate thinking that motivated the car-wash acquisition continues to dominate strategy going forward, shareholders could be disappointed with the results produced by the coming period of brand-building. Meanwhile, smaller rival companies with more moderately priced brands, such as Church & Dwight
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Procter & Gamble and Coca-Cola are Motley Fool Income Investor recommendations. The Coca-Cola Company is an Inside Value recommendation. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days.