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Procter & Gamble Beauty: Company Profile

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P&G Beauty is the unit within Procter & Gamble which manages what was until recently a substantial portfolio of cosmetics, haircare and fragrance products. It is still a big business, but a huge chunk of the division was divested in 2016 to rival Coty. Only 11 of the biggest brands remain, including billion-dollar sellers Pantene, Head & Shoulders and Olay. The group's collection of male products is led by the rejuvenated Old Spice brand, subject of one of the most talked-about (and imitated) marketing campaigns in recent years. The sell-off to Coty represented a major retreat for P&G. Following a series of acquisitions, P&G had been pressing hard on the heels of market leader L'Oreal in both beauty products and fragrances by the late 2000s. However, the business stumbled after 2010 as sales and market share growth of multiple key products stalled or even declined. At the same time, L'Oreal strengthened its lead, while a string of purchases by Unilever had pushed P&G back into 3rd place again by 2013. Fixing those problems became the single most most important goal for reinstated group CEO AG Lafley. However, with no significant turnaround after two years, Lafley adopted a new strategy. In 2015, P&G agreed to sell around a quarter of its beauty business, including CoverGirl, Clairol, Wella and the fragrance business to Coty. That deal completed in Oct 2016. See also: Pantene, Olay and Old Spice.

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Competitors

The group's principal global beauty competitors are L'Oreal in hair care, and Unilever and Beiersdorf in cleansing, deodorants and haircare. See Personal Care Sector for other companies.

Brands & Activities

Beauty had been P&G's key growth market for almost three decades since the 1980s. By 2010, the business covered multiple sectors including consumer hair care; professional hair care; cosmetics & colourants; skincare, personal cleansing & deodorants; and prestige fragrance products. A key development, initiated in the mid 2000s, had been the push into premium products, with several brands repositioned or extended to occupy higher price brackets. However, after several years of strong growth, performance stalled after 2010 as a result of stronger competition from global rivals L'Oreal and Unilever.

In July 2015, P&G confirmed a plan to sell around 25% of its beauty business to rival Coty for a total of around $12.5bn. Brands divested included CoverGirl and Max Factor cosmetics, the entire P&G Prestige fragrance business, Clairol consumer hair colourants and the Wella salon professional division. Completion took place in Oct 2016.

Even after that sale P&G remains the global market leader in consumer haircare, with around 20% share. Hair care accounted for 10% of group sales in the year to 2017, or around $6.5bn. The group has accumulated a strong portfolio, led by Pantene, the world's best-selling haircare brand with sales estimated by Euromonitor & Sanford Bernstein at $3.8bn in 2013. Close behind is Head & Shoulders (or H&S as it is known in Asia), the #2 haircare brand worldwide and #1 shampoo, with sales now around $2.6bn. Originally marketed as a medicated anti-dandruff treatment it has evolved into a mass-market product with a strong male as well as female following. Head & Shoulders cemented its male marketing in the US with sponsor partnerships with the NFL and MLB, as well as brand ambassadors including football player Troy Polamalu, catcher Joe Mauer, and to tie in with the Olympics in 2012, swimmer Michael Phelps.

The acquisition in 2001 of hair colouring brand Clairol brought with it subsidiary shampoo Herbal Essences. (Combined sales of approx $1.5bn in 2013). Sitting behind these is a collection of regional jewels, strong in selected individual territories, but with a less extensive global footprint. One of the biggest is the Aussie range, sold mainly in Western markets (sales of approx $190m). The group's top haircare brand in Asia is Rejoice, the best-seller in China for more than 20 years. (Sales of approx $862m in 2013).

Several other brands have been discontinued or divested. Daily Defense, acquired as part of the Clairol portfolio, was dropped in 2005. Once the group's top-selling shampoo back in the 1980s, value-priced Pert Plus was sold in 2006 and Infusium in 2009. (Both are now owned in the US by Helen of Troy Inc). However the most significant divestments were the sale to Coty of the Clairol colourants range and Wella professional and salon products. Clairol was one of the first big acquisitions by AG Lafley, but had struggled for years to unseat the more agile, arguably more stylish L'Oreal colourant offering. Wella, acquired in 2004, was positioned primarily as a professional hair colouring and salon care brand, with its consumer range absorbed into the general portfolio. Combined sales were $1.7bn in 2013.

Reinforcing its range of luxury products, in 2008 P&G paid an estimated $440m to acquire the Frederic Fekkai haircare business, which includes a collection of premium shampoos, conditioners and styling products priced at as much as $35, as well as six salons in the US. It sold the business again in 2015 for as little as $50m. Vidal Sassoon was discontinued in the US as a consumer brand in 2003, although still marketed in other countries, either under the Sassoon name or as Wash n' Go. It was relaunched in 2011 as a professional salon range, Vidal Sassoon Pro Series. (Sales of approx $282m). It was divested to Coty along with Wella and Clairol.

Skincare, personal cleansing & deodorants remain a key group for P&G, housing a broad range of products, none of which were sold to Coty. Skin & personal care accounted for 8% of group sales in the year to 2017, or around $5.2bn. The skincare range is led by Olay, traditionally a middle-market brand, but which has been extended further upscale through the introduction of pricier anti-aging sub-brands. Sales were $3.3bn in 2013. At the top end of the market, the group controls ultra-prestige skincare brand SK-II, sales of which broke through the $1bn barrier for the first time in 2012. (Euromonitor/Sanford Bernstein estimated $935m for 2013). Originally marketed in Asia, it has gradually expanded into other regions, including the US from 2004, and Europe in 2005.

P&G acquired niche US brand Doctor's Dermalogic Formula (DDF) in 2007 (sold to Designer Parfums in 2014). In 2008, it agreed to sell mass-market skin care range Noxzema to Alberto-Culver in the US, Canada and parts of Latin America (the brand is now owned by Unilever).

In the traditional personal cleansing segment, the group still markets its oldest branded product, Ivory soap, in limited quantities as well as mass-market Safeguard, which is marketed primarily in developing markets. The latter is actually the group's top-selling personal wash brand, with sales of $673m in 2013, six times higher than Ivory ($112m). The Zest bar soap brand in North America was sold in 2011 to private equity investors; rights outside North America were sold in late 2014 to Unilever, as well as another long-standing beauty brand, Camay. P&G's deodorant portfolio includes top-selling women's brand Secret and male-oriented Old Spice. In 2017, P&G added to its deodorant line-up with the acquisition of "natural" range Native, made without additives like aluminium and paraben. No price tag was disclosed.

The men's skincare range was expanded in 2009 with the acquisition of super-premium grooming brand Zirh. That business was owned for several years by Japanese beauty company Shiseido before being sold to private equity investors in 2007. P&G said combined sales from skin & personal care were $4.6bn in ye 2015.

In colour cosmetics, P&G had fought for years to carve out a niche against a fearsome line-up of competitors. Lead brand was mid-market Cover Girl, originally acquired as part of the Noxzema portfolio. Sales topped $1bn for the first time in 2013. In its main market of the US it is a close #2 behind L'Oreal's Maybelline. According to figures from Symphony IRI it had around 18% of the US cosmetics sector in 2011 (excluding Walmart). Max Factor was P&G's premium cosmetics line, on a par with L'Oreal's L'Oreal Paris. However it has struggled in some countries, and was effectively withdrawn from the US in 2009 to allow the group to focus on its middle market stablemate. (Sales of $823m). The group's collection of fine fragrances was consolidated into P&G Prestige Products, headquartered in Europe. Cover Girl, Max Factor and the fragrance portfolio were all sold to Coty in 2016.

In North America, P&G Beauty's general consumer marketing is also supported by Rouge, a webzine for women, marketed in Canada, offering tips and discounts. It is partnered in the US by a more general women's portal StyleUnited.

Gillette, acquired in July 2007 is now the main component within P&G Grooming. To comply with regulatory concerns at the time of the Gillette purchase, that company's other products, including Right Guard, were put up for sale in 2006, and were acquired by Dial Corp for around $420m.

Financials

Combined sales at P&G's Beauty unit topped $20bn for the first time in the year to June 2012, but have slipped back steadily since then as a result of weak performance and disposals, especially in the past year. For the year to 2015, reported revenues slumped to $18.14bn, with operating earnings of $2.58bn. However the impending disposal of much of the beauty portfolio to Coty reduced reported revenues for ye 2016 to just $11.48bn, with net operating earnings of $1.98bn. The group reported a year-on-year net sales decline of 9%, comprising losses of 6% from foreign exchange, 3% from disposals and 2% from volumes, offset by a 2% gain from price increases. Hair care accounted for sales of around $6.5bn in ye 2016, and skin & personal care for $5.2bn.

The long-awaited recovery in the beauty business finally began to materialise in the final quarter of ye 2017, with a 5% organic increase in sales. For the full year, though, sales were flat at $11.43bn. Net operating earnings slipped back to $1.91bn.

There was continuing improvement in ye 2018, with net sales rising to $12.41bn and operating earnings to $2.32bn.

Background

Procter & Gamble's first real move into the beauty sector came in the mid-1980s, as a result of increasing competition in the US market with Anglo-Dutch conglomerate Unilever. The two companies already competed in detergents, soap and oral care products, but both had begun to see the growing attraction of the personal products sector. Procter & Gamble's presence in this market was modest, limited mainly to its Ivory soap, but Unilever was already a major force in hair care and deodorant, and attempted to develop this presence in 1984 with a hostile bid for American company Richardson Vicks International (RVI). Although this business was primarily involved in OTC medications, it also managed a modest portfolio of niche personal care products including Olay, as well as the Pantene and Vidal Sassoon shampoo brands. Unhappy about the overture from a foreign buyer, RVI sought protection from P&G. Initially, the main appeal to P&G of RVI was its Vicks brand, which fitted neatly with the healthcare group Norwich Eaton, which the US group had acquired a year earlier. As a result P&G was persuaded at short notice to top Unilever's offer with its own bid of $1.2bn.

Completed in 1985, it was at the time P&G's biggest ever acquisition, but it greatly the strengthened the group's senior management team, and also gave P&G significant additional operations in Europe and Asia. At first, P&G appeared unsure how to develop its newly acquired hair and skin care brands, but gradually set about applying research and development resources to the products. A series of additional acquisitions further strengthened the portfolio. In 1987, P&G acquired German group Blendax, followed by Noxell, which owned Cover Girl cosmetics and Noxsema, in 1989. P&G took its first steps into the fragrance market in 1990 when it announced the purchase of Shulton, then the male toiletries division of diversified conglomerate American Cynamid. Its products included a range of shaving lotions led by Old Spice, then the biggest mass-market men's after-shave in the US. Max Factor and German cosmetics Ellen Betrix brand were purchased from Revlon in 1991.

More recently the portfolio has been rounded out with two major acquisitions in the hair care market, Clairol and Wella. Attempts to strengthen the skin care unit with the purchase of Nivea from Beiersdorf proved less successful. Attempts to extend Olay into colour cosmetics also failed to take off. Among other experiments, P&G was one of the backers of internet-only "custom beauty" cosmetics brand reflect.com between 1999 and 2005, and in 2004 the company handled for a time marketing and distribution of the ethnic cosmetics range designed by supermodel Iman.

Last full revision 4th August 2015

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