The mighty Procter & Gamble, the world’s biggest consumer goods company, has lost something of its lustre recently, even CEO Bob McDonald, admitting that the company has made errors. He recently cut its earnings and revenue forecasts and promised to slow expansion into new markets.
Now US ‘activist’ investor Bill Ackman of the $11bn Pershing Square hedge fund has been given permission to buy a stake in the company. Such activist investors have a record in the US of making big trouble for their targets, demanding management changes and radical changes to strategy to improve shareholder returns.
In the case of P&G such initiatives might well lead to a call for the company to take a knife to its global marketing budget, affecting chiefly Publicis Groupe agencies (Leo Burnett, Saatchi, Publicis) but also WPP’s Grey, Omnicom’s BBDO (which handles Gillette) and Wieden+Kennedy which handles Old Spice and corporate work. Publicis Groupe’s Starcom MediaVest is the main media agency, making it the biggest such in the world.
In 2011 P&G spent $9.3bn on advertising, making it the world’s biggest advertiser ahead of L’Oreal and Unilever. Its biggest brands by advertising are Olay, Cover Girl, Crest and Gillette.
An indication of what Ackman and many other shareholders want comes from critic of the company Ali Dibadj, an analyst at AllianceBernstein, who says in a note to shareholders about Ackman’s involvement: “Such a development could serve as the positive catalyst we (and others) have been waiting for..we also are open-minded that if real progress is not seen by the end of the year, larger decisions may have to be made in Cincinnati that could also lead to value accretion (change in management, break-up of the company).”
Cripes. Less dramatically Dibadj has also been calling for the company to lower prices alongside cost-cutting, a process P&G has begun with Gillette and its ludicrously over-priced ‘shaving systems.’
In recent years P&G has followed a strategy of aggressive premium pricing supported by heavyweight advertising (as ever). It has become a poster boy of the creative community by moving away from its product demonstration-style ads to a more imaginative approach, most notably Cannes Grand Prix winner Old Spice. Its executives turn up on the Croisette in Cannes every year in large numbers.
But this approach now looks under threat, to put it mildly, as a tough global economic climate and a growing challenge from online contenders and much lower-priced brands takes its toll of sales and profits. So its agencies, and Publicis Groupe in particular, have every reason to be worried.