Procter & Gamble plans to manufacture products for the Indian market locally
November, 14th 2011
Procter & Gamble plans to manufacture products for the Indian market locally, moving away from its decade-old strategy of importing a substantial proportion of goods, as the world's largest consumer goods maker seeks to emulate the cost structure of Hindustan Unilever Ltd (HUL) At present, a substantial chunk of its goods including skincare brand Olay and baby diaper brand Pampers are imported into the Indian market, which is an expensive proposition, according to the company.
More local production will result in P&G making products at low cost, that could translate into affordable products from the company, which has so far focused primarily on premium and mass premium products.
"You should expect a large part of production locally in the long term, so that most of them are 'made in India' products, given the growing size and scale of our business," said Tapan Buch, chief financial officer at P&G Hygiene and Healthcare Ltd. Buch did not give the percentage of products currently being made outside India. In early 2000, P&G had started shifting production to low cost South East Asian countries from the US, closer to growth markets such as China and India.
In a board meeting during first week of November, P&G Home Products, the unlisted unit the Cincinnati based consumer goods maker, approved an investment plan of Rs 360 crore in its unlisted arm. Earlier, in May, the company had approved an investment of Rs 345 crore, and this combined fund infusion of Rs 700 crore will be P&G's largest investment in India in a single year.
Buch said the money will primarily go into sprucing up its existing multi-product manufacturing facility so that it can execute its strategy of reaching out to 'more consumers, in more parts of India, more completely.'
"The funds will be utilized to expand our manufacturing base, primarily at Bhopal in Madhya Pradesh. The investments will be broad based in terms of categories and will purely depend on how capital intensive each segment is at the moment," Buch said. "For instance, we could invest more on baby care products as a major part of it is imported."
An industry executive said Procter & Gamble (P&G) is scouting for land in Hyderabad and Chennai to set up two factories, but the company did not confirm it.
Traditionally P&G in India have been focusing on premium brands Head & Shoulders, Ariel and Pantene, which are its cash cow and generates over 60% of its total revenues.
But now, P&G is planning to target consumers across the pyramid, with products in laundry, hair and skin care straddling several pricepoints.
It has doubled its distribution reach over the past couple of years and now has a direct reach of 1.3 million outlets, against HUL's direct reach of 1.6 million outlets.
"Although India is only a small part of P&G's current portfolio, they are very focused on becoming more present in the emerging markets.
India is a key priority for it as it continues to grow well-a growing population with growing incomes," said Ali Dibadj, senior analyst from US brokerage firm Sanford Bernstein.
While developing markets account for just 30% of global sales for P&G, arch rival Unilever earns more than half of its revenues from India, Brazil, Indonesia, South Africa, China and Vietnam.
P&G Global Chairman & CEO Robert McDonald's stated goal is to garner 800 million new customers by 2015, most of them from Asia and Africa.
The target consumer in these markets is those earning less than Rs 100, or $2, a day. P&G has three subsidiaries in India. Two of its listed companies are Procter & Gamble Health & Hygiene, which markets feminine hygiene brand Whisper, and Vicks anti-cold balm and lozenges, and Gillette India, maker of razors and other shaving products.