Testing the limits of elasticity, Procter & Gamble (P&G) is increasing prices here, focusing on discounts there, confronting inflation with a product “superiority strategy” that’s working.
Even though the consumer-packaged goods (CPG) giant sees inflationary effects continuing — and perhaps worsening — many consumers continued trading up to P&G premium brands during its fiscal third quarter, showing the pull of its 1 billion-plus product portfolio.
The maker of Gillette, Fabreze, Tide, Pampers, Crest and sundry other brands acknowledged the effects of inflation, as well as ongoing supply chain issues that are easing, but not over.
On a call with analysts, Chief Financial Officer Andre Schulten said, “Inflationary cost pressures are broad-based and continue to increase with little sign of near-term relief and have resulted in consumer price increases across CPG categories and beyond.”
Noting that P&G reduced its exposure in some discretionary categories and heavied-up in daily use, health- and hygiene-focused areas “where performance truly drives brand choice,” he added that, “Even though we see cost pressures, we continue to invest in superiority in every category and every proposition. That is probably the best protection.”
‘Eyes Wide Open’ on Consumer Behavior
Raising prices and consumers trading down to less expensive products were on the minds of several analysts as questions related to inflation dominated the Q&A session.
Schulten said “Elasticities are better by about 20% to 30% versus what historical data would have indicated. That’s good. But looking forward, we certainly have our eyes wide open and watch for any change in terms of consumer behavior.”
He recited a series of examples of how P&G is playing to belt-tightening, from consumers saving money doing cold water laundry loads, to diapers.
Budget-conscious consumers are finding more options for preferred P&G items now.
For example, “On diapers, we have multiple offerings, starting with Pampers Pure at about 40 cents a diaper, Swaddlers at 35 cents a diaper, Baby Dry at 30 cents and Luvs at 20 cents. These price ladders exist in all categories and offer the consumer a choice within the P&G portfolio,” Schulten said.
With premium strategies paying off, P&G seems relatively unconcerned about organic sales in calendar 2022, as he said, “we’re just not seeing” inflation impact its hottest brands in big ways.
That extends to areas that were pressured during the pandemic that spiked as the great reopening stumbled towards a real thing.
Saying “There’s a natural hedge within the grooming portfolio,” Schulten noted that razor and blade sales fell due to work-from-home trends but are now reversing as offices fill up again.
Work from home continues to impact things like paper towel consumption, up more than 10% in Q3 just ended. He said, “We’ll see where bath tissue ends up once supply is unconstrained, but more time at home would speak to more in-home consumption versus away-from-home.”
CEO Jon Moeller added that P&G will continue expanding distribution “in channels where consumers with more of a budget challenge are inclined to shop.”
Saying its brands enjoy “significant share growth … in the dollar channel,” Moeller said that “we’ll have to monitor this very closely. Things can change tomorrow. But as we sit here today, it looks like the moves we’ve made to focus the portfolio in daily use categories where performance drives brand choice … is holding up.”