The household and personal products industry relies heavily on innovation as well as cheap manufacturing to keep companies competitive. As a result, a good portion of the industries will invest in Research & Development as a major part of their annual spending. Innovation becomes a critical part of household and personal products industry, largely because research is not something that is allotted within one year. Research can take anywhere from five to fifteen years. As a result, companies need to constantly be investing and evaluating projects throughout the years while maintaining spending. Innovation also becomes a way to keep developed markets growing.
The emphasis on research and development is most evident in companies annual reports as well as in their letters to stockholders. For example, just looking at P&G, in the notes of their annual report, they mentioned spending approximately $2 billion on research and development alone. In their annual letter to stockholders, they emphasized the fact that they spend close to 60% more than their competitors on research and development. The evidence of their constant dedication to innovation is clear in their constant need to create new products. Just recently, their new Tide Pods line of detergent was launched after eight years of development. In addition to that, in 2008, four of the top ten new consumer products were launched by P&G. By constantly trying to stay ahead of the competition, they lose the risk of becoming irrelevant, which means greater profits in the long run. It also keeps their brand names in the spotlight, which is important for a large industry such as household and personal products.
On the cosmetics side of the industry, L'Oreal also puts huge emphasis on the need for innovation and creation. In their 2011 annual report, they announced a total 613 new patents since 2010. They also reported investing approximately €721 million ($961 million) in research. What makes L'Oreal innovation unique is the fact that even though their main selling point is cosmetics, they make innovations in the field of science as well. The 2011 report discussed the discovery of the LR2412 molecule, which helps prevent aging. This then become a selling point when the products containing this molecule hit the market because it's something only L'Oreal can claim to have. They have 17 patents regarding this discovery alone, leaving other companies in the dust.
Showing posts with label Melissa McGue. Show all posts
Showing posts with label Melissa McGue. Show all posts
Tuesday, March 27, 2012
Wednesday, March 21, 2012
How has the recession (2008-2009) affected companies’ balance sheets?
In the Household and Personal Products industry, we see a wide range of products at a variety of prices. As a result, when the recession hit, we see a loss of profits and net income in the big brands. For this post, we will be looking at P&G and Clorox. These two companies sell similar products, have recognizable brand names, and are easily comparable.
P&G
2008 Report | 2009 Report |
First, looking at the the years 2008 and 2009, we see a few differences. First, looking at the assets, we see that in cash assets, P&G has increased them by about $1,000. Meaning that from 2008, they have gone from about $3,000 to about $4,000. In the same on the balance sheet, we see an decrease in inventories. Overall, total inventories decrease from $8,000 to $5,000 in that one year period. This is fairly important, because P&G is a distributor of their own products. Which means that if their inventories are decreasing, they might be trying to scale back. When we look at total current assets, largely because of this huge decrease, we see that current total assets have gone from $24,000 to $21,000. Another telling factor of the recession is in the decrease in property, plants, and equipment. Overall, it decreased by about $2,000, which could be worse. But since P&G owns quite a few plants, the fact that they may have had to sell some or have lost them affects their overall output. Finally, when we look at their total assets, there is a decrease of almost $10,000.
When we start looking at losses, one of the most telling factors is the fact that debt due within one year has gone from $13,000 to $16,000. This means that P&G is borrowing more, but when you look at total current liabilities from 2008 to 2009, they have stayed fairly consistent. Additionally, long term debt has gone down from P&G, which is overall better for the company. So even though the assets for P&G had decreased to respond to the recession and it appears that they are borrowing more, the company is trying to keep risk low.
Clorox Company
2009 Report
Much like P&G, we see a decrease in assets and liabilities. However, this one is not nearly as telling as P&G's report. Instead of a $10,000 loss, we see a lost of about $200. This is likely resulting from the fact that Clorox is simply not as big as P&G and thus has less to lose. From 2008 to 2009, there is about a $8 decrease in cash assets. Furthermore, their inventory decreases from $384 to $366. This means that like P&G, Clorox is scaling back on their inventory. When we look at Clorox's property, plants, and equipment, it remains fairly consistent from 2008 to 2009, with only about a $5 decrease. This means that even though they may be scaling back inventory production, they aren't closing very many plants.
When we start looking at liabilities, we first see a drop in notes and loans payable from $755 to $421. What this tells me is that the company is paying off their debts. On the other hand, just below, we see that long-term debts owed within the years goes up $500 from the nothing that was last year. So even though we see the company trying to pay off some of it's debts, it has long-term debt to account for. Clorox has reported a $300 increase in total current liabilities, which means that even as the company is scaling back slightly, they are still gaining debt. Total liabilities, on the other hand, have decreased about $300. This is likely due to the decrease in long-term debt. Clorox during the recession was basically trying to scale back production while simultaneously paying off more debt.
P&G
2008 Report | 2009 Report |
First, looking at the the years 2008 and 2009, we see a few differences. First, looking at the assets, we see that in cash assets, P&G has increased them by about $1,000. Meaning that from 2008, they have gone from about $3,000 to about $4,000. In the same on the balance sheet, we see an decrease in inventories. Overall, total inventories decrease from $8,000 to $5,000 in that one year period. This is fairly important, because P&G is a distributor of their own products. Which means that if their inventories are decreasing, they might be trying to scale back. When we look at total current assets, largely because of this huge decrease, we see that current total assets have gone from $24,000 to $21,000. Another telling factor of the recession is in the decrease in property, plants, and equipment. Overall, it decreased by about $2,000, which could be worse. But since P&G owns quite a few plants, the fact that they may have had to sell some or have lost them affects their overall output. Finally, when we look at their total assets, there is a decrease of almost $10,000.
When we start looking at losses, one of the most telling factors is the fact that debt due within one year has gone from $13,000 to $16,000. This means that P&G is borrowing more, but when you look at total current liabilities from 2008 to 2009, they have stayed fairly consistent. Additionally, long term debt has gone down from P&G, which is overall better for the company. So even though the assets for P&G had decreased to respond to the recession and it appears that they are borrowing more, the company is trying to keep risk low.
Clorox Company
2009 Report
Much like P&G, we see a decrease in assets and liabilities. However, this one is not nearly as telling as P&G's report. Instead of a $10,000 loss, we see a lost of about $200. This is likely resulting from the fact that Clorox is simply not as big as P&G and thus has less to lose. From 2008 to 2009, there is about a $8 decrease in cash assets. Furthermore, their inventory decreases from $384 to $366. This means that like P&G, Clorox is scaling back on their inventory. When we look at Clorox's property, plants, and equipment, it remains fairly consistent from 2008 to 2009, with only about a $5 decrease. This means that even though they may be scaling back inventory production, they aren't closing very many plants.
When we start looking at liabilities, we first see a drop in notes and loans payable from $755 to $421. What this tells me is that the company is paying off their debts. On the other hand, just below, we see that long-term debts owed within the years goes up $500 from the nothing that was last year. So even though we see the company trying to pay off some of it's debts, it has long-term debt to account for. Clorox has reported a $300 increase in total current liabilities, which means that even as the company is scaling back slightly, they are still gaining debt. Total liabilities, on the other hand, have decreased about $300. This is likely due to the decrease in long-term debt. Clorox during the recession was basically trying to scale back production while simultaneously paying off more debt.
Sunday, March 4, 2012
How do companies in this industry differentiate themselves from one another?
A lot of the main companies in the Households and Personal Products industry have a variety of different products they sell. One company could hold as many as twenty products or more, each with a specific and different purpose. As a result, these companies differentiate themselves in two ways. The first begins at a corporate level with outreach. Second is brand name and packaging.
Corporate Outreach
One method that companies use involves actually extending a hand to the public when times are rough. P&G is one company that has no problems donating diapers, toothpaste, and whatever else they can spare to disaster areas. Although it's also a way to help the needy, it also doubles as a way for the company to get it's brand names out there. When people are in a pinch and can only get their hands on a certain brand, when they can finally afford to purchase their own products again, it could have created new brand loyalty to their companies products. Not to diminish what P&G is doing, but it has the double effect of benefiting the company in the long run.
Kimberly-Clark, on the other hand, has a different outreach method. Although they also have their own commitment to social responsibility, they also promote their products through different means. For example, the Huggies brand contest. Basically, parents are encouraged to film how their child moves for a Huggies commercial. Not only does this make the target market aware of the brand, but it also pushes the idea behind the product, which is that the diaper moves with the child. It's a method of promotion that really focuses on who Kimberly-Clark wants to buy their products.
Brand Name/Packaging
On the shelf, it's a different story for companies. When doing corporate outreach, it's largely just the company, but in the store different brands are competing directly against each other. It then becomes incredibly important for names to stand out. One example is P&G's new Tide Pods. After doing extensive market research, P&G found that many consumers dreaded doing laundry, and so they starting doing research in how to fill that need. Eventually they came up with the Tide Pod, which is light and easy to use. They even took care in designing the packaging. The pods themselves have detergent, fabric softener, and brightener in the signature colors of Tide (Orange, Blue, and White). Additionally, they made the packaging clear so that among the sea of regular detergent, it stands out. As a company with a huge brand name recognition and a reputation for innovation, this is one way they try to stand out.
Corporate Outreach
One method that companies use involves actually extending a hand to the public when times are rough. P&G is one company that has no problems donating diapers, toothpaste, and whatever else they can spare to disaster areas. Although it's also a way to help the needy, it also doubles as a way for the company to get it's brand names out there. When people are in a pinch and can only get their hands on a certain brand, when they can finally afford to purchase their own products again, it could have created new brand loyalty to their companies products. Not to diminish what P&G is doing, but it has the double effect of benefiting the company in the long run.
Kimberly-Clark, on the other hand, has a different outreach method. Although they also have their own commitment to social responsibility, they also promote their products through different means. For example, the Huggies brand contest. Basically, parents are encouraged to film how their child moves for a Huggies commercial. Not only does this make the target market aware of the brand, but it also pushes the idea behind the product, which is that the diaper moves with the child. It's a method of promotion that really focuses on who Kimberly-Clark wants to buy their products.
Brand Name/Packaging
On the shelf, it's a different story for companies. When doing corporate outreach, it's largely just the company, but in the store different brands are competing directly against each other. It then becomes incredibly important for names to stand out. One example is P&G's new Tide Pods. After doing extensive market research, P&G found that many consumers dreaded doing laundry, and so they starting doing research in how to fill that need. Eventually they came up with the Tide Pod, which is light and easy to use. They even took care in designing the packaging. The pods themselves have detergent, fabric softener, and brightener in the signature colors of Tide (Orange, Blue, and White). Additionally, they made the packaging clear so that among the sea of regular detergent, it stands out. As a company with a huge brand name recognition and a reputation for innovation, this is one way they try to stand out.
Tide Pods Packaging
Another area in which there is fierce competition for a consumer's eye is in the Shampoo aisle. While companies know that plastering their name on the bottle is important, everything from the color of the packaging, to the placement of conditioner next to the bottle can make a difference. An advertisement research blog demonstrated the use of eye tracking software on a shampoo shelf.
Eye tracking results
In areas where there were large blocks of color, like Garnier's (L'Oreal) signature green bottles and Head and Shoulders's (P&G) white bottles. However, this could lead to confusion and potentially frustration if someone is searching for a specific part of the brand (like shampoo and conditioner for people with curly hair), and they can't find it easily. Head and Shoulders addresses this to an extent by having mostly white bottles with splashes of color to indicate what kind of shampoo/conditioner the bottle is. In this aisle, it's important to be able to have an extremely strong presence and a wide variety of product to display.
Saturday, February 25, 2012
Do players in your industry manufacture overseas? What aspects of their operations to the outsource?
It's not uncommon for companies in the Household and Personal Products industry to manufacture outside of the US. We've already established that the industry has to price competitively and rely on brand names to ensure profits, and a large part of how they do this is cut costs in production. This can mean cheaper packaging, or just automating as much of their process as possible.
Take, for example, Procter & Gamble. Like many brand name companies, they have been hit hard by the economic downturn. Many of their customers in developed markets had switched over to the cheaper private-label alternatives. However, in their international market, they saw the most growth, and as a result, they are opening 20 new manufacturing plants in Brazil, China, South Africa, Romania, and Poland. This is added to their 140 other internationally based manufacturing plants. As a matter of fact, their most recent US plant was in Utah (2011), and it was the first US-based plant since 1971. For P&G, they are expanding their overseas manufacturing process in order to maximize overseas profit.
One of P&G's main competitors, Colgate-Palmolive also manufactures overseas. In their 2010 Annual Report they discussed their plant in China, which they claims is the biggest toothpaste factory in the world. They also acknowledged their presence in Brazil, where they purchase a key ingredient for soap. Like P&G, their presence overseas is mainly to cut down costs. In their China plant, they hope to produce toothpaste efficiently to sell cheaply in markets all over the world. In Brazil, they work to get an ingredient for cheap, so they can cut down production costs.
The Clorox company also has an international presence in manufacturing. They have plants in 17 countries, including the US, Saudi Arabia, China, and India. Once again, their reasoning all narrows down to money. Having plants internationally can help with distribution for an international brand as well. And for this industry, it's hard not to find a brand that's not international.
When it comes down to it, these three companies find the most growth in an international market. Furthermore, the production of these products can be made cheaper internationally. With a market that depends on competitive pricing and brand names, a few cents off of a detergent can make a different in the long run.
Take, for example, Procter & Gamble. Like many brand name companies, they have been hit hard by the economic downturn. Many of their customers in developed markets had switched over to the cheaper private-label alternatives. However, in their international market, they saw the most growth, and as a result, they are opening 20 new manufacturing plants in Brazil, China, South Africa, Romania, and Poland. This is added to their 140 other internationally based manufacturing plants. As a matter of fact, their most recent US plant was in Utah (2011), and it was the first US-based plant since 1971. For P&G, they are expanding their overseas manufacturing process in order to maximize overseas profit.
One of P&G's main competitors, Colgate-Palmolive also manufactures overseas. In their 2010 Annual Report they discussed their plant in China, which they claims is the biggest toothpaste factory in the world. They also acknowledged their presence in Brazil, where they purchase a key ingredient for soap. Like P&G, their presence overseas is mainly to cut down costs. In their China plant, they hope to produce toothpaste efficiently to sell cheaply in markets all over the world. In Brazil, they work to get an ingredient for cheap, so they can cut down production costs.
The Clorox company also has an international presence in manufacturing. They have plants in 17 countries, including the US, Saudi Arabia, China, and India. Once again, their reasoning all narrows down to money. Having plants internationally can help with distribution for an international brand as well. And for this industry, it's hard not to find a brand that's not international.
When it comes down to it, these three companies find the most growth in an international market. Furthermore, the production of these products can be made cheaper internationally. With a market that depends on competitive pricing and brand names, a few cents off of a detergent can make a different in the long run.
Thursday, February 16, 2012
What are some current events in your industry? What is the impact of these events on the industry?
Procter & Gamble, Colgate-Palmolive, and Kimberly-Clark both saw profits drop in the fourth quarter. Clorox, on the other hand, saw gains for the second fiscal quarter.
Between the three companies, P&G saw the greatest loss in profits at 49%. This has caused the company to project less profits for the current quarter and slice it's earnings projections for the year. Despite this news, P&G has said that they expect developing markets to increase it's growth. They also project that it's core sales, despite these troubles, will "remain in the range it set earlier this year, and rise 4% and 5%." While they do hold a positive outlook, that does not necessarily mean good news for it's stock holders. They can expect their full years earnings per stock to be down 20 to 30 cents. For people with a high stake in P&G, this can add up. However, the company attributes their loss due to the stronger dollar, and they don't expect any long term loss.
Kimberly-Clark had the second greatest loss in profits at 19 percent for the fourth quarter. Like P&G, the company has adjusted it's total stock outlook to about 10 cents less than originally projected. However, they only expect their growth for 2012 to be 1%. They plan to put more money into marketing, research, and development in order to bring demand up. Executive Tom Falk was quoted as saying, "We have a big increase expected in our strategic marketing, Hopefully, part of it will go to higher margins as well." Even though they suffered a loss, Kimberly-Clark is hoping to counteract this for the 2012 year and like P&G, they don't project any long term losses.
Between the three companies, P&G saw the greatest loss in profits at 49%. This has caused the company to project less profits for the current quarter and slice it's earnings projections for the year. Despite this news, P&G has said that they expect developing markets to increase it's growth. They also project that it's core sales, despite these troubles, will "remain in the range it set earlier this year, and rise 4% and 5%." While they do hold a positive outlook, that does not necessarily mean good news for it's stock holders. They can expect their full years earnings per stock to be down 20 to 30 cents. For people with a high stake in P&G, this can add up. However, the company attributes their loss due to the stronger dollar, and they don't expect any long term loss.
Kimberly-Clark had the second greatest loss in profits at 19 percent for the fourth quarter. Like P&G, the company has adjusted it's total stock outlook to about 10 cents less than originally projected. However, they only expect their growth for 2012 to be 1%. They plan to put more money into marketing, research, and development in order to bring demand up. Executive Tom Falk was quoted as saying, "We have a big increase expected in our strategic marketing, Hopefully, part of it will go to higher margins as well." Even though they suffered a loss, Kimberly-Clark is hoping to counteract this for the 2012 year and like P&G, they don't project any long term losses.
Colgate-Palmolive saw a 5.4% profit loss for the fourth quarter. However, the company's global outreach is expanding, and core sales grew the highest in the Latin America and Asian Markets. In the US, however, they found the profits fell by 11%. Like both Kimberly-Clark and P&G, the company expects the stronger US dollar to hurt earnings. However, the toothpaste giant is additionally having problems with "higher input prices." But they hope that advertising their new products such as Optic White and Sensitive Pro-Relief will offset profit loss for 2012.
On the other end of the spectrum, Clorox is facing strong sales for the second fiscal quarter. This comes after the company has been recovering from reduced sales after the economic downturn. Clorox claims that the gains were a result of price increases. As a result of this information, the company has increased their growth projections.
While the three companies that suffered losses are changing their projections, they emphasize that this is only the result of a stronger US dollar. They don't expect these losses to continue long term and they do expect their company to grow, if not domestically, internationally. Clorox, which has a strong US base, seems to expect this growth to continue, considering it has not been as affected by the stronger dollar.
Saturday, February 11, 2012
What are the basic economics of the industry? How do companies make money? What are their costs?
The need to stay clean, groomed, and healthy all contribute to America's spending on household and personal products. Everything from shampoo to cleaning products represent the desire of people to present their best at all times. Although the two industries offer different (but sometimes related) products, their industries are largely the same in terms of market domination and volatility.
On the side of personal products, which includes cosmetics, hair products, lotions, and toothpaste; large companies such as Proctor and Gamble, Kimberly-Clark, and Avon Products have a particularly big hand in the US. Their sales are driven by wide-distribution and brand name recognition. This industry also has the benefit of being somewhat stable. Personal care is so ingrained in US culture that there is a strong consumer base. The advent of the internet also allows companies to reach new consumer bases. These companies also highly automate their manufacturing process in order to cut costs as the automation removes the need to hire more workers and it keeps costs down. This means more productivity for less money.
But on the contrast, although this industry tries to keep costs down, they can't always be successful. Many of these products rely on various natural resources in order to continue large scale production. However, the output of these products can vary from year to year, making costs volatile. In addition, a good portion of what keeps this industry moving is advertising, so companies need to spend a lot to ensure that their sales will remain high. But even that can't be guaranteed. Economic hardship shifts demand away from these products towards generic brands that may not cost as much.
On the household part of the spectrum, I have narrowed it down to specifically the soap and detergent industry to keep this blog simple and understandable. This industry is dominated by giants such as Colgate-Palmolive, S.C Johnson & Son, and The Clorox Company. Like the personal products industry, this industry relies largely on wide product distribution and a large consumer base. Other industries such as the hospitality industry, food service industry, and the healthcare industry are also big drivers in sales. By doing market targeting, this industry can increase sales.
But once again, the household industry has its own challenges separate from the personal products industry. While the personal products consumer base is fairly consistent in decent economic times, the soap and detergent industry has to adapt to changing consumer bases. New parents largely contribute to their sales, so if people are having fewer children, they need to adapt to that. Soap and detergent companies also come under fire for not being environmentally conscious, which can affect how these companies make and distribute their products.
Although both industries sell largely different products, there is fairly significant overlap in how companies make money and rely on cost management. Both industries are dominated by giants and have the challenge of keeping prices down so that consumers don't switch to cheaper generic brands. They also have to rely on brand names and heavy advertising to ensure that they keep their consumer base.
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