Fighting for the next billion shoppers

Worth reading in light of today’s news on Bill Ackman’s big P&G investment.

The eternal battle between Procter & Gamble and Unilever is intensifying in the developing world

A TRIP to Paris is not usually a miserable way to celebrate your birthday, but so it was this year for Bob McDonald. On June 20th, as he turned 59, the chief executive of Procter & Gamble (P&G) for the past three years gave a faltering and apologetic speech at a conference there hosted by Deutsche Bank, in which he predicted lower-than-expected profits in the coming quarter for the world’s largest maker of household and personal-care products, and confessed to deep-seated problems at his firm both in innovation and the broader execution of its strategy.

The same day, at the Rio+20 Summit in Brazil, Paul Polman, a former colleague of Mr McDonald’s at P&G and now boss of Unilever, a big European rival, was on a high. With his firm’s share price close to record levels, he was able to enjoy hobnobbing with world leaders as he called on other companies to join Unilever in adopting a range of strategies designed to tackle climate change. How Mr McDonald must have wished he were in Rio de Janeiro, too, not least because he shares Mr Polman’s fondness for talking about his firm’s similar “purpose-driven” goal of creating a better, more sustainable world. Instead, in Paris, as P&G’s share price tumbled, doubts were being raised about the sustainability of Mr McDonald’s hold on his job.

The sense that Unilever is on the up, whereas P&G is in trouble, is the latest swing of a pendulum that only five years ago saw Unilever struggling as P&G soared. The slow economic recovery in America and the deteriorating economic situation in Europe have hit P&G harder, because it earns a greater share of its revenues in those developed markets and its brands tend to be more expensive than Unilever’s—and thus more likely to be sacrificed by consumers who are being forced to count the pennies.

Mr McDonald’s promise to make P&G’s pricing more competitive, and his plan to cut costs by $10 billion, could, if delivered, help to restore P&G’s fortunes in these markets at the expense of Unilever and other consumer-goods firms. But the biggest questions concern how P&G can improve its performance in the developing economies on which both it and Unilever depend for long-term growth.