One Procter & Gamble Plaza
Cincinnati, Ohio 45202-3315
Telephone: (513) 983-1100
Fax: (513) 983-9369
Sales: $51.41 billion (2004)
Stock Exchanges: New York National (NSX) Amsterdam Paris Basel Geneva Lausanne Zürich Frankfurt Brussels
Ticker Symbol: PG
NAIC: 311111 Dog and Cat Food Manufacturing; 311919 Other Snack Food Manufacturing; 311920 Coffee and Tea Manufacturing; 322291 Sanitary Paper Product Manufacturing; 325412 Pharmaceutical Preparation Manufacturing; 325611 Soap and Other Detergent Manufacturing; 325612 Polish and Other Sanitation Good Manufacturing; 325620 Toilet Preparation Manufacturing; 339994 Broom, Brush, and Mop Manufacturing
We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.
1837: William Procter and James Gamble form Procter & Gamble, a partnership in Cincinnati, Ohio, to manufacture and sell candles and soap.
c. 1851: Company's famous moon-and-stars symbol is created.
1878: P&G introduces White Soap, soon renamed Ivory.
1890: The Procter & Gamble Company is incorporated.
1911: Crisco, the first all-vegetable shortening, debuts.
1931: Brand management system is formally introduced.
1946: P&G introduces Tide laundry detergent.
1955: Crest toothpaste makes its debut.
1957: Charmin Paper Company is acquired.
1961: Test marketing of Pampers disposable diapers begins.
1963: Company acquires the Folgers coffee brand.
1982: Norwich-Eaton Pharmaceuticals is acquired.
1985: P&G purchases Richardson-Vicks Company, owner of the Vicks, NyQuil, and Oil of Olay brands.
1988: Noxell Corporation, maker of Noxema products and Cover Girl cosmetics, is acquired.
1991: Max Factor and Betrix cosmetic and fragrance lines are bought from Revlon, Inc.
1992: Pantene Pro-V shampoo is introduced.
1993: Major restructuring is launched, involving 13,000 job cuts and 30 plant closures.
1997: Company acquires Tambrands, Inc., maker of the Tampax line of tampons.
1998: Organization 2005 restructuring is launched.
1999: Premium pet food maker Iams Company is purchased.
2001: P&G acquires the Clairol hair-care business from Bristol-Myers Squibb Company.
2002: Jif peanut butter and Crisco shortening brands are divested.
2003: Company acquires a controlling interest in German hair-care firm Wella AG.
The Procter & Gamble Company (P&G) is a giant in the area of consumer goods. The leading maker of household products in the United States, P&G has operations in nearly 80 countries around the world and markets its nearly 300 brands in more than 160 countries; more than half of the company's revenues are derived overseas. Among its products, which fall into the main categories of fabric care, home care, beauty care, baby care, family care, health care, snacks, and beverages, are 16 that generate more than $1 billion in annual revenues: Actonel (osteoporosis treatment); Always (feminine protection); Ariel, Downy, and Tide (laundry care); Bounty (paper towels); Charmin (bathroom tissue); Crest (toothpaste); Folgers (coffee); Head & Shoulders, Pantene, and Wella (hair care); Iams (pet food); Olay (skin care); Pampers (diapers); and Pringles (snacks). Committed to remaining the leader in its markets, P&G is one of the most aggressive marketers and is the largest advertiser in the world. Many innovations that are now common practices in corporate America--including extensive market research, the brand-management system, and employee profit-sharing programs--were first developed at Procter & Gamble.
1837 Launch: Maker of Candles and Soap
In 1837 William Procter and James Gamble formed Procter & Gamble, a partnership in Cincinnati, Ohio, to manufacture and sell candles and soap. Both men had emigrated from the United Kingdom. William Procter had emigrated from England in 1832 after his woolens shop in London was destroyed by fire and burglary; Gamble came from Ireland as a boy in 1819 when famine struck his native land. Both men settled in Cincinnati, then nicknamed "Porkopolis" for its booming hog-butchering trade. The suggestion for the partnership apparently came from their mutual father-in-law, Alexander Norris, who pointed out that Gamble's trade, soap making, and Procter's trade, candle making, both required use of lye, which was made from animal fat and wood ashes.
Procter & Gamble first operated out of a storeroom at Main and Sixth streets. Procter ran the store while Gamble ran the manufacturing operation, which at that time consisted of a wooden kettle with a cast-iron bottom set up behind the shop. Early each morning Gamble visited houses, hotels, and steamboats collecting ash and meat scraps, bartering soap cakes for the raw materials. Candles were Procter & Gamble's most important product at that time.
Procter & Gamble was in competition with at least 14 other manufacturers in its early years, but the enterprising partners soon expanded their operations throughout neighboring Hamilton and Butler counties. Cincinnati's location on the Ohio River proved advantageous as the company began sending its goods downriver. In 1848 Cincinnati was also linked to the major cities of the East via rail, and Procter & Gamble grew.
Around 1851, when P&G shipments were moving up and down the river and across the country by rail, the company's famous moon-and-stars symbol was created. Because many people were illiterate at this time, trademarks were used to distinguish one company's products from another's. Company lore asserts that the symbol was first drawn as a simple cross on boxes of Procter & Gamble's Star brand candles by dockhands so that they would be easily identifiable when they arrived at their destinations. Another shipper later replaced the cross with an encircled star, and eventually William Procter added the familiar 13 stars, representing the original 13 U.S. colonies, and the man in the moon.
The moon-and-stars trademark became a symbol of quality to Procter & Gamble's base of loyal customers. In the days before advertising, trademarks were a product's principal means of identification, and in 1875 when a Chicago soap maker began using an almost-identical symbol, P&G sued and won. The emblem, which was registered with the U.S. Patent Office in 1882, changed slightly over the years until 1930, when Cincinnati sculptor Ernest Bruce Haswell developed its modern-day form.
During the 1850s Procter & Gamble's business grew rapidly. In the early part of the decade the company moved its operations to a bigger factory. The new location gave the company better access to shipping routes and stockyards where hogs were slaughtered. In 1854 the company leased an office building in downtown Cincinnati. Procter managed sales and bookkeeping and Gamble continued to run the manufacturing. By the end of the decade, the company's annual sales were more than $1 million, and Procter & Gamble employed about 80 people.
Prospering During the Civil War
Procter & Gamble's operations were heavily dependent upon rosin--derived from pine sap--which was supplied from the South. In 1860, on the brink of the Civil War, two young cousins, James Norris Gamble and William Alexander Procter (sons of the founders), traveled to New Orleans to buy as much rosin as they could, procuring a large supply at the bargain price of $1 a barrel. When wartime shortages forced competitors to cut production, Procter & Gamble prospered. The company supplied the Union Army with soap and candles, and the moon and stars became a familiar symbol with Union soldiers.
Although Procter & Gamble had foreseen the wartime scarcities, as time wore on, its stockpile of raw materials shrank. In order to keep up full production the company had to find new ways of manufacturing. Until 1863 lard stearin was used to produce the stearic acid for candle making. With lard expensive and in short supply, a new method was discovered to produce the stearic acid using tallow. What lard and lard stearin was available was instead developed into a cooking compound. The same process was later adapted to create Crisco, the first all-vegetable shortening. When P&G's supply of rosin ran out toward the end of the war, the company experimented with silicate of soda as a substitute, which later became a key ingredient in modern soaps and detergents.
Launching Ivory Soap in 1878
After the war Procter & Gamble expanded and updated its facilities. In 1869 the transcontinental railroad linked the two coasts and opened still more markets to Procter & Gamble. In 1875 the company hired its first full-time chemist to work with James Gamble on new products, including a soap that was equal in quality to expensive castile soaps, but which could be produced less expensively. In 1878 Procter & Gamble's White Soap hit the market and catapulted P&G to the forefront of its industry.
The most distinctive characteristic of the product, soon renamed Ivory soap, was developed by chance. A worker accidentally left a soap mixer on during his lunch break, causing more air than usual to be mixed in. Before long Procter & Gamble was receiving orders for "the floating soap." Although the office was at first perplexed, the confusion was soon cleared up, and P&G's formula for White Soap changed permanently.
Harley Procter, William Procter's son, developed the new soap's potential. Harley Procter was inspired to rename the soap by Psalm 45: "all thy garments smell of myrrh, and aloes, and cassia, out of the ivory palaces whereby they have made thee glad." Procter devoted himself to the success of the new product and convinced the board of directors to advertise Ivory. Advertising was risky at the time; most advertisements were placed by disreputable manufacturers. Nevertheless, in 1882 the company approved an $11,000 annual advertising budget. The slogan "99
The success of Ivory and the ability of Procter & Gamble to spread its message further through the use of national advertising caused the company to grow rapidly in the 1880s. In 1886 P&G opened its new Ivorydale plant on the edge of Cincinnati to keep up with demand. In 1890 James N. Gamble hired a chemist, Harley James Morrison, to set up a laboratory at Ivorydale and improve the quality and consistency of Procter & Gamble's products. P&G soon introduced another successful brand: Lenox soap. Marketed as a heavier-duty product, the yellow soap helped P&G reach sales of more than $3 million by 1889.
The 1880s saw labor unrest at many American companies, including Procter & Gamble, which experienced a number of strikes and demonstrations. Thereafter, the company sought to avert labor problems before they became significant. Behind P&G's labor policies was a founder's grandson, William Cooper Procter. William Cooper Procter had joined the company in 1883 after his father, William Alexander Procter, requested that he return from the College of New Jersey (now Princeton University) just one month before graduation to help with the company's affairs. Procter learned the business from the ground up, starting in the soap factory.
Introducing Innovative Employee Benefits
In 1885 the young Procter recommended that the workers be given Saturday afternoons off, and the company's management agreed. Nevertheless, there were 14 strikes over the next two years. In 1887 the company implemented a profit-sharing plan in order to intertwine the employees' interests with those of the company. Although the semiannual dividends were received enthusiastically by employees, that enthusiasm rarely found its way back into the workplace. The next year William Cooper Procter recommended tying the bonuses to employee performance, which produced better results.
In 1890 The Procter & Gamble Company was incorporated, with William Alexander Procter as its first president. Two years later the company implemented an employee stock-purchase program, which in 1903 was tied to the profit-sharing plan. By 1915 about 61 percent of the company's employees were participating. The company introduced a revolutionary sickness-disability program for its workers in 1915, and implemented an eight-hour workday in 1918. Procter & Gamble has been recognized as a leader in employee-benefit programs ever since.
Meanwhile, new soaps, including P&G White Naphtha, which was introduced in 1902, kept P&G at the forefront of the cleaning-products industry. In 1904 the company opened its second plant, in Kansas City, Missouri, followed by Port Ivory on Staten Island, New York. In 1907 William Cooper Procter became president of the company after his father's death.
Procter & Gamble soon began experimenting with a hydrogenation process which combined liquid cottonseed oil with solid cottonseed oil. After several years of research, Procter & Gamble patented the procedure, and in 1911 Crisco was introduced to the public. Backed by a strong advertising budget, Crisco sales took off.
World War I brought shortages, but Procter & Gamble management had again foreseen the crisis and had stockpiled raw materials. William Cooper Procter was also active in the wartime fundraising effort.
During the 1920s the flurry of new products continued. Ivory Flakes came out in 1919. Chipso soap flakes for industrial laundry machines were introduced in 1921. In 1926 Camay was introduced and three years later Oxydol joined the P&G line of cleaning products. The company's market research became more sophisticated when P&G chemist F.W. Blair began a six-month tour of U.S. kitchens and laundry rooms to assess the effectiveness of Procter & Gamble's products in practical use and to recommend improvements. After Blair returned, the economic-research department under D. Paul Smelser began a careful study of consumer behavior. Market research complemented Procter & Gamble's laboratories and home economics department in bringing new technology to market.
Soon after Richard R. Deupree became president of the company in 1930, synthetic soap products hit the market. In 1933 Dreft, the first synthetic detergent for home use, was introduced, followed by the first synthetic hair shampoo, Drene, in 1934. Further improvements in synthetics resulted in a host of new products years later.
Debut of Brand Management in 1931
In 1931 Neil McElroy, a former promotions manager who had spent time in England and had an up-close view of Procter & Gamble's rival Unilever, suggested a system of "one man--one brand." In effect, each brand would operate as a separate business, competing with the products of other firms as well as those of Procter & Gamble. The system would include a brand assistant who would execute the policies of the brand manager and would be primed for the top job. Brand management became a fixture at Procter & Gamble, and was widely copied by other companies.
The Great Depression caused hardship for many U.S. corporations as well as for individuals, but Procter & Gamble emerged virtually unscathed. Radio took Procter & Gamble's message into more homes than ever. In 1933 Procter & Gamble became a key sponsor of radio's daytime serials, soon known as "soap operas." In 1935 Procter & Gamble spent $2 million on national radio sponsorship, and by 1937 the amount was $4.5 million. In 1939 Procter & Gamble had 21 programs on the air and spent $9 million. That year P&G advertised on television for the first time, when Red Barber plugged Ivory soap during the first television broadcast of a major league baseball game.
In 1940 Procter & Gamble's packaging expertise was given military applications when the government asked the company to oversee the construction and operation of ordinance plants. Procter & Gamble Defense Corporation operated as a subsidiary and filled government contracts for 60-millimeter mortar shells. Glycerin also became key to the war effort for its uses in explosives and medicine, and Procter & Gamble was one of the largest manufacturers of that product.
Postwar Growth Fueled by Tide
After World War II the availability of raw materials and new consumer attitudes set the stage for unprecedented growth. Procter & Gamble's postwar miracle was Tide, a synthetic detergent that, together with home automatic washing machines, revolutionized the way people washed their clothes. The company was not ready for the consumer demand for heavy-duty detergent when it introduced the product in 1946; within two years Tide, backed by a $21 million advertising budget, was the number one laundry detergent, outselling even the company's own Oxydol and Duz. Despite its premium price, Tide remained the number one laundry detergent into the 21st century. In 1950 Cheer was introduced as bluing detergent, and over the years other laundry products were also marketed: Dash in 1954, Downy in 1960, Bold in 1965, Ariel (an overseas brand) in 1967, Era in 1972, and Solo in 1979.
The 1950s were highly profitable for the company. In 1955, after five years of research, Procter & Gamble firmly established itself in the toiletries business with Crest toothpaste. Researchers at the company and at Indiana University developed the toothpaste using stannous fluoride--a compound of fluorine and tin--which could substantially reduce cavities. In 1960 the American Dental Association endorsed Crest, and the product was on its way to becoming the country's number one toothpaste, nudging past Colgate in 1962.
Procter & Gamble began acquiring smaller companies aggressively in the mid-1950s. In 1955 it bought the Lexington, Kentucky-based nut company W.T. Young Foods, and acquired Nebraska Consolidated Mills Company, owner of the Duncan Hines product line, a year later. In 1957 the Charmin Paper Company and the Clorox Chemical Company were also acquired.
In 1957 Neil McElroy, who had become Procter & Gamble president in 1948, left the company to serve as secretary of defense in President Dwight D. Eisenhower's cabinet. He was replaced by Howard Morgens who, like his predecessor, had climbed the corporate ladder from the advertising side. In 1959 McElroy returned to Procter & Gamble as chairman and remained in that position until 1971, when Morgens succeeded him. Morgens remained CEO until 1974.
Paper Products Push Included Pampers
Morgens oversaw Procter & Gamble's full-scale entry into the paper-goods markets. A new process developed in the late 1950s for drying wood pulp led to the introduction of White Cloud toilet paper in 1958, and Puffs tissues in 1960. Procter & Gamble's Charmin brand of toilet paper was also made softer.
Procter & Gamble's paper-products offensive culminated in the 1961 test marketing of Pampers disposable diapers. The idea for Pampers came from a Procter & Gamble researcher, Vic Mills, who was inspired while changing an infant grandchild's diapers in 1956. The product consisted of three parts: a leak-proof outer plastic shell, several absorbent layers, and a porous film that let moisture pass through into the absorbent layers, but kept it from coming back. Test market results showed that parents liked the diapers, but disliked the 10 cents-per-Pamper price. Procter & Gamble reduced the price to six cents and implemented a sales strategy emphasizing the product's price. Pamper's three-layer design was a phenomenal success, and within 20 years disposable diapers had gone from less than 1 percent to more than 75 percent of all diapers changed in the United States. Procter & Gamble improved the technology over the years, and added a premium brand, Luvs, in 1976.
The company expanded its food business by entering the coffee market through the 1963 acquisition of the Folgers brand and by introducing the stackable Pringles potato chips, which were shipped in resealable cans, in 1968. P&G, however, had to contend with charges from the Federal Trade Commission that both its Folgers and Clorox acquisitions violated antitrust statutes. In a case that found its way to the Supreme Court, Procter & Gamble was finally forced to divest Clorox in 1967. The Folgers action was dismissed after Procter & Gamble agreed not to make any more grocery acquisitions for seven years, and coffee acquisitions for ten years.
In the late 1960s public attention to water pollution focused on phosphates, a key group of ingredients in soap products. After initial resistance, Procter & Gamble, along with other soap makers, drastically reduced the use of phosphates in its products.
In 1974 Edward G. Harness became chairman and CEO of Procter & Gamble and the company continued its strong growth. Many familiar products were improved during the 1970s, and new ones were added as well, including Bounce fabric softener for the dryer in 1972 and Sure antiperspirant and Coast soap in 1974.
In 1977, after three years of test marketing, Procter & Gamble introduced Rely tampons, which were rapidly accepted in the market as a result of their "super-absorbent" qualities. In 1980, however, the Centers for Disease Control (CDC) published a report showing a statistical link between the use of Rely and a rare but often fatal disease known as toxic shock syndrome (TSS). In September 1980 the company suspended further sales of Rely tampons, taking a $75 million write-off on the product.
Ironically, P&G was able to capitalize on the resurgence of feminine napkins after the TSS scare. The company's Always brand pads quickly garnered market share, and by 1990 Always was the top sanitary napkin, with over one-fourth of the market.
Food and OTC Drug Acquisitions in the Early 1980s
In 1981 John G. Smale became CEO of Procter & Gamble. He had been president since 1974. Smale led the company further into the grocery business through a number of acquisitions, including Ben Hill Griffin citrus products. The company also entered the over-the-counter (OTC) drug market with the 1982 purchase of Norwich-Eaton Pharmaceuticals, makers of Pepto Bismol and Chloraseptic. The company completed its biggest purchase in 1985, with the acquisition of the Richardson-Vicks Company, maker of Vicks respiratory care products, NyQuil cold remedies, and Oil of Olay skin care products, for $1.2 billion; and bought the motion-sickness treatment Dramamine and the laxative Metamucil from G.D. Searle & Co. These purchases made Procter & Gamble a leader in over-the-counter drug sales.
In 1985, unable to squelch perennial rumors linking Procter & Gamble's famous moon-and-stars logo to Satanism, the company reluctantly removed the logo from product packages. The logo began to reappear on some packages in the early 1990s, and the company continued to use the trademark on corporate stationary and on its building.
During fiscal 1985, Procter & Gamble experienced its first decline in earnings since 1953. Analysts maintained that Procter & Gamble's corporate structure had failed to respond to important changes in consumer shopping patterns and that the company's standard practice of extensive market research slowed its reaction to the rapidly changing market. The mass-marketing practices that had served Procter & Gamble so well in the past lost their punch as broadcast television viewership fell from 92 percent to 67 percent in the mid-1980s. Many large companies responded to the challenge of cable TV and increasingly market-specific media with appropriately targeted "micro-marketing" techniques, and Procter & Gamble was forced to rethink its marketing strategy. In the late 1980s Procter & Gamble diversified its advertising, reducing its reliance on network television. Computerized market research including point-of-sale scanning also provided the most up-to-date information on consumer buying trends.
In 1987 the company restructured its brand-management system into a "matrix system." Category managers became responsible for several brands, making them sensitive to the profits of other Procter & Gamble products in their areas. Procter & Gamble brands continued to compete against one another, but far less actively. The restructuring also eliminated certain layers of management, quickening the decision-making process. The company became more aware of profitability than in the past. A company spokesperson summed it up for Business Week: "before it had been share, share, share. We get the share and the profits will follow." In the later 1980s, Procter & Gamble was no longer willing to settle just for market share.
In the late 1980s healthcare products were one of the fastest-growing markets as the U.S. population grew both older and more health conscious. To serve this market, Procter & Gamble's OTC drug group, which had been built up earlier in the decade, entered a number of joint ventures in pharmaceuticals. Procter & Gamble teamed up with the Syntex Corporation to formulate an OTC version of its best-selling antiarthritic, Naprosyn. Cooperative deals were also struck with the Dutch Gist-Brocades Company for its De-Nol ulcer medicine; UpJohn for its anti-baldness drug, Minoxidil; and Triton Bioscience and Cetus for a synthetic interferon.
Noxell and Blendax Acquisitions in 1988
In September 1988 Procter & Gamble made its first move into the cosmetics business with the purchase of Noxell Corporation, maker of Noxema products and Cover Girl cosmetics, in a $1.3 billion stock swap. Procter & Gamble also planned to further develop its international operations. In 1988 the company acquired Blendax, a European health- and beauty-care goods manufacturer. The Bain de Soleil sun care-product line was also purchased that year. By 1989 foreign markets accounted for nearly 40 percent of group sales, up from 14 percent in 1985.
P&G's brand equity was threatened by the weak economy and resultant consumer interest in value in the late 1980s and early 1990s. This value orientation resulted in stronger performance by private labels, especially in health and beauty aids. Private labels' market share of that segment grew 50 percent between 1982 and 1992, to 4.5 percent.
To combat the trend, P&G inaugurated "Every Day Low Pricing" (EDLP) for 50 to 60 percent of its products, including Pampers and Luvs diapers, Cascade dish soap, and Jif peanut butter. The pricing strategy was good for consumers, but was compensated for with lower promotion deals for wholesalers. Some retailers objected to P&G's cut in promotional kickbacks to the point of actually dropping products, but others welcomed the value-conscious positioning. P&G redirected the money it saved from trade promotions for direct marketing efforts that helped bring coupon and sample programs to targeted groups for brands with narrow customer bases such as Pampers, Clearasil, and Oil of Olay.
In the 1990s Procter & Gamble also hopped on the so-called "green" bandwagon of environmental marketing. It reduced packaging by offering concentrated formulations of products in smaller packages and refill packs on 38 brands in 17 countries.
While P&G expanded its presence in cosmetics and fragrances through the July 1991 acquisition of the worldwide Max Factor and Betrix lines from Revlon, Inc. for $1.03 billion, it also divested holdings in some areas it had outgrown. In 1992 the corporation sold about one-half of its Cellulose & Specialties pulp business to Weyerhaeuser Co. for $600 million. While vertical integration had benefitted P&G's paper products in the past, the forestry business had become unprofitable and distracting by the 1990s. The corporation also sold an Italian coffee business in 1992 to focus on a core of European brands. P&G hoped to introduce products with pan-European packaging, branding, and advertising to capture more of the region's well-established markets. Meanwhile, Pantene Pro-V was introduced in 1992 and quickly became the fastest growing shampoo in the world.
Major Restructurings and Acquisitions in the Mid- to Late 1990s
Company sales surpassed the $30 billion mark in 1993. Under the leadership of Chairman and CEO Edwin L. Artzt and President John E. Pepper, Procter & Gamble that year launched a major restructuring effort aimed at making the company's brand-name products more price-competitive with private label and generic brands, bringing products to market faster, and improving overall profitability. The program involved severe cost-cutting, including the closure of 30 plants around the world and elimination of 13,000 jobs, or 12 percent of P&G's total workforce. Culminated in 1997, the $2.4 billion program resulted in annual after-tax savings of more than $600 million. It also helped to increase Procter & Gamble's net earnings margin from 7.3 percent in 1994 to 10.2 percent in 1998.
During the restructuring period, the company continued its brisk acquisitions pace. In 1994 P&G entered the European tissue and towel market through the purchase of Vereinigte Papierwerke Schickedanz AG's European tissue unit, and added the prestige fragrance business of Giorgio Beverly Hills, Inc. That year also saw Procter & Gamble reenter the South African market following the lifting of U.S. sanctions. The company altered its geographic management structure the following year. P&G had divided its operations into United States and International, but would now organize around four regions--North America, Latin America, Asia, and Europe/Middle East/Africa. In July 1995 Artzt retired, and was replaced as chairman and CEO by Pepper. Durk I. Jager was named president and chief operating officer.
In 1996 Procter & Gamble purchased the Eagle Snacks brand line from Anheuser-Busch, the U.S. baby wipes brand Baby Fresh, and Latin American brands Lavan San household cleaner and Magia Blanca bleach. In celebration of the 50th anniversary of Tide's introduction, the company held a "Dirtiest Kid in America" contest. Also in 1996 P&G received U.S. Food & Drug Administration (FDA) approval to use olestra, a controversial fat substitute, in snacks and crackers. The company had developed olestra after 25 years of research and at a cost of $250 million. The FDA go-ahead came after an eight-year investigation and included a stipulation that foods containing the substitute include a warning label about possible gastrointestinal side effects. P&G soon began test-marketing Fat Free Pringles, Fat Free Ritz, and other products made using olestra. No product containing olestra ever caught on in the market, however, and olestra was eventually considered one of the company's biggest product failures ever.
In July 1997 Procter & Gamble spent about $1.84 billion in cash to acquire Tambrands, Inc. and the Tampax line of tampons, thereby solidifying its number one position worldwide in feminine products. The company sold its Duncan Hines baking mix line to Aurora Foods of Ohio for $445 million in 1998.
In September 1998 P&G announced a new restructuring initiative, dubbed Organization 2005. In 1996 the company had set a goal of doubling sales from the $35 billion of 1996 to $70 billion by 2005. But sales stood at just $37.15 billion by 1998, only a 4 percent increase over the previous year--when 7 percent increases were needed each year. A key element of this restructuring was a shift from an organization centered around the four geographic regions established in 1995 to one centered on seven global business units based on product lines: Baby Care, Beauty Care, Fabric & Home Care, Feminine Protection, Food & Beverage, Health Care & Corporate New Ventures, and Tissues & Towels. According to a company press release announcing the new structure, "This change will drive greater innovation and speed by centering strategy and profit responsibility globally on brands, rather than on geographies." Jager would be the person leading the reorganization, as it was announced at the same time that he would become president and CEO on January 1, 1999, with Pepper remaining chairman only until September 1, 1999, when Jager would also assume that position.
In June 1999 Jager extended the Organization 2005 restructuring to include several new initiatives. The company said that by 2005 it would eliminate 15,000 jobs, shutter about ten factories, and record restructuring costs of $1.9 billion. The aims were to increase innovation, get new products to the market faster, and accelerate both revenue and profit growth.
In the meantime, P&G remained on the lookout for acquisitions and completed two significant ones in the latter months of 1999. In its biggest deal yet, Procter & Gamble laid out $2.22 billion in cash for the Iams Company, one of the leading makers of premium pet food in the United States, with annual global sales of approximately $800 million. P&G next acquired Recovery Engineering, Inc. for about $265 million. Based in Minneapolis, Recovery produced the fast-growing PUR brand of water-filter products, achieving $80 million in sales in 1998. Among new products introduced in 1999 was Swiffer, an electrostatic dusting mop that was part of a new category of household product: quick cleaning. The Swiffer line went on to become one of P&G's fastest-growing brands of the early 2000s. Also debuting in 1999 were Febreze, a spray used to eliminate odors in fabrics, and Dryel, a home dry-cleaning kit.
Early 2000s: Further Restructuring, Hair-Care Acquisitions
Early in 2000 Procter & Gamble placed itself in the middle of a major takeover battle in the pharmaceutical industry. Late in the previous year, Warner-Lambert Company had agreed to a nearly $70 billion merger with American Home Products Corporation (AHP). Pfizer Inc. quickly stepped in with a hostile bid for Warner-Lambert that exceeded AHP's offer. Warner-Lambert attempted to fend off Pfizer, bringing P&G into the picture in January 2000 to discuss a three-way deal involving AHP. But Jager was forced to abandon the white knight maneuver, which would have been a huge and risky move into the drug business, when word leaked out to the press and the company's stock price plummeted. Around this same time, Jager reportedly approached the Gillette Company, best known for its razors, about a takeover but was quickly rebuffed.
In June 2000, after the company issued its third profit warning in a year, Jager resigned. Taking over as president and CEO was A.G. Lafley, who had joined the company in June 1977 as a brand assistant for Joy and had most recently been in charge of the global beauty care unit. At the same time, Pepper returned to the company board as chairman. Lafley slowed down the rush to get products to market in order to make sure that they received the proper marketing support, while at the same time focusing more of the company's resources on shoring up its big core brands--the top dozen or so products, each of which brought in more than $1 billion in global revenues annually.
Among other developments in 2000, the Oil of Olay brand was renamed simply Olay in an effort to dispel the perception that the product was greasy. As part of an ongoing effort to focus on a smaller number of core brands, P&G sold Clearasil, the acne-treatment brand, to Boots PLC for about $340 million. The company also received FDA approval for Actonel, a prescription treatment for osteoporosis. Aided by a marketing partnership with Aventis, P&G was able to achieve $1 billion in annual Actonel sales by fiscal 2004.
Extending its 1999 restructuring still further, P&G announced in March 2001 that it would shed several thousand additional jobs over the following three years and double the amount of money it would spend to fix its operational problems. By the end of fiscal 2003, when the restructuring was declared to be complete, Procter & Gamble had cut about 21,600 jobs and incurred total before-tax charges of $4.85 billion. In the meantime, the company's fiscal 2001 results clearly showed the dismal state of affairs at that time: Sales fell nearly 2 percent to $39.24 billion, while net income plunged 17.5 percent to $2.92 billion thanks to after-tax restructuring charges of $1.48 billion.
In March 2001 Procter & Gamble reached an agreement with the Coca-Cola Company to create a $4 billion joint venture designed to join Coke's Minute Maid brand and distribution network with P&G's Pringles chips and Sunny Delight drink brands. But Coca-Cola pulled out of the deal just a few months later, having decided to try to build the Minute Maid brand on its own. Despite this setback, P&G succeeded in paring back its ever more marginal food business by selling the Jif peanut butter and Crisco shortening brands to the J.M. Smucker Company. The deal, completed in May 2002, was valued at about $900 million. In November 2001, meantime, P&G consummated its largest acquisition yet, buying the Clairol hair-care business from Bristol-Myers Squibb Company for nearly $5 billion in cash. The deal melded well with P&G's goal of securing faster-growing, more profitable product areas, such as beauty and hair care. Also acquired in 2001 was Dr. John's SpinBrush, maker of a battery-powered toothbrush featuring spinning bristles that at $5 was much cheaper than existing electric toothbrushes. Soon thereafter, the newly named Crest SpinBrush was successfully launched. Also brought out in 2001 were Crest Whitestrips, a tooth whitening product. These two new products helped increase global sales of the Crest brand by 50 percent, propelling it past the $1 billion mark during fiscal 2002.
In July 2002 Pepper again retired, and Lafley took on the additional post of chairman. Results for the fiscal year ending in June 2003 provided strong evidence that Lafley had engineered a remarkable turnaround. In its best performance in nearly a decade, Procter & Gamble posted an 8 percent increase in net sales, to $43.38 billion, and a 19 percent jump in net earnings, to $5.19 billion. P&G built on these results with another blockbuster acquisition--once again the largest in company history. In September 2003 the company acquired a controlling interest in Wella AG for $6.27 billion. Based in Germany, Wella was a leading maker of professional hair-care products with 2002 revenues of $3.6 billion. The deal provided P&G with an entrée into the salon market, where about half of Wella's sales were generated. Procter & Gamble also bolstered its dental care line by acquiring the Glide brand of dental floss from W.L. Gore & Associates, Inc. In September 2003, under a marketing and distribution agreement with AstraZeneca PLC, P&G began selling Prilosec OTC, an over-the-counter version of AstraZeneca's blockbuster heartburn medication, Prilosec.
In April 2004 Procter & Gamble reached an agreement to sell its Sunny Delight and Punica drinks businesses to J.W. Childs Associates LP, a private-equity firm in Boston. This further paring of the foods business left P&G with just two main food brands, Pringles and Folgers. The snacks and beverages unit accounted for only 7 percent of the company's total revenues in fiscal 2004. At the beginning of fiscal 2005 P&G realigned its business units, shifting its five previous units into three: global beauty care; global health, baby, and family care; and global household care. Pringles and Folgers were placed within the latter unit.
Sales for fiscal 2004 surged 19 percent, surpassing the $50 billion mark for the first time. Net earnings jumped 25 percent, hitting $6.48 billion. The newly invigorated company continued its streak of paying dividends without interruption since its 1890 incorporation, and it also increased its dividend for the 48th straight year.
Principal Subsidiaries: Cosmopolitan Cosmetics GmbH (Germany); The Folger Coffee Company; Giorgio Beverly Hills, Inc.; The Iams Company; Max Factor & Co.; Noxell Corporation; Olay Company, Inc.; P&G-Clairol, Inc.; Procter & Gamble Pharmaceuticals, Inc.; PUR Water Purification Products, Inc.; Tambrands Inc.; Vick International Corporation; Vidal Sassoon Co.; Procter & Gamble Australia Proprietary Limited; Procter & Gamble Inc. (Canada); Procter & Gamble France S.N.C.; Wella AG (Germany); Procter & Gamble India Holdings, Inc.; Procter & Gamble Italia, S.p.A. (Italy); Procter & Gamble Nederland B.V. (Netherlands); Procter & Gamble Switzerland SARL; Procter & Gamble Limited (U.K.); Thomas Hedley & Co. Limited (U.K.); Yardley of London Ltd. (U.K.).
Principal Operating Units: Global Beauty Care; Global Health, Baby, and Family Care; Global Household Care.
Principal Competitors: Unilever; Johnson & Johnson; Kimberly-Clark Corporation; Sara Lee Corporation; Kraft Foods Inc.; L'Oreal SA; Colgate-Palmolive Company.
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Source: International Directory of Company Histories, Vol.67. St. James Press, 2005.