Procter & Gamble is a emerging market company


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On Friday, the headlines on Procter & Gamble ( PG , quote ) announced a change in CEO, going back to the future with a reappointment of AG Lafley, replacing his replacement, Bob McDonald.

The headlines were about unhappy activist shareholders and U.S. margin declines, slower revenues, and brand loyalty.  What the headlines failed to address is that P&G is an emerging market company and this is where their future is tied.

Right now they are losing the battle to local producers and Unilever ( UN , quote ). Procter & Gamble is an emerging markets company whether they want to be or not.  The changes that are were (are) demanded from shareholders logically tell you that.

They need to grow the top line by delivering in Asia, Latin America and the Middle East.  The problem here is that despite having the right strategy, Bob McDonald did not execute successfully in emerging markets.

A quick look to the top line tells you that Procter & Gamble has actually done a great job moving overseas.  In the last decade, North American sales have shrunk from 54% to 38%, while Asia has moved from 11% to 19% and Middle East Africa/Latin America has moved from barely registering to now 26%.

People have pointed to the change in CEOs as something that is similar to JC Penny ( JCP , quote ), bringing back the old trusted hand and replacing the guy who a bold new strategy.

This is not JCP scenario; this is more complicated as a company with 126k people globally must deal with local labor, regulations, and cultural elements.

Procter & Gamble has not failed here but it has not gotten this right. Unilever is eating their lunch as they have done a better job of marrying higher margin products to the emerging markets consumers who are not able or willing to pay more.

Lafley knows the U.S. consumer and is a brand genius, but has not understood the global consumer.  For Procter & Gamble the future is Africa and South East Asia.  Procter & Gamble needs to get the Brazilian consumer down, and understand how to better navigate Russia.

Focusing on premium products and the U.S. consumer is not the way home for Procter & Gamble. Does the emerging markets consumer need Tide and Bounty?

They need paper towels and laundry soap.  PG must continue to grow in emerging markets but needs to understand its customers.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks

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