The CPG holding company has parlayed cost cutting, from marketing in particular, into stronger bottom-line margins. But Peltz argues that the company’s improved margins obscure a dangerous inability to grow market share.
“Those ad savings should have been reinvested in other forms of brand-building to regain lost market share,” according to Peltz’s report. “Instead, management chose not to reinvest, in our view benefitting near-term earnings at the expense of long-term growth.”
P&G has also disregarded M&A, even divesting many of its mid-size assets, which Peltz described as a sign of the company’s failure to develop new or local brands. In the past half-decade, P&G spent $500 million on new brands as smaller rivals Reckitt Benckiser, Church & Dwight and L’Oréal spent $17.7 billion, $1.5 billion and $5.9 billion on M&A, respectively.
By rearranging P&G’s organizational structure and giving brands more control over their marketing at the expense of a top-down, controlled strategy, Trian forecasted better M&A results and stronger fingers on the pulses of local markets.
Gillette, the men’s grooming category leader that P&G acquired in 2005 for $57 billion, has seen market share shift to startups like Harry’s and Dollar Shave Club, which Unilever purchased for $1 billion last year. For Trian, this is an example of how advertising, corporate identity and M&A congeal in the form of market share.
Trian’s report alleges that Gillette executives pushed a direct-to-consumer subscription offering a year before Dollar Shave Club entered the market, but the idea was dismissed by corporate and the company’s sales team.
But P&G’s top marketer, Marc Pritchard, was resistant to Peltz’s ideas, telling AdExchanger last week that, “Splitting the company into three is a very bad idea. We've done a lot of analysis that indicates that it would add a lot more cost to the business.”
Trian remains one of P&G’s top investors, and the board’s near loss on a bitterly contested internal dispute won’t lessen scrutiny for the world’s largest advertiser.