Irwin Lee, guest editor, on P&G and the discounters

You’ve been running P&G’s UK and Ireland operations since 2007. Of which achievement are you most proud? Helping the business grow through a double dip recession, and to still have a vibrant, energetic, high morale organisation. In a lot of categories we have 40%, 50%, 60%, 70% share - holding that while adding a whole new business in haircare and a whole new business in toothpaste. I’m proud of that.

You’re part of a matrix. How much of a say do you have in NPD rollouts? It’s a joint decision, but the countries have a lot of influence in saying: will that work? Is it the right time? Is it not the right time? The upstream R&D development is [sometimes] done outside the UK, but we’re part of the decision that says ‘right, it’s time to take that one on. Or not.’

Because of the size and weight of the UK market, from a European standpoint, we tend to get a disproportionately high share of early launches. Always Discreet, for sensitive bladders, actually launched here first, even a month ahead of the US. And if we don’t, it’ll probably be because we’ve said it wouldn’t be the right time here.

So where do you still have most work to do and what’s right now? I’ve just been given the remit for northern Europe, so I’m looking at synergies and scale, of how we can have the Nordic markets benefit from the strengths and line-up the UK and Ireland has.

Conversely, there are some very cool digital innovations that the Nordic markets have - so we would want to share and reapply them. As an example, in the Nordic markets, that’s the home turf of SCA. So Pampers isn’t a 60% share like it is here - we’re a sort of challenger brand. So we may not be able to afford oodles of TV. But Pampers has launched a 100% digital program, and it’s working quite well. So there’s some things we can learn from a marketing standpoint. 

Aldi seems to pick on P&G quite a lot. They’ve even reverse engineered their Magnum washing-up liquid and added some extra bits, and it outperformed your Fairy in a Which test. And yet they tell us you have a good relationship with them. Is that how you view it? They’re absolutely right to say that. We do have a good relationship. One of the tricky parts of our job as suppliers, is how do we develop and maintain these relationships with multiple retailers, and so far, it’s working well.

“I think our relationship with Aldi is a good one in the sense that we respect them”

A couple of years back we made the right call. We were reading the market, we were saying, we have to be where shoppers are going. And we’ve had very good growth in the discounter channel [ever since].

By the same token, we then have to work with each retailer on what works for those formats. I think our relationship with Aldi is a good one in the sense that we respect them, I think they’re very good retailers, they really know their stuff. The strategy obviously works if you look at the results.

So which of your brands are in there, and what are you doing to progress the relationship? We’ve got Always in there, and Tampax. We’ve had some trials of Gillette SKUs and some Lenor lines. As they look to grow, our conversation with them is always around category development, and that starts with the consumer. We’ve said you’re growing nicely, well and good. But if you want to develop certain categories, would it not make sense that you go with THE brand in that category rather than do your own thing? 

They didn’t do that with Fairy, though, did they? In fact they made a virtue out of being both better and cheaper. We live in a very complicated world, where your customers are also your competitors. But that is not a new world. How is that different from a main grocer having an own-label product that’s also priced quite low? Their decision to invest in the formulation - they chose that as a differentiation route.

The main grocers could also make their own choices of formulation relative to how they want to price it. It raises the bar for us to try to compete on our merits, and to say, no, we will beat that product. I guess we have a mutual respect to say that we will each do our own thing to build our products. 

Have you developed special pack sizes for them? No - that’s the one thing we’ve said we won’t do. That’s how we can look anyone in the eye with a clear conscience and say these line-ups are fair, they’re in our price lists, anyone can come and ask for them.

We wanted to stay true to our fair trading principles, and our fair trading principles. This is open for anyone - if somebody wants it, then we can have a conversation, if they don’t want it, that’s their choice. And when you look at Aldi’s model in terms of pricing brands, they are an everyday low price model.They’re just averaging what they see in the market.

I think if you speak to them, it doesn’t look like they are out there to destroy. They’re not trying to take the market further down. They’re not the leading player that does a cut-throat deal to undercut the market - at least we don’t see them do that.

The big four are really strong in the face of the discounters. Do you have any advice for them? Are there easy ways in which supermarkets could improve the way they merchandise your categories, for example? This pure obsession with price will always be a barrier, and it’s a difficult habit to break. It’s become a point of parity, but everyone’s sort of fighting in that space. But as a buyer, what else can I do except try to be competitive about price? That’s the dilemma, isn’t it?

“A lot of our purchases are moving online, so we’re trying to see how we can capitalise on that”

Price is not proprietary. It’s the easiest and fastest to match. If you were only merchandising in one dimension, that’s the challenge. But they should be working with suppliers on events. One of the things we did well was using the Olympics to deliver uplift. You don’t have an Olympics every week, but you can create other opportunities. If they would be more open minded to branding partnerships - events in the stores where we bring in different dimensions to the shopper beyond just the price - then I think that would be a very good first step.

Looking now at some of your categories, you’ve acknowledged that it’s been tough, and you say that the economy is starting to turn. But even with the exit of Huggies, Pampers has been struggling. Is that the Aldi effect? It’s the Aldi effect, and the own-label growth effect. We’re not going to chase the price down. If you look at the value side, it’s not as bad.

If you look at markets like online, we’ve done well. A lot of our purchases are moving online, so we’re trying to see how we can capitalise on that. It is an inconvenient thing to lug around in the store. So I think that’s the direction of travel. And last year’s hump has passed - with the exit of Huggies you had that disruption - and we’re now seeing good growth again. 

What are you doing to stem the falling sales of Gillette razors? We’ve got a trend here, which has grown and grown - the stubble effect. That’s the key category dynamic we’re faced with - we have to look for ways to get consumers back. But we are working on people who are starting to shave. I would like to think it’s cyclical - trends and looks go in waves. I can’t tell you the length of the cycle, so we’re already seeing some signs that there may be new trends. George Clooney is back to clean shaven.

And the coming of Flex Ball will be instrumental. Every time we do a big platform upgrade like this, you get the category growth, and that’s what we’ll be aiming to do. Has the cost model for razors - cheap razor, expensive blades - changed, and would it help if you lowered the cost? We probably needed to do much more communication of the actual pence per shave, because when you get down to that, it gives you a different outlook all together. It’s actually not that expensive.

The way the technology is done is to give you a much better product, which is supposed to last that much longer than the previous generation. The margins are good - they’re appropriate to be able to invest on the next big blockbuster developments. The Gillette model is the way it is because you can’t wait for the innovation and then charge a 25% jump. So I think the way the model works is steady, very low-level increases. But these are all intended to fund the R&D that goes into the next blockbusters and there’s a whole pipeline of them.

Which sectors of personal care are underdeveloped? I would say the oral care space. We have been very pleased with power brushing, for example. We have grown power brushing penetration from 20% to 30%. But that’s still only three out of 10, and it’s a much better way of brushing - so I think that’s still ripe for further development.

We have a lot of the technologies than can develop oral care further. The trend of personalisation will also provide some very interesting challenges for personal care as the name implies. We see a lot of those trends in hair colour for example. I think that will continue to develop - it presents a challenge because we don’t want too much proliferation, but we’ll have to find a way to cater to the desire of people who want to be very unique, very specific. Even on the male grooming side, we’ll have to create products that allow ourselves to ride that personalisation trend.

In skincare, both you and Unilever have developed male versions of established women’s brands, and not distinct male brands. Why? We have the most male brand in Gillette. We’ve dabbled into some aspects of Gillette skincare but not in a big way…

So there’s more work to do on that aspect. Other parts of the P&G world have experimented with things like Olay For Men - we haven’t done that here. That’s an example of the iterative conversations we have with the [HQ]. They’d say, would you like to or can you do this, and I’ve said no, so it hasn’t happened here. I don’t think that’s going to work. 

You came to this job in the UK, having never lived here, and you’re able to make judgement calls like that - how do you do that? I’ve lived in six countries, and everywhere I go I want to immerse straight in, get into the pop culture, get into the local communities, so I have a personal feel for everywhere I go. And I’m surrounded with great people - part of my leadership style is open, transparent, collaborative, to get different points of view on the table. I may have to make the final call but it’s very important for me that I get a full swathe of points of view. I complement my own judgement, my own instincts, with the people around me. 

The Grocer commissioned a poll showing the British don’t have the best personal hygiene routines. Is P&G there to clean us up? I think it’s naïve to think you’ll convert 100% of men into metrosexuals. I think you will always have a segment of the men who increase their interest in personal care products.

“We’re very conscious that we don’t just keep adding to the SKU count”

We also know from our studies that women actually buy the stuff for the men - so we acknowledge that phenomenon’s there. When we distinguish between a shopper and a consumer, the shopper might be the wife or the girlfriend, and the consumption is actually by the male. So we have to go to both ends. But it presents an opportunity. If people say that Beckham’s retired, it presents an opportunity for us to have another wave of this if we think about it and get it done right.

P&G has promised to cull half its brands. When do you find out which ones are on the block, and do you have a say? The honest answer is we are not involved. We only know when A&M are close to a deal.

So for example in the Iams divestiture, in petcare, we only get to know once they’ve made a decision to sell the brand. And if you remember in that particular deal, they sold first the American business to Mars, and they were not yet able to sell the European or Asian parts. But we were told that it was for sale. But up until that point - we have no knowledge of what they’re looking at. What I do know is we will be value creation driven, not timing driven. [P&G] want to get the right price. They won’t rush this. 

Is half a formal target? The rationale is an acknowledgement we have done more and more, more lines, more SKUs, more brands. And that really hasn’t generated more growth - so AG’s [AG Lafley, P&G CEO] made a decision to move more towards focus, and he’s looked at the number of brands that account for about 90% of our business, of our sales and our profit, and rightly questioned what are the rest contributing to the party? And he’ll take a decision one at a time. We haven’t heard whether it’s a formal target, but it’s sort of a framework for them to operate their assessment on. And there’s no use speculating on which are going to go.

You’re basically saying less is more. What about SKU rationalisation? We are doing our own homework on our version of what is more for less, or more for the same. We’re very conscious that we don’t just keep adding to the SKU count. This ‘SKUs for news,’ that’s the old way of doing things. When you look at how much space there is, and it’s all filled up, you’ve really got to come in with something that’s truly value adding. For the rest of the brands, our mission is very clear. We will drive all of our brands, so that when decisions get taken globally, they’re in the best shape to create value. 

Personal care is more fragmented, household more consolidated. Do you anticipate that most of the brands that will be going would be in personal care? I can’t say. Because when I look at actions that have been taken, we’ve sold some bleach brands, which is on the household side, and petfood is on the health/petcare side, so it’s hard to say where that would go. Iams has done well for us. It’s had good growth in the last couple of years, it’s come back from the recession well, it’s had good advertising with a good value claim, it’s been a growth driver for us. We continue to focus on good performance, and that has allowed us to derive the best value out of that sale.

In last week’s issue, our OC&C 150 report found the most successful brands are the most nimble, agile ones. Where does that leave you? We could always be faster and better. We are trying to marry speed with the discipline and robustness of our product development efforts. When you’re in an online product digital space you can be extremely fast, but you’re actually creating physical products.

You do require a sufficient amount of timeline - it doesn’t have to be five years, but there are some physical constraints of how fast you can change packaging, change formulation. We’ve made some specific choices of what we wanted to go after - the haircare, oral care stories we talked about - in our mainstay products, we were conscious about how we wanted to move the category to the forms of the future. When you look at the pace of change in laundry - our biggest business - we’ve brought in gels, and now three pod iterations. That pace of innovation, every couple of years, is decent, I would say.

While Unilever was restructuring to be leaner and fitter, some have suggested P&G has been stuck in an overly bureaucratic past. Is that fair? You could argue Paul Polman has taken the P&G playbook, and repeated it at Unilever to great success. It’s all a matter of timeline perspective. The changes you are describing, at Unilever and many other companies, were changes we made a decade ago…

What you’re witnessing is people catching up. We are five-10 years ahead of people [our competitors]. When you hear people say, we’re doing a shared service centre, well we did that 15 years ago. So they consolidated all their disparate category structures in the UK into one place. Well we did that 12 years ago. So when you look at that, are we nimble, are we fast? I think we’re very fast, very lean. I run my business reviews on a monthly basis. I can talk to three people, and in 40 minutes, I know the entire business.

But Unilever is growing and P&G is not, or at least not at pace? That’s not necessarily true. It’s a question of footprint. We have been growing at 3% to 5%. But we’re starting from a disadvantage, because we’re 60%+ developed. Let’s call it, for simplicity, a question of developed versus developing. Suppose two companies are growing 10% in developing markets, and the developed market is zero. If your footprint is 60/40 one way, and the other guy is 60/40 the other way, you have a two-point difference straight away. That’s what’s going on.

There’s a growing consumer interest in the provenance of food - have you noticed this in your categories? Not in the same way that you see it in food. We haven’t really seen that pull - what you see more is, are things organic, are they good ingredients, are they kind to skin?

You’ve made commitments to palm oil sustainability. What is the progress of those? We delegate that up the supply chain. Progress is being made. We’ve always had a commitment to sustainable sources of palm oil. The challenge is the supply chain: to get to the actual source is quite difficult. Even if we ask for a certification from the supplier we buy from directly, there may be many more steps. We are working with the Malaysian Institute of Supply Chain Innovation - they’re affiliated with MIT. We don’t profess to know all of the answers.

Post-Horsegate, how do you protect yourselves against fraud? We have a very rigorous supply chain programme. We also - and are maybe unique in this respect - do a lot more of our own in-house production, rather than contract manufacturing. We have much more end to end control - that’s how we safeguard it. 

We’ve talked a lot about the discounters, but we haven’t really talked about the shift from big shops to top-up shopping and online - what impact are these having on your business? It’s even more important that we’ve got range line-up and sizes right, not to the point of proliferation, but the thing about the trend is it’s not a swing from one to another, but a spread of more things.

We’re looking at making sure that our line-up has all the price points and sizes represented, because there are still people buying big sizes, but that we have the right price points and sizes for top-up shopping. We’ve looked at our offerings that can perform well in convenience, and very interesting will be the development of online, which is still in the very early stages.

We are looking at what Amazon calls frustration-free packaging. We don’t have all of the answers but we’re in very open conversation with what we want to learn, what will help in terms of logistics cost, in delivery. So in many of our categories we’re looking at that. It’ll be a bit of a challenge for some retailers than need exactly the same in store and online. The more they can differentiate, the more we can do something unique about it. 

Direct selling - what’s your take on it? I think the first thing to say is we would have to make a strategic choice and intent to become a retailer if we wanted to pursue direct selling, and we have not made that choice. We know what we’re good at - we’re a branding company. We are not about to become a retailer.

When you look at categories like consumer electronics, you can see they sell from their own site, but they still sell through retailers and other sites. So there could be a coexistence, if you will. But we’re not pushing that very hard because I would say we’re very new into trying to understand the motivations of consumers - where would they shop directly, and where do they go to do their one-stop shops.

“We know what we’re good at - we’re a branding company. We are not about to become a retailer”

This may change but as of today we still can’t see that a consumer would say, I’ll just go into the Ariel site to buy my Ariel, and then the Fairy site to buy Fairy. We have tried some direct selling from brand websites. We’ve done some experimentation on some of our beauty products, and even there it’s not going to be the bulk of where a woman goes to find all of her skin and cosmetics needs.

But there’s no question about small shops and online, as you look at urbanisation, and the rise of higher population in big cities, that will continue to drive online. If you look at the data of people shopping before in about three stores, now five, the last place I think we should be looking at is how data, mobile, transparency, and mobile data [facilitate] people doing a comparison shop. If they’re going to five stores, you then have these very savvy shoppers who know how to get list 1 to 7 here, list 8 to 10 there etc.

And how do you see the shape of the core retail market in the future? The demise of big stores is probably a little overblown. There will continue to be a role for relatively big stores. But they will have to evolve. I wonder whether we will begin to think of big stores as small malls. You could argue there was a bit of that early thinking in what Tesco tried to do with coffee shops, bakeries and restaurants. That might be one manifestation, It might not be totally right.

When I travel around the world, I have seen certain stores that have a bike shop inside - and it drives footfall. Or entertainment areas, that kind of thing. But the evolution of the big store will be very interesting to watch. 

So would you ever consider a move into retail, like Dave Lewis? I’m extremely happy with P&G. I’ve travelled the world, I’ve lots of great professional experiences, and P&G was kind enough to give me a second term here for personal and professional reasons. I’ve just turned 50 in June, and I’ve got twin boys that are going to university next year, so for me I’m just focused on the job at hand. When I get a tap on the shoulder, I will be grateful. I don’t know when it will be. I think I’ll take it a step at a time.

And what’s your one piece of advice to Dave Lewis? I think he’s already on it. Get back to what the customer wants, listen to the customer needs. If you follow down that path, all the rest will fall into place.