Will Procter & Gamble Sell Braun?

P&GAccording to Bloomberg, Procter & Gamble is considering selling some of its beauty brands. In 2014, the beauty portion of its business accounted for 24% of the company’s total revenue at $19.5 billion. Procter & Gamble is the home of some of the most recognized beauty brands including: Braun, Olay, SKII, and Covergirl. The beauty division contracted by 2% for the last two years and has the lowest margin. Now Bloomberg is reporting that Procter and Gamble have sent out sale documents for Wella Care, the fragrance division, and other divisions. Forbes states that the combined sale of these divisions could amount to over $19 billion. Buyers could include Revlon, Unilever,and Henkel.

There have been rumors as early as last year that certain divisions under Procter & Gamble would be up for sale in a major revamp of the company. In August of 2014, the company said it would cut 80 to 100 product lines to create a stronger focus. The company is in the process of identifying and retaining its strongest brands and downsizing the rest.

Ali Dibadj, an analyst at SanFord C. Bernstein, said the fragrance division was a likely candidate. Dibadj also speculates that Braun may also be a likely candidate. Braun makes high quality epilators, electric shavers, trimmers, and toothbrushes. The division was acquired when P&G purchased Gillette for $57 billion. Braun is the 13th largest brand under Procter and Gamble.

Salon brands including Wella, Vidal Sassoon and Clairol are not really part of P&G’s expertise .Both Charmin and Puffs have very low returns which could make them also candidates.

The company has already sold the Duracell battery business to Berkshire Hathaway and Camay and Zest soap to Unilever.

Procter & Gamble has failed to keep up with competitors like L’Oreal and Estee Lauder. A recent article by Seeking Alpha, explored why Loreal and Estee Lauder are flourishing while Procter & Gamble is struggling.

Loreal and Estee Lauder have better capitalized on market signals by reacting appropriately to them. Estee Lauder makes more than 40% of its revenue from the skincare segment. Recently sales have been declining in the United States, because consumers are looking for innovation. Estee Lauder countered by creating new innovative skin formulations such as masks and oils. The company has also acquired Glamglow and Rodin, which create products in those specific categories.

In China, L’Oreal pulled out of the hair care market. Instead, it acquired Magic Holdings in order to reach the Chinese market.

Loreal and Estee Lauder target different customer segments with different product lines. Loreal’s Urban Decay and Estee Lauder’s Mac are geared to the younger set. Loreal Age Perfect and Estee Lauder’s Revitalizing Supremes lotions are for the older crowds. Both these companies also acquire relevant brands.

Procter and Gamble has failed to make the appropriate changes to its lines. In the early 2000s, Procter and Gamble successfully transformed its Olay line but have not kept up with the market as of late.

Research is important to both Loreal and Estee Lauder. Loreal has the largest team of researchers with a budget of over $1 billion in 2014. Loreal believes that both skin care and hair care are two cornerstones in the global market. As a result, Loreal acquired Coloright, an Israel based hair research startup. Similarly, Estee Lauder has a large research component and spent $157.9 million in 2014 on R&D. P&G has so many different product lines and it doesn’t dedicate as many resources on R&D.

Loreal has also been successful is widening its distribution channels. In 2014, they acquired Decleor and Carita from Shiseido.

With the rumored sales, investors are waiting for the ax to fall on other struggling divisions. Will Braun be next?

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