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P&G Detergents and Razors Are Big Winners

Procter & Gamble leads the $45.5 billion global detergents market with about 32% market share; its share of the $14 billion global grooming market is 49% as of 2009.




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Procter & Gamble

(PG) - Get Report

is a leading manufacturer of consumer products under various segments such as beauty, grooming, health care, snacks, pet care, household care and baby care.

We believe 1) Detergents (Tide, Ariel) and Household Cleaning (Down and Cascade), and 2) Gillette (Mach3, Fusion, Venus) and Braun are the most valuable segments for P&G for the following reasons:

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Detergents Market Share Is Smaller, but Market Is 2x Bigger Than Grooming Products Market

Procter & Gamble leads the $45.5 billion global detergents market (including laundry detergents like Tide & Ariel) with about 32% market share, making its products easily the most popular and most widely available laundry detergents globally, especially in the U.S. Tide, Downy and Gain brands have a near monopoly in the U.S. detergents market with close to 70% share.

In comparison, P&G's share of the $14 billion global grooming market (including Gillette and Braun brands) is 49% as of 2009. Gillette has gained substantial brand equity from years of heavy investment into R&D and advertising campaigns such as the title sponsorship of football world cup from 1960 to 2006.

High market share, coupled with brand recognition among consumers worldwide, offers Gillette an opportunity to expand its other shaving products and male grooming products and increase its overall market share of grooming market sales in the future.

Profit Margins for Grooming (Gillette and Braun) Brands Higher Compared to Detergents & Household Cleaning

Gillette (Mach3, Fusion, Venus) and Braun have profit margins of 35%, which is higher than 27% margin for P&G detergents & household cleaning brands. In fact, Gillette (Mach3, Fusion, Venus) and Braun have higher operating margins than P&G's overall business and any of its other brands. This is driven in part by low manufacturing cost of razors and blades sold.

The presence of low-cost competition from generic products gives Gillette an incentive to innovate and introduce better products such as Fusion, a six-blade razor. This gives it an opportunity to charge higher prices by expanding into the premium product segment, thereby increasing its revenues and operating margins in the future.

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our complete model for P&G's stock here.


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