P&G Hopes Its Household Helpers Will Also Boost Its Growth

To aid its sales and its stock, Procter & Gamble needs to create whole new product categories and think creatively about building on its existing brands.
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For Jim Dormer, an analyst at

Morgan Stanley Dean Witter

,

Procter & Gamble's

(PG) - Get Report

two newest products are big helps around the house. Home dry-cleaning kit

Dryel

cuts down on trips to the cleaners, and souped-up floor sweeper

Swiffer

is Elmer Fudd to household dust bunnies. "My wife got upset when I told her we couldn't buy any more yet," says Dormer.

For P&G, though, Dryel and Swiffer are the first baby steps in what the company hopes will be a return to swifter growth. Despite having some of the most famous names in the supermarket, including

Tide

,

Charmin

,

Scope

and

Cover Girl

, simply rolling out brand extensions hasn't been enough to fuel big revenue gains.

Annual sales growth has averaged an anemic 3.6% in the three fiscal years that ended in June 1998. And the company's stock has disappointed. For instance, it's off about 3% this year, compared to the

S&P 500's

10% gain.

To change that, P&G needs to create new product categories out of whole cloth, like it has with Dryel and Swiffer, and think creatively about ways to build on its existing brand franchises.

Analysts put first-year sales for Dryel and Swiffer at $300 million to $500 million each. That would be massive for most of its competitors, but for P&G, with more than $37 billion in sales in fiscal 1998, it's no biggie.

Still, analysts and investors are watching the latest product rollouts with interest. "They're not suggesting that any one of these is a silver bullet, but collectively it's a pretty healthy indication that this big ship called Procter is beginning to change course a little bit," says Mark Godfrey, an analyst with

Invesco Funds Group

, which owns P&G shares.

Dryel, Swiffer, odor-control spray

Febreze

and the recently launched

Oil of Olay

cosmetics line are among a list of about 20 "doubles and triples," if not home runs, that P&G has planned, says Morgan Stanley's Dormer, who rates P&G an outperform. His firm hasn't performed any recent underwriting for P&G. P&G is also testing a thick plastic wrap, called

Impress

, that could be used for food storage.

P&G's Organization 2005, the $1.9 billion reorganization it announced June 9, includes plans to cut the time it takes to develop new products. Dryel took about six years from idea to shelf, but that's still longer than the company would like, says Damon Jones, a P&G spokesman. "We're looking to streamline everything from consumer research to technology."

The launch process for Dryel and Swiffer bears some of the hallmarks of the newer, shorter development cycle. Test marketing for Dryel, for example, began with 150,000 households in Columbus, Ohio, in 1998, but it was rolled out in Ireland about a year later in anticipation of a global expansion. Formerly, the mindset would have been to "win in the U.S. and then take it country by country," says Jones. But shipments to Europe will begin this fall, and a Latin American rollout will likely proceed next year.

"They're trying to create new categories, and they're going to market with a much more cohesive marketing strategy," says William Steele, an analyst with

Banc of America Securities

who rates P&G shares a buy. His firm hasn't done underwriting for P&G.

P&G sold Dryel over the Internet before it hit stores. In addition to a nationwide ad campaign launching later this summer, the company is using kiosks and a marketing campaign with clothing maker

Liz Claiborne

(LIZ)

to help get out the word about Dryel. "We're aggressively looking at how we educate consumers about new products," says Jones, the spokesman.

That's particularly relevant in the case of Dryel, which many consumers may not initially understand. To use the kit, consumers apply a stain remover to spots, put as many as four garments in a special plastic bag along with a dryer sheet and toss the whole shebang into the dryer for 30 minutes.

A package that cleans as many as 16 garments sells for about $10. A study by the

International Fabricare Institute

found the product removed odors and most water-soluble stains like grass and blood but wasn't as effective at removing oil and chocolate.

Swiffer, meantime, is used much like a normal household sweeper, except that its cloth creates an electrostatic charge to suck in dirt instead of just redistributing it around the room, P&G says. It'll sell for about $15, with refill packs costing less.

Besides developing new product categories, P&G is focusing on leveraging existing brand names across several categories, as it's done with its well-received Oil of Olay color cosmetics line, launched earlier this year. "They've got so much brand equity in the stable," says Godfrey at Invesco.

Efforts in product development, combined with 15,000 job cuts, standardized production and organization of product lines by brands rather than countries, could help improve P&G's earnings growth. Analysts expect the company will report fiscal fourth-quarter earnings of 53 cents per share, according to

First Call

, up from 47 cents a year ago, when it reports earnings this week.

While investors and analysts are enthusiastic about the early signs of P&G's latest restructuring initiative, they say significant improvements in earnings and stock performance won't come for a bit longer. "The future of P&G is probably still a few quarters away," says Burt Flickinger, managing director of

Reach Marketing

in Westport, Conn., and a former P&G executive. Reach hasn't done recent consulting work for P&G.

Thanks to Swiffer, though, the dust bunnies in analyst Dormer's home may be gone as early as this week.