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P&G Seeks Growth in Poorest Places on Earth

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As David Holthaus of the Cincinnati Enquirer reports, "P&G's future is in the tangle of makeshift stalls at Oke-Aje market, 5,000 miles from the company's trademark twin towers in downtown Cincinnati."

In an exclusive look at Procter & Gamble's (PG) marketing efforts in Nigeria, Holthaus takes readers inside the world's largest consumer products company's attempts to gain a foothold in a land of 1,000,000,000 "new consumers."

Holthaus says "Africa is a key part of the most ambitious international expansion plan in the company's history," but for the initiative to be a success, P&G has some fairly challenging hurdles to overcome.

"To grow here," he explains, "P&G must persuade people who live on $5 or less a day to buy items they've forever lived without. The company must travel dirt roads to stock 300,000 stores, most of them open-air marts. It must manufacture products in places where power is unreliable and crime is a constant threat."

So, why the rush to the region?

"That's like asking John Dillinger why he robs banks," Werner Geissler, P&G's vice chair of global operations, told the Enquirer. "Because that's where the money is."

That it was Willie Sutton, not John Dillinger, who made the famous statement about the bank robbery business, is neither here nor there. But it appears that P&G sees its current African sales as something of a loss-leader that will cement its position among consumers as the continent becomes more affluent.

Holthaus points out that "P&G is targeting sales to a rising middle class in growing economies like Nigeria's. Still mostly poor by U.S. standards, these customers are able to buy larger sizes of products more often, as they get hooked on a brand."

He continues:

In Nigeria, many people can barely afford a bar of Ivory soap, let alone a luxury such as disposable diapers.

Expanding into this country and the rest of sub-Saharan Africa has required an about-face at P&G. The company has thrived on charging premium prices for premium products, adding innovations, pushing "new and improved" brands and charging more.

But in Africa the strategy is just the opposite. In these markets, P&G sells no-frills versions of its products in much smaller sizes.

Ali Dibadj, who covers P&G for Sanford Bernstein, asserts that, by locking up 10-20% of sales in "the company's top 30 emerging markets would add $5.9 billion in new sales in five years."

And once those markets are no longer "emerging"?

"There's plenty of room to keep growing," CEO Bob McDonald told investment analysts in December. "We will grow by entering or creating entirely new markets."

POSITION:  No positions in stocks mentioned.