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What Are Colgate’s Key Growth Drivers?

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Innovation for growth

Colgate (CL) manufactures and sells household products. Despite difficult economic conditions, Colgate delivered higher organic growth and profitability for the year 2014. While reported sales declined 1%, organic sales grew 5%. Unit volumes grew 3%, while average prices rose by 2%.

Colgate’s continued growth depends on the success of its existing products as well as the successful identification, development, and launch of innovative new products and line extensions. Apart from Colgate, peers like Procter & Gamble (PG), Unilever (UL), Kimberly-Clark (KMB), and Clorox (CLX) also focus on providing goods of superior quality and value to its customers around the world.

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Growth from emerging markets

Kantar’s Global Footprint report reported that emerging or fast growth markets are where 85% of the population lives. That’s a prime reason why FMCG (fast moving consumer goods) firms like Colgate, Unilever (UL), and Procter & Gamble (PG) are looking at these markets for future upside in sales.

Kantar World Panel forecasts that FMCG value in developing countries will grow by 7% in 2015. According to the report, “Colgate, however, is the brand which is recruiting the greatest number of shoppers, most of whom are in India.” Colgate reaches more than half the world’s households, while other brands including Coca-Cola (KO) still do not penetrate the majority of households.

Consumer behavior

A rise in disposable income in emerging markets, especially in India, is fueling a change in the purchasing habits for consumer staples (XLP) products.

Kantar’s Global Footprint report mentions that Colgate is the only global brand to make it to the top ten list of brands in India, as Colgate reaches over 85% of Indian households.

Mature markets like the US, Canada, and Europe have also seen a change in consumer behavior, as there is an increasing demand for Hill’s pet nutrition products. This is due to the growing population of pet owners in these markets.

Colgate makes up 0.3%[1. Updated as on July 14, 2015] of the iShares Core S&P 500 ETF (IVV).

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