uploads///Q Innovation

Will Innovation Drive 2Q16 Revenues for Consumer Packaged Goods?

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Jun. 20 2016, Updated 9:08 a.m. ET

Competition drives innovation

Due to intense competition, growth for consumer packaged goods companies depends on successful identification, development, and launch of innovative new products. In its fiscal 3Q16 earnings release, Procter & Gamble (PG) announced continued investments in innovation, new user trials, and improved consumer value.

For example, during Procter & Gamble’s 18th birthday sampling program, the company plans to come out with the FlexBall razor handle and the ProShield cartridge. Last year, Fusion ProGlide FlexBall razors were put through sampling and saw a 33% increase in more than a year.

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Regional innovation

Colgate-Palmolive’s (CL) approach is to focus on regional innovation and product localization, depending on the market. In India, Colgate rolled out its Pain Out. Tooth pain is one of the most common dental problems for Indian consumers. In addition, Colgate Active Salt toothpaste was launched in India with three variants: original, with lemon, and with Neem to capitalize on the naturals segment.

Brand penetration

According to Kantar Worldpanel, Colgate added the most shoppers to its portfolio in 2015 for the second consecutive year, recruiting 40 million new households. Dove (UL) and Lay’s (PEP) attracted 31 million and 25 million shoppers, respectively.

In-store innovation and creating demand

All these companies focus on in-store innovation in order to attract consumers as well as meet retailer expectations. For example, Procter & Gamble’s introduction of hard tags makes it much easier for consumers to shop for Gillette products. This also helps retail customers move out of lock boxes on shelves to easy hard tags at checkouts as well as on e-commerce sites.

Clorox (CLX) is producing innovative products in order to create demand in a highly competitive food and beverage industry. Unilever’s (UL) Best Foods salad dressing and Knorr sauces compete with CLX’s products inside and outside the United States.

CLX and PG together make up 1.2% of the iShares Core S&P Total US Stock Market (ITOT).[1. updated June 15, 2016]

In the next part of the series, we’ll focus on inventory levels and margins for consumer packaged goods companies in 1Q16.

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