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P&G Bets Big on "Tide Pods" As It Struggles to Control Costs

Procter & Gamble (PG) apparently cannot resist the Steve Jobsification of everything: The company is launching a new laundry detergent line called "Tide Pods," a super-concentrated laundry "tablet" in a fancy new container. (It will not come with front-and-rear cameras.) The launch, expected in July, will be backed by a $150 million ad campaign, likely from Saatchi & Saatchi which has handled Tide in the U.S. for years.

Much is at stake in the Tide Pods launch. P&G's fabrics business is its largest revenue segment, at 29 percent of the company (see page 15), and Tide is one of its flagship "billion-dollar brands." Where goes Tide, goes P&G.

P&G's immediate problem is that sales are flat both overall and for fabrics specifically, and its net income is down following the sale of some properties and higher commodity prices. (The company has seen some volume increases on its lower-priced brands in foreign countries.) P&G needs new revenue streams and new premium-priced products in the U.S. to justify the price hikes it needs to maintain its margins. Enter Tide Pods.

Here's Ad Age's baffling description of the new product:

The packaging and three-chamber product certainly are different than anything U.S. consumers have seen before. Tide Pods have an orange and blue swirl pattern from two smaller chambers on top of a larger chamber of white fluid, all housed in a clear fishbowl-style container with a flip-top lid.
It's easier to imagine when you look at P&G's European tablet detergents, which are already on the market. Luckily, a laundry detergent obsessive on YouTube has made this video showcasing them:

Tide Pods might solve P&G's need for higher prices, but it might not solve its raw materials cost problems. Tablets have complicated, multi-piece packaging that will likely increase manufacturing costs.

More seriously, the ad campaign will hit P&G's bottom line. Here's a comparison of the percentage of the company's revenues that go as manufacturing expenses compared to the percentage that goes on sales, general and admin expenses, for the last quarter:

  • "Cost of Goods Sold" (i.e. manufacturing) as % of sales
  • 2010 = 48% (up 5.5% from the year before)
  • 2009 = 46%
  • "Sales, General & Administrative" (mostly marketing) as % of sales
  • 2010 = 32% (up 2.5% from the year before)
  • 2009 = 31.5%
While higher commodity prices are pushing up P&G's costs, SG&A is ticking up too. SG&A costs are well within P&G's discretion to hold down -- yet P&G shows no sign of bringing them into line.


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