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How P&G launched a 24-hour disinfecting spray just as covid-19 hit the US

Microban 24 is on track to log $200 million of sales this year—a rare new hit for Procter & Gamble Co.Premium
Microban 24 is on track to log $200 million of sales this year—a rare new hit for Procter & Gamble Co.
wsj

A consumer-products giant known for its meticulous market research and complex management structure decided to become faster and slimmer. The result? A blue-bottled disinfectant that became a hit for Procter & Gamble during the pandemic—and helped it steer a path through the crisis.

In February, a new disinfectant spray called Microban 24 that could kill 99% of cold and flu viruses began to make its way on store shelves. Soon after, as a deadly pathogen spread through the globe, sales boomed as panicked shoppers grabbed any virus-killing cleaners when Lysol and Clorox were nowhere to be found.

Microban 24 is on track to log $200 million of sales this year—a rare new hit for Procter & Gamble Co. It is no surprise that the Covid-19 pandemic set off a surge in cleaning. What is surprising is that P&G had launched the niche product at all.

The consumer-products giant, famous for its meticulous market research and layers of managers, set out to launch Microban 24 with a team of five employees and released it without relying on an army of test subjects to chart every major decision. P&G’s factories don’t even produce Microban 24. It is made by outside contractors.

The blue spray bottle is a sign of how much the 183-year-old company revamped the way it runs its business and develops products. Gone is a complex management structure that sometimes put brand managers and country managers at odds. Gone too is the strictly centralized product development that unilaterally controlled which ideas got approved and how they were marketed.

Hobbled by the last recession, P&G got its own house in order before the Covid-19 pandemic struck. And while it benefited from the consumer shifts spurred by the coronavirus, its success this year is also evidence of how struggling companies that addressed their problems before the crisis have been able to steer a path through it.

“We’ve had to make big decisions every day," P&G finance chief Jon Moeller said in a recent interview. “If we still had that unwieldy structure, if people had been receiving multiple sets of instructions, that would have been very difficult to do."

The maker of Tide and Bounty made out better than most of its rivals in 2020 due partly to pandemic-related demand for P&G cleaning products like Microban 24, Cascade and Mr. Clean. It did so despite a blow to its business in China at the beginning of the year, its second-biggest unit outside of the U.S., and sometimes-sluggish performance from other mainstay P&G products like Pampers diapers and Crest toothpaste.

P&G shares reached new highs in October and the company’s market value ballooned to roughly $350 billion, up from $200 billion in 2018. In the last two years, P&G’s widely held stock rose twice as fast as the S&P 500 while outperforming rivals such as Unilever PLC, Colgate-Palmolive Co. and Kimberly-Clark Corp.

Unwinding ‘the Matrix’

P&G executives say the revival is the result of a turnaround plan they meticulously laid out in the years following the 2008-09 recession when the company’s growth and profits stalled. Consumers shifted to lower-priced products or online upstarts and the lumbering giant was slow to adapt. In the years following the recession, P&G introduced lower-priced alternatives, such as Gain dish soap and a discount version of Tide.

What helped the company is that as the economy recovered it was able to convince consumers to pay higher prices for many household basics and launch higher-end products, such as diapers free of bleach or fragrances, that boosted sales.

The Cincinnati company also tossed aside its deliberate method of placing and advancing managers in favor of a reorganization in which leaders were reassigned and told to embrace new roles or leave. Chief Executive David Taylor and his top lieutenants assigned executives to where they were most needed and more readily moved or removed leaders with subpar performance. Managers got bonuses based on how well their specific units performed rather than the company’s performance more broadly.

P&G’s “collegial culture" had to take a back seat, Mr. Taylor said. “If you can be all-in, great. And if not, choose something else," he said.

This meant unwinding the dense bureaucracy of a 100,000-person company that had managers in dozens of countries reporting to multiple leaders who often had divergent interests. The confusing structure was known inside P&G as “the matrix" or “the thicket," the product of decades of overhauls that shifted responsibilities and reporting lines but rarely stripped leaders of authority.

The changes happened under the scrutiny of one of Wall Street’s most outspoken activist investors, Nelson Peltz, who took on corporate giants from PepsiCo Inc. to General Electric Co.

The hedge-fund billionaire waged a high-profile attack against P&G in 2017. Mr. Peltz painted P&G as lumbering and out-of-touch. He launched the costliest proxy battle in history. After the company won a razor-thin victory in a shareholder vote, P&G agreed to give Mr. Peltz a board seat.

Mr. Peltz argued that P&G needed to move beyond its reliance on names like Tide, Pampers and Gillette and invest in trendier, online ventures, either by acquiring them or starting them internally. Mr. Peltz declined to comment through a spokeswoman.

Some of P&G’s biggest rivals took that tack, striking high-profile deals as a way to enter new markets, distribution channels and glean consumer insights from direct-to-consumer brands. For instance, Unilever, maker of Dove soap and Hellmann’s mayonnaise, paid $1 billion to buy shaving startup Dollar Shave Club in 2016, touting the deal as a way to scoop up “unique consumer and data insights."

P&G avoided megadeals but made a string of small acquisitions, including an all-natural deodorant brand, some high-end skincare-lines and a shaving line. P&G’s venture arm paired with M13, a venture-capital firm, to launch Kindra, a line of hormone-free lotions and supplements designed to ease menopause symptoms, and other products.

Another fateful change made by P&G during this period was to shed unprofitable and trend-driven businesses, including many beauty and haircare brands, cut costs and focus primarily on its biggest geographic markets, including the U.S., China and Western Europe.

The company sold most of its drugstore beauty products to Coty Inc. in 2016, unloading a collection of underperforming brands. It cut more than $10 billion in annual costs, in part by streamlining its supply chain, so that products are made closer to where they are sold.

The slimmer, more-focused P&G now has a bigger market cap, is more profitable and is increasing sales roughly six times as fast as the one that struggled to fend off Mr. Peltz.

“The strategy that we had was one that was working," Mr. Taylor, a P&G lifer and its CEO since 2015, said in an interview. The proxy fight, he said, “helped sharpen the focus."

Cleaning Up During a Pandemic

Few foresaw the kind of run P&G would enjoy during such a drastic disruption to the global economy. Heading into the year analysts, investors and some of the company’s own executives focused on a singular thought: that an economic downturn would cause consumers to ditch P&G’s brands, often the priciest in the grocery store, in favor of cheaper alternatives.

“There are no guarantees, and if we had a situation like we had in 2007, 2008, it would impact us," Mr. Moeller, the finance chief, said in an interview last fall.

The economic shock feared by Wall Street and P&G arrived in the spring. The company’s sales and profit gains accelerated as the global health crisis upended consumer norms —including how shoppers respond to joblessness and uncertainty.

Instead of shifting toward cheaper, private-label household products, Americans sought well-known, higher-priced names like P&G’s Bounty paper towels, Mr. Clean cleaners and Dawn soaps. Demand, particularly for cleaning products, well outpaced supply, meaning makers of household staples sold more with fewer deals and discounts.

One consumer who gravitated to P&G’s higher-priced products during this time was Jackie Brannan, who has an unused bottle of discount laundry detergent and a pack of Quilted Northern toilet paper made by Georgia-Pacific LLC stored in the back of a closet at her Albuquerque, N.M., home. A longtime devotee of P&G’s Tide detergent and Charmin toilet paper, Ms. Brannan, a 42-year-old federal contractor, switched to cheaper brands in a financial pinch a few years ago.

After a home refinancing eased her budget crunch, Ms. Brannan said she switched back. She has no plans to return despite the added cost and the fact she is using more laundry soap amid the pandemic. “That’s what I grew up using," she said.

The 24-Hour Bacterial Killer

One of the best illustrations of how P&G reformed itself before the pandemic was the development of Microban 24—a disinfectant that keeps surfaces free of bacteria, though not viruses, for 24 hours.

P&G conceived the idea for a Microban-like product about two years ago. It would employ a strategy central to P&G’s success over the last century: creating a product to fill a need consumers didn’t know they had.

Microban was supposed to be a relatively niche offering. Early P&G research showed most consumers believe a typical spray cleaner keeps counters sanitary between regular cleanings. In reality, P&G said, as soon as someone touches a clean counter, bacteria can begin to build up. So the company set out to produce a cleaner that would repel bacteria for 24 hours.

P&G assembled a small team and struck a deal with W.M. Barr & Co. Inc., which owned the Microban brand of cleaners, to work together to launch a version for the U.S. mass market. P&G, which typically would rely on broad consumer testing and focus groups to advance each step of a new product, eschewed that approach once it got to the point of marketing and launching the product.

Instead it amassed a small community of online buyers, similar to a direct-to-consumer startup, and gleaned feedback through those buyers to strategize the product’s launch. What accelerated the process was P&G’s decision—unusual for the company, particularly for a large-scale product—to rely on W.M. Barr for the technology behind Microban 24. P&G declined to discuss terms of the deal.

Those moves cut about a year off the time it took to get Microban 24 into stores, P&G said. Mr. Moeller, the finance chief, said the company’s nimbler operations allowed it to meet demand that was 50% to 60% higher than it anticipated. He said the company originally planned for Microban 24 sales in the first year of roughly half of what the company now anticipates.

“The degree to which we’ve been able to bring on new supply and do that very quickly is symptomatic of the agility that our supply chain now has," he said.

Saving Shaving

Another change P&G executives made before the pandemic hit was to tackle the many problems in its Gillette shaving unit. They did it by mining its trove of consumer data rather than making the kinds of splashy acquisitions that rivals have chased.

The Gillette unit, one of its biggest and most profitable businesses, had for years suffered from falling razor sales. The brand fell out of favor among men who were both shaving less and ditching the brand in favor of lower-priced upstarts such as Dollar Shave Club and Harry’s.

P&G clawed back sales over the last several years as the company cut razor-cartridge prices. It also reacted to internal data showing renewed interest in vintage razors, beard grooming and sensitive skin. The unit introduced an old-school safety razor and new products designed for men with beards—sold under the brand King C Gillette, a nod to Gillette’s founder—and a razor for men with sensitive skin.

Sales are picking up while rival razor brands struggle. In the most recent quarter, the unit’s sales rose 5%, the biggest increase in years.

“A lot of people have made these big investments" to capitalize on consumer trends by leveraging data, said Edward Jones analyst John Boylan. “But P&G has done better using its own information."

P&G still faces questions. The company and its rivals are beginning to offer discounts and deals again as supplies begin to replenish. Executives say they are concerned that customers lost amid product shortages may not return, and they are pumping up advertising spending to lure them back.

It is unclear whether consumer spending will hold up and P&G’s brands will hold their ground as the fallout from another round of pandemic-related shutdowns in Europe and elsewhere ripple through the global economy.

Mr. Taylor said P&G is better prepared in 2020 for that scenario than during the 2008-09 recession. The company’s offerings cover a broader price range, and its brands can respond to consumer cost-cutting with tailored marketing and packaging, he said.

“That’s not to say it can’t happen," he said, about a shift toward cheaper products. “We fully expect that if this gets longer and deeper, people will have to make a choice."

Write to Sharon Terlep at sharon.terlep@wsj.com

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