P&G plans to offset rising costs with price increases and productivity initiatives

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diving letter:

  • Procter & Gamble will rely on price increases and new productivity initiatives to offset higher freight and raw material costs, CFO Andre Schulten said on an October conference call.
  • The CPG giant has been working to speed up the reformulation and add new suppliers as part of a cost-cutting plan, Schulten said. P&G also completed a second round of price increases, with many price increases taking effect in September and October.
  • Productivity has returned to pre-COVID levels, Schulten added, which will allow P&G to continue to focus on cost-saving initiatives. “We are constantly reviewing our end-to-end supply chain, including logistics, to reduce costs.”

Dive insight:

P&G, which owns brands like Tide and Crest, has entered cost-cutting mode in the face of lower consumer demand and higher prices for raw materials and transportation. The company expects headwinds of $3.9 billion after taxes from raw materials and logistics in fiscal 2023.

“We will compensate for some of these headwinds with price increases and productivity savings,” said Schulten. “We will continue to invest in irresistible superiority.”

The CPG giant is working to streamline operations and procurement as part of its Supply Chain 3.0 initiative, which the company plans to unveil at an investor conference later this month. While details on Supply Chain 3.0 are scarce, improvements in automation and digital capabilities are likely to play a big role.

P&G’s 2022 annual report notes that the company is investing heavily in improving its digital capabilities to reduce costs and speed up decision-making.

“The increasing digitization of our production lines, the greater use of artificial intelligence and the greater use of blockchain technology are not ends in themselves,” the report states. “They are tools that we can use to delight consumers and customers.”

Product reformulations and price increases were imperatives for P&G to fight rising inflation. The company announced price increases for oral and skin care products last year and increased its reliance on alternative suppliers and reformulated products.

Other companies have focused on transforming their supply chains to adapt to refrigerated demand following a pandemic-driven spending spree. McCormick, for example, announced a plan to cut costs by $100 million by reducing its reliance on co-packers.

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