Europe Has a New Game In Town
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Proctor and Gamble (NYSE: PG) is known as one of the world’s premier marketing companies. But doesn’t it sell consumer products? Yes. However, its success rests on the strength of its brands and its pricing power.
Before the Great Recession, Proctor and Gamble raised prices in Central America and Eastern Europe to go along with inflation. And when the markets rolled over and consumers started locking down their wallets, the company changed its strategy. It also followed a tailored strategy in India.
It unveiled Tide Naturals, a product that was made more cheaply than traditional Tide. The new product was made to compete with Colgate-Palmolive (NYSE: CL) in India. Also, P&G unleashed a cheaper version of Pampers diapers on the European market during the recession; while lowering prices to compete with Colgate-Palmolive and Unilever (NYSE: UN) in the United States.
If these retail companies are keeping up with current consumer habits (they are), then look for these firms to make adjustments in Europe.
Cheaper Retail: The New Game in Town
Right now Europe is struggling. Consumers in France spent .2% less last quarter than in the same quarter one year ago, mostly purchasing less manufactured goods. Also, “consumer confidence across the 17-nation currency bloc fell to its lowest level since 2009.”
No doubt public firms have felt this pinch. As of early August, the 180 companies listed in the Stoxx 600 index that had reported earnings being in dire straits. Profits were down 12% year over year, which caused analysts to reduce their earnings forecasts even more.
Moreover, Europeans are spending less on both small and large ticket items. New car registrations dipped 6.8% compared to one year prior, and Europeans are even spending less at the grocery store. Proportionally, Europeans spend almost double what Americans spend on food, but they are paring down that amount to hedge against the tough economic times.
Who Wins In This Market?
Nimble, innovative companies win. Proctor and Gamble has already proven that it is nimble and well-researched when it comes to different economic cycles. Look for P&G to capitalize on these buyer trends by trimming prices or introducing new, lower-end products.
Unilever could also come out a winner. Unilever owns brands like Ben and Jerry’s, Dove, and Surf. Right now the company is working to repack brands like Surf. The idea is to sell smaller amounts of product for cheaper prices. For example, the company may repackage its Surf laundry detergent brand into small packages that cost one euro.
Dairy-maker Danone (NASDAQOTH: DANOY.PK) is also changing its strategy. The colossal dairy titan has redesigned a new plastic yogurt pot featuring smooth, rounded edges. The firm hopes that the new design will attract attention from European shoppers who are purchasing less expensive goods. Danone has not indicated that it will reduce its prices, but its strategy could work if the product receives good shelf placement.
Finally, Amazon (NASDAQ: AMZN) is in a strong position to gain from European’s trimmed spending. On the first day of France’s summer sales promotion, for example, when stores often markdown their merchandise by more than 50%, Amazon’s French website saw a 44% spike in traffic. Customers are looking for deals, and they believe that Amazon has them.
In all, consumer products companies need to find a way to weather the storm until the Eurozone can once again flourish. They can accomplish this by trimming prices, repackaging their goods, or by boosting their marketing and product design. The next couple of years will be telling of whether or not Europe will return to its prior spending habits, but firms must learn to cope with the down cycle in the interim.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.