P&G Plays Kindergarten Catch-Up With Unilever in Vietnam
Stock Chart for Procter & Gamble Co/The (PG)
A kindergarten opened on June 1 in Minh Phuong, a village about 50 miles from Hanoi. It looks like many schools in developing countries: cinder block walls painted mustard and tile floors.
There’s something unique about the classrooms. Each has a silver-colored plaque near its door emblazoned with names rarely found in a textbook: “Gillette Be Your Best,” “Pampers Golden Sleep,” and “Pantene Shine.”
These are all references to brands sold in Vietnam by Procter & Gamble Co. (PG), whose employees helped provide almost 80 percent of the school’s $100,000 cost. The world’s largest consumer-products company is using everything from donations to television advertising and hand-washing demonstrations to win Vietnamese customers.
It’s not alone: Anglo-Dutch rival Unilever, which has done business in Asian markets for more than a century, has proven to be a particularly tough competitor. Others such as Kimberly- Clark Corp. and Germany’s Beiersdorf AG (BEI) have staked their claims there as economic growth ripples farther south in Asia.
P&G is keen to hook customers while they’re young, a no- brainer in a country where 45 percent of the population is under 25. Once in the P&G fold, customers can be introduced to an expanding range of products as they grow older, and more prosperous. While Vietnam’s economy has cooled in recent months because of inflation, slower labor growth, and currency devaluations, per capita income grew more than fivefold from $220 in 1994 to $1,168 in 2010, according to the U.S. Department of State.
Better yet, the country’s 90 million people increasingly are eager to buy Western brands they deem superior to many local and regional products. Consumer executives say Vietnamese are more aspirational than consumers with comparable incomes in other developing nations. That’s one reason global companies already established in China, Brazil, and India are turning their attention to Vietnam as the next great emerging market.
P&G could certainly use a boost. The company last month cut its profit forecast for the third time this year, as it grapples with flagging growth and market-share losses in the U.S. and Europe. Meanwhile, developing markets are expected to account for 37 percent of P&G sales this year, up from 35 percent in fiscal 2011. Although more than half of Unilever (UNA)’s sales already come from developing and emerging markets, P&G executives believe there’s plenty of room for the Cincinnati-based company to squeeze into places like Minh Phuong.
“Vietnam is a young culture, very interested in trying new things, so you don’t have to be the 100-year incumbent to be able to win,” said Deb Henretta, group president of P&G’s Asia business. Vietnam and other Asian countries, including potential markets such as Myanmar, are “the growth engines for the company.”
For decades, U.S. companies couldn’t operate in Vietnam because of an American trade embargo imposed after the fall of Saigon in 1975. A year after the embargo was lifted in 1994, P&G entered the country, as did Unilever. (ULVR)
Today P&G, the No. 1 provider of detergents, tooth paste, paper towels, and razors in the U.S., finds itself in the uncharacteristic position of playing catch-up in Vietnam. Unilever has grabbed more market share in home-care and personal-care products. P&G trails Huggies maker Kimberly-Clark (KMB) in diapers, and in skin care it’s behind Beiersdorf, maker of Nivea. It’s No. 1 only in razors with its Gillette brand.
“Vietnam is the next upcoming market, and there’s fierce competition,” said Oru Mohiuddin of researcher Euromonitor International.
Sales of diapers, home-and-personal care products, and beauty goods by all manufacturers totaled $1.35 billion in the country last year, a 14 percent increase over 2010, according to Euromonitor. While that’s minuscule compared with P&G’s global sales last year of $82.6 billion, Vietnam is expected to be one of the fastest-growing emerging markets, according to Euromonitor, with consumer spending forecast to jump 42 percent between 2012 and 2016.
P&G is betting on the appetite in Vietnam for premium brands, such as its Olay skin whiteners, and that its larger range of products will give it an advantage over Unilever. It’s also producing lower-cost merchandise that can be bought by consumers with modest incomes who can trade up later.
“We want to win with all levels of consumers,” said Henretta.
The company advertises heavily on television, the most influential medium in a country. Last year its representatives cruised the country in a brightly colored van -- displaying the logos of Rejoice hair care, Olay skin care, and Gillette brands -- to find contestants for the inaugural season of Vietnam’s Got Talent, for which P&G is the sole sponsor. The company operates a boat in the Mekong Delta region to reach rural households living on the water, selling inexpensive one-use packets of products like Downy Single Rinse for soaking clothes.
The marketing studies for which the company is known -- it conducted more than 100 home visits in Vietnam last year -- uncovered new uses for some brands. Consider Ambi Pur, the deodorizer sold as Febreze in the U.S. and often used on upholstered furniture. P&G realized it might appeal to Vietnamese who ride motorbikes, Vietnam’s primary form of transportation, after the government passed a law five years ago requiring the use of helmets.
In a country with a humid subtropical climate, P&G this spring set up “spray stations” in front of shopping centers, to demonstrate Ambi Pur’s properties. Consumers of all income levels are deodorizing their helmets with Ambi Pur, now one of the company’s fastest-growing products in the country.
Even some poor Vietnamese consumers took to Downy Passion, a scented upscale fabric softener which masks smells that can occur when clothes are soaked overnight in less-than-clean water. P&G initially had focused on selling larger containers at modern retailers, said Sam Kim, vice president for Southeast Asia & Asia developing markets. It quickly found that small, cheaper one-use packets became best-sellers in traditional mom- and-pop stores in Vietnam, where per-capita income is still less than one-third that of China.
P&G has opened two plants in the country, most recently one for diapers in 2010, and has more than 900 employees. And like many global companies doing business in Vietnam, it has a charitable arm that brings health, educational, and other services to impoverished areas. In exchange, P&G gets to promote its brands to the communities it helps.
“They have to do this propaganda-esque process to eventually have a consumer who wants to buy their products, said Sanford C. Bernstein analyst Ali Dibadj. ‘‘It’s a time-tested tool that companies use.’’
On a recent afternoon, P&G hosted a hand-washing event in the primary school down the road from the new kindergarten in Minh Phuong. Kids learned songs in English from 15 company employees, followed by a sing-off in the courtyard with an Olympic-style panel of judges holding up number scores. The students performed in front of a red-and-gold banner (the colors of Vietnam’s flag) that said, in Vietnamese and imperfect English, ‘‘Together let’s wash our hand with soap!”
There were hygiene quizzes, with gift bags awarded for correct answers, and then the classes competed in a relay race - - using bars of P&G’s Safeguard antibacterial soap -- to perform six steps of thorough hand washing. Everyone got a goody bag at the end, containing an Oral-B toothbrush, school supplies, and other items. The school received a box of Safeguard soap.
That evening, in a driving rain, a few hundred villagers gathered under a tent in the courtyard of the kindergarten to watch students and teachers perform dances and songs. P&G’s Henretta was among those invited onto a makeshift stage to talk about the company. As she held up products from its Tide, Downy, Rejoice, Gillette, Safeguard, and Oral-B brands, Henretta asked the audience to clap if they recognized them. Meanwhile, some of the company’s volunteers mimed washing their clothes or hair to make sure villagers understood the products’ use.
The evening ended with everyone hopping through a row of parallel bamboo poles in a traditional dance, as P&G’s volunteers shouted a refrain from a song, “Vietnam, Ho Chi Minh! Vietnam, Ho Chi Minh!”
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