Procter & Gamble Is Following Its Nose
Procter & Gamble Chairman Edwin L. Artzt knew he had a nice new business in Navy. The mass-market fragrance, launched by Noxell Corp. just as P&G was acquiring it in late 1989, was a first entry into that business for both companies, and a successful one at that. However, "I was not sure whether Navy was an accident or not," Artzt says. "Was it a lucky hit, or do we know what we're doing?"
Artzt didn't ask just himself that question: He posed it to the people inside and outside Noxell who had created Navy. Sufficiently convinced that the perfume's success was no fluke, he plunged further into fragrances--an image-laden business, worlds away from the detergents and toothpaste P&G has so long dominated. And it's a sign of his growing confidence in P&G's ability to master the business that, on Apr. 10, Artzt announced that Procter & Gamble Co. would pay $1.1 billion for Revlon Inc.'s Max Factor and Betrix cosmetics businesses. Together, they have $800 million in sales. Now, as part of a broad global push, the consumer products giant will try to use the brand names and distribution muscle it has acquired to grab even more of the world's $16 billion cosmetics and fragrance business.
INSTANT FAME. But here's the twist: Instead of just relying on Max Factor and Betrix to capture overseas sales, Artzt wants to turn all-American Cover Girl into an international power. His plan is to use the franchises he is buying to cut the time it would have taken to install the distribution and marketing network he needs. "Our objective was to get a foothold in the major hubs" of the world, he says.
The acquisition gives P&G an instant presence in Europe and Japan, two key markets (table). Betrix has a strong position in Germany with its midpriced line. And Max Factor, which has been run relatively autonomously on three continents, is well accepted both in Britain and in Japan, where its upscale products boast $240 million in sales. Suzanne Grayson, an industry consultant in Santa Barbara, Calif., figures that Procter has sliced perhaps three years off the time it otherwise would have taken to go global with its U. S. brands.
The price P&G is paying might seem bountiful. Revlon bought the two lines, as well as others it isn't selling, for a total of $528 million within the past five years. Yet the price is in line with recent cosmetics purchases. "They both made out O. K.," says Andrew Shore, an analyst at Prudential Securities Inc. Revlon owner Ronald O. Perelman can use the proceeds to meet debt payments, and P&G greatly extends its reach.
Getting a foothold doesn't assure that Procter & Gamble can create demand for Cover Girl in Europe, where the French hold sway. But Artzt notes that U. S. brands have hit it big on the Continent. And he sees Cover Girl's respectable sales in tiny Switzerland as proof of its potential.
For all Artzt's optimistic talk, it's important not to lose sight of the audacity of his move. No other company has tried to develop a mass-market brand in cosmetics across Europe and elsewhere. The biggest drawback is the selling culture: Cosmetics aren't sold overseas in same kind of outlets as the drugstores and mass merchants common in the U. S., and midpriced products aren't as heavily marketed.
GOOD SCENTS. P&G's newly acquired brands give the company a strong overseas base from which to launch Cover Girl. Artzt is planning to give Max Factor a more standardized image around the world as soon as it learns more about the brand. And Procter is extremely likely to apply in cosmetics the expertise it has built up in skin care. "That's our ballpark," says Artzt. He already has a successful worldwide skin-care brand: Oil of Olay, which P&G acquired in 1985.
But Artzt goes further. He maintains that P&G's experience as one of the world's largest makers and users of fragrances in laundry detergents, soaps, and deodorants gives it plenty of expertise in that business as well. It just hasn't marketed its own fragrance brands, he says.
Artzt may be stretching a point there. But he is uncharacteristically unassuming when it comes to sizing up his rivals. Artzt notes that Procter, a "rookie" in cosmetics and fragrances, still is "not a L'Oreal or a Unilever in this business." Figuring that P&G has enough to do going global with mass-market cosmetics, he shied away from buying Revlon's other major lines, higher-priced cosmetics sold through department stores. "That comes under the heading of biting off more than you can chew," says Artzt. For now, P&G has more than enough on its plate.