The Procter & Gamble Company

Address:
One Procter & Gamble Plaza
Cincinnati, Ohio 45202-3315
U.S.A.

Telephone: (513) 983-1100

Fax: (513) 983-9369
http://www.pg.com/

Statistics:
Public Company
Incorporated: 1890
Employees: 110,000
Sales: $51.41 billion (2004)
Stock Exchanges: New York National (NSX) Amsterdam Paris Basel Geneva Lausanne
Z�rich Frankfurt Brussels
Ticker Symbol: PG
NAIC: 311111 Dog and Cat Food Manufacturing; 311919 Other Snack Food
Manufacturing; 311920 Coffee and Tea Manufacturing; 322291 Sanitary Paper Product
Manufacturing; 325412 Pharmaceutical Preparation Manufacturing; 325611 Soap and
Other Detergent Manufacturing; 325612 Polish and Other Sanitation Good
Manufacturing; 325620 Toilet Preparation Manufacturing; 339994 Broom, Brush, and
Mop Manufacturing

Company Perspectives:
We will provide branded products and services of superior quality and value that
improve the lives of the world's consumers. As a result, consumers will reward us
with leadership sales, profit, and value creation, allowing our people, our
shareholders, and the communities in which we live and work to prosper.

Key Dates:
1837: William Procter and James Gamble form Procter & Gamble, a partnership in
Cincinnati, Ohio, to manufacture and sell candles and soap.
c. 1851: Company's famous moon-and-stars symbol is created.
1878: P&G introduces White Soap, soon renamed Ivory.
1890: The Procter & Gamble Company is incorporated.
1911: Crisco, the first all-vegetable shortening, debuts.
1931: Brand management system is formally introduced.
1946: P&G introduces Tide laundry detergent.
1955: Crest toothpaste makes its debut.
1957: Charmin Paper Company is acquired.
1961: Test marketing of Pampers disposable diapers begins.
1963: Company acquires the Folgers coffee brand.
1982: Norwich-Eaton Pharmaceuticals is acquired.
1985: P&G purchases Richardson-Vicks Company, owner of the Vicks, NyQuil, and Oil
of Olay brands.
1988: Noxell Corporation, maker of Noxema products and Cover Girl cosmetics, is
acquired.
1991: Max Factor and Betrix cosmetic and fragrance lines are bought from Revlon,
Inc.
1992: Pantene Pro-V shampoo is introduced.
1993: Major restructuring is launched, involving 13,000 job cuts and 30 plant
closures.
1997: Company acquires Tambrands, Inc., maker of the Tampax line of tampons.
1998: Organization 2005 restructuring is launched.
1999: Premium pet food maker Iams Company is purchased.
2001: P&G acquires the Clairol hair-care business from Bristol-Myers Squibb
Company.
2002: Jif peanut butter and Crisco shortening brands are divested.
2003: Company acquires a controlling interest in German hair-care firm Wella AG.

Company History:
The Procter & Gamble Company (P&G) is a giant in the area of consumer goods. The
leading maker of household products in the United States, P&G has operations in
nearly 80 countries around the world and markets its nearly 300 brands in more
than 160 countries; more than half of the company's revenues are derived overseas.
Among its products, which fall into the main categories of fabric care, home care,
beauty care, baby care, family care, health care, snacks, and beverages, are 16
that generate more than $1 billion in annual revenues: Actonel (osteoporosis
treatment); Always (feminine protection); Ariel, Downy, and Tide (laundry care);
Bounty (paper towels); Charmin (bathroom tissue); Crest (toothpaste); Folgers
(coffee); Head & Shoulders, Pantene, and Wella (hair care); Iams (pet food); Olay
(skin care); Pampers (diapers); and Pringles (snacks). Committed to remaining the
leader in its markets, P&G is one of the most aggressive marketers and is the
largest advertiser in the world. Many innovations that are now common practices in
corporate America--including extensive market research, the brand-management
system, and employee profit-sharing programs--were first developed at Procter &
Gamble.
1837 Launch: Maker of Candles and Soap
In 1837 William Procter and James Gamble formed Procter & Gamble, a partnership in
Cincinnati, Ohio, to manufacture and sell candles and soap. Both men had emigrated
from the United Kingdom. William Procter had emigrated from England in 1832 after
his woolens shop in London was destroyed by fire and burglary; Gamble came from
Ireland as a boy in 1819 when famine struck his native land. Both men settled in
Cincinnati, then nicknamed "Porkopolis" for its booming hog-butchering trade. The
suggestion for the partnership apparently came from their mutual father-in-law,
Alexander Norris, who pointed out that Gamble's trade, soap making, and Procter's
trade, candle making, both required use of lye, which was made from animal fat and
wood ashes.
Procter & Gamble first operated out of a storeroom at Main and Sixth streets.
Procter ran the store while Gamble ran the manufacturing operation, which at that
time consisted of a wooden kettle with a cast-iron bottom set up behind the shop.
Early each morning Gamble visited houses, hotels, and steamboats collecting ash
and meat scraps, bartering soap cakes for the raw materials. Candles were Procter
& Gamble's most important product at that time.
Procter & Gamble was in competition with at least 14 other manufacturers in its
early years, but the enterprising partners soon expanded their operations
throughout neighboring Hamilton and Butler counties. Cincinnati's location on the
Ohio River proved advantageous as the company began sending its goods downriver.
In 1848 Cincinnati was also linked to the major cities of the East via rail, and
Procter & Gamble grew.
Around 1851, when P&G shipments were moving up and down the river and across the
country by rail, the company's famous moon-and-stars symbol was created. Because
many people were illiterate at this time, trademarks were used to distinguish one
company's products from another's. Company lore asserts that the symbol was first
drawn as a simple cross on boxes of Procter & Gamble's Star brand candles by
dockhands so that they would be easily identifiable when they arrived at their
destinations. Another shipper later replaced the cross with an encircled star, and
eventually William Procter added the familiar 13 stars, representing the original
13 U.S. colonies, and the man in the moon.
The moon-and-stars trademark became a symbol of quality to Procter & Gamble's base
of loyal customers. In the days before advertising, trademarks were a product's
principal means of identification, and in 1875 when a Chicago soap maker began
using an almost-identical symbol, P&G sued and won. The emblem, which was
registered with the U.S. Patent Office in 1882, changed slightly over the years
until 1930, when Cincinnati sculptor Ernest Bruce Haswell developed its modern-day
form.
During the 1850s Procter & Gamble's business grew rapidly. In the early part of
the decade the company moved its operations to a bigger factory. The new location
gave the company better access to shipping routes and stockyards where hogs were
slaughtered. In 1854 the company leased an office building in downtown Cincinnati.
Procter managed sales and bookkeeping and Gamble continued to run the
manufacturing. By the end of the decade, the company's annual sales were more than
$1 million, and Procter & Gamble employed about 80 people.
Prospering During the Civil War
Procter & Gamble's operations were heavily dependent upon rosin--derived from pine
sap--which was supplied from the South. In 1860, on the brink of the Civil War,
two young cousins, James Norris Gamble and William Alexander Procter (sons of the
founders), traveled to New Orleans to buy as much rosin as they could, procuring a
large supply at the bargain price of $1 a barrel. When wartime shortages forced
competitors to cut production, Procter & Gamble prospered. The company supplied
the Union Army with soap and candles, and the moon and stars became a familiar
symbol with Union soldiers.
Although Procter & Gamble had foreseen the wartime scarcities, as time wore on,
its stockpile of raw materials shrank. In order to keep up full production the
company had to find new ways of manufacturing. Until 1863 lard stearin was used to
produce the stearic acid for candle making. With lard expensive and in short
supply, a new method was discovered to produce the stearic acid using tallow. What
lard and lard stearin was available was instead developed into a cooking compound.
The same process was later adapted to create Crisco, the first all-vegetable
shortening. When P&G's supply of rosin ran out toward the end of the war, the
company experimented with silicate of soda as a substitute, which later became a
key ingredient in modern soaps and detergents.
Launching Ivory Soap in 1878
After the war Procter & Gamble expanded and updated its facilities. In 1869 the
transcontinental railroad linked the two coasts and opened still more markets to
Procter & Gamble. In 1875 the company hired its first full-time chemist to work
with James Gamble on new products, including a soap that was equal in quality to
expensive castile soaps, but which could be produced less expensively. In 1878
Procter & Gamble's White Soap hit the market and catapulted P&G to the forefront
of its industry.
The most distinctive characteristic of the product, soon renamed Ivory soap, was
developed by chance. A worker accidentally left a soap mixer on during his lunch
break, causing more air than usual to be mixed in. Before long Procter & Gamble
was receiving orders for "the floating soap." Although the office was at first
perplexed, the confusion was soon cleared up, and P&G's formula for White Soap
changed permanently.
Harley Procter, William Procter's son, developed the new soap's potential. Harley
Procter was inspired to rename the soap by Psalm 45: "all thy garments smell of
myrrh, and aloes, and cassia, out of the ivory palaces whereby they have made thee
glad." Procter devoted himself to the success of the new product and convinced the
board of directors to advertise Ivory. Advertising was risky at the time; most
advertisements were placed by disreputable manufacturers. Nevertheless, in 1882
the company approved an $11,000 annual advertising budget. The slogan "99% pure"
was a welcome dose of sobriety amidst the generally outlandish advertising claims
of the day. Procter, committed to the excellence of the company's products, had
them analyzed and improved even before they went to market. This practice was the
origin of P&G's superior product development. Procter believed that "advertising
alone couldn't make a product successful--it was merely evidence of a
manufacturer's faith in the merit of the article."
The success of Ivory and the ability of Procter & Gamble to spread its message
further through the use of national advertising caused the company to grow rapidly
in the 1880s. In 1886 P&G opened its new Ivorydale plant on the edge of Cincinnati
to keep up with demand. In 1890 James N. Gamble hired a chemist, Harley James
Morrison, to set up a laboratory at Ivorydale and improve the quality and
consistency of Procter & Gamble's products. P&G soon introduced another successful
brand: Lenox soap. Marketed as a heavier-duty product, the yellow soap helped P&G
reach sales of more than $3 million by 1889.
The 1880s saw labor unrest at many American companies, including Procter & Gamble,
which experienced a number of strikes and demonstrations. Thereafter, the company
sought to avert labor problems before they became significant. Behind P&G's labor
policies was a founder's grandson, William Cooper Procter. William Cooper Procter
had joined the company in 1883 after his father, William Alexander Procter,
requested that he return from the College of New Jersey (now Princeton University)
just one month before graduation to help with the company's affairs. Procter
learned the business from the ground up, starting in the soap factory.
Introducing Innovative Employee Benefits
In 1885 the young Procter recommended that the workers be given Saturday
afternoons off, and the company's management agreed. Nevertheless, there were 14
strikes over the next two years. In 1887 the company implemented a profit-sharing
plan in order to intertwine the employees' interests with those of the company.
Although the semiannual dividends were received enthusiastically by employees,
that enthusiasm rarely found its way back into the workplace. The next year
William Cooper Procter recommended tying the bonuses to employee performance,
which produced better results.
In 1890 The Procter & Gamble Company was incorporated, with William Alexander
Procter as its first president. Two years later the company implemented an
employee stock-purchase program, which in 1903 was tied to the profit-sharing
plan. By 1915 about 61 percent of the company's employees were participating. The
company introduced a revolutionary sickness-disability program for its workers in
1915, and implemented an eight-hour workday in 1918. Procter & Gamble has been
recognized as a leader in employee-benefit programs ever since.
Meanwhile, new soaps, including P&G White Naphtha, which was introduced in 1902,
kept P&G at the forefront of the cleaning-products industry. In 1904 the company
opened its second plant, in Kansas City, Missouri, followed by Port Ivory on
Staten Island, New York. In 1907 William Cooper Procter became president of the
company after his father's death.
Procter & Gamble soon began experimenting with a hydrogenation process which
combined liquid cottonseed oil with solid cottonseed oil. After several years of
research, Procter & Gamble patented the procedure, and in 1911 Crisco was
introduced to the public. Backed by a strong advertising budget, Crisco sales took
off.
World War I brought shortages, but Procter & Gamble management had again foreseen
the crisis and had stockpiled raw materials. William Cooper Procter was also
active in the wartime fundraising effort.
During the 1920s the flurry of new products continued. Ivory Flakes came out in
1919. Chipso soap flakes for industrial laundry machines were introduced in 1921.
In 1926 Camay was introduced and three years later Oxydol joined the P&G line of
cleaning products. The company's market research became more sophisticated when
P&G chemist F.W. Blair began a six-month tour of U.S. kitchens and laundry rooms
to assess the effectiveness of Procter & Gamble's products in practical use and to
recommend improvements. After Blair returned, the economic-research department
under D. Paul Smelser began a careful study of consumer behavior. Market research
complemented Procter & Gamble's laboratories and home economics department in
bringing new technology to market.
Soon after Richard R. Deupree became president of the company in 1930, synthetic
soap products hit the market. In 1933 Dreft, the first synthetic detergent for
home use, was introduced, followed by the first synthetic hair shampoo, Drene, in
1934. Further improvements in synthetics resulted in a host of new products years
later.
Debut of Brand Management in 1931
In 1931 Neil McElroy, a former promotions manager who had spent time in England
and had an up-close view of Procter & Gamble's rival Unilever, suggested a system
of "one man--one brand." In effect, each brand would operate as a separate
business, competing with the products of other firms as well as those of Procter &
Gamble. The system would include a brand assistant who would execute the policies
of the brand manager and would be primed for the top job. Brand management became
a fixture at Procter & Gamble, and was widely copied by other companies.
The Great Depression caused hardship for many U.S. corporations as well as for
individuals, but Procter & Gamble emerged virtually unscathed. Radio took Procter
& Gamble's message into more homes than ever. In 1933 Procter & Gamble became a
key sponsor of radio's daytime serials, soon known as "soap operas." In 1935
Procter & Gamble spent $2 million on national radio sponsorship, and by 1937 the
amount was $4.5 million. In 1939 Procter & Gamble had 21 programs on the air and
spent $9 million. That year P&G advertised on television for the first time, when
Red Barber plugged Ivory soap during the first television broadcast of a major
league baseball game.
In 1940 Procter & Gamble's packaging expertise was given military applications
when the government asked the company to oversee the construction and operation of
ordinance plants. Procter & Gamble Defense Corporation operated as a subsidiary
and filled government contracts for 60-millimeter mortar shells. Glycerin also
became key to the war effort for its uses in explosives and medicine, and Procter
& Gamble was one of the largest manufacturers of that product.
Postwar Growth Fueled by Tide
After World War II the availability of raw materials and new consumer attitudes
set the stage for unprecedented growth. Procter & Gamble's postwar miracle was
Tide, a synthetic detergent that, together with home automatic washing machines,
revolutionized the way people washed their clothes. The company was not ready for
the consumer demand for heavy-duty detergent when it introduced the product in
1946; within two years Tide, backed by a $21 million advertising budget, was the
number one laundry detergent, outselling even the company's own Oxydol and Duz.
Despite its premium price, Tide remained the number one laundry detergent into the
21st century. In 1950 Cheer was introduced as bluing detergent, and over the years
other laundry products were also marketed: Dash in 1954, Downy in 1960, Bold in
1965, Ariel (an overseas brand) in 1967, Era in 1972, and Solo in 1979.
The 1950s were highly profitable for the company. In 1955, after five years of
research, Procter & Gamble firmly established itself in the toiletries business
with Crest toothpaste. Researchers at the company and at Indiana University
developed the toothpaste using stannous fluoride--a compound of fluorine and tin--
which could substantially reduce cavities. In 1960 the American Dental Association
endorsed Crest, and the product was on its way to becoming the country's number
one toothpaste, nudging past Colgate in 1962.
Procter & Gamble began acquiring smaller companies aggressively in the mid-1950s.
In 1955 it bought the Lexington, Kentucky-based nut company W.T. Young Foods, and
acquired Nebraska Consolidated Mills Company, owner of the Duncan Hines product
line, a year later. In 1957 the Charmin Paper Company and the Clorox Chemical
Company were also acquired.
In 1957 Neil McElroy, who had become Procter & Gamble president in 1948, left the
company to serve as secretary of defense in President Dwight D. Eisenhower's
cabinet. He was replaced by Howard Morgens who, like his predecessor, had climbed
the corporate ladder from the advertising side. In 1959 McElroy returned to
Procter & Gamble as chairman and remained in that position until 1971, when
Morgens succeeded him. Morgens remained CEO until 1974.
Paper Products Push Included Pampers
Morgens oversaw Procter & Gamble's full-scale entry into the paper-goods markets.
A new process developed in the late 1950s for drying wood pulp led to the
introduction of White Cloud toilet paper in 1958, and Puffs tissues in 1960.
Procter & Gamble's Charmin brand of toilet paper was also made softer.
Procter & Gamble's paper-products offensive culminated in the 1961 test marketing
of Pampers disposable diapers. The idea for Pampers came from a Procter & Gamble
researcher, Vic Mills, who was inspired while changing an infant grandchild's
diapers in 1956. The product consisted of three parts: a leak-proof outer plastic
shell, several absorbent layers, and a porous film that let moisture pass through
into the absorbent layers, but kept it from coming back. Test market results
showed that parents liked the diapers, but disliked the 10 cents-per-Pamper price.
Procter & Gamble reduced the price to six cents and implemented a sales strategy
emphasizing the product's price. Pamper's three-layer design was a phenomenal
success, and within 20 years disposable diapers had gone from less than 1 percent
to more than 75 percent of all diapers changed in the United States. Procter &
Gamble improved the technology over the years, and added a premium brand, Luvs, in
1976.
The company expanded its food business by entering the coffee market through the
1963 acquisition of the Folgers brand and by introducing the stackable Pringles
potato chips, which were shipped in resealable cans, in 1968. P&G, however, had to
contend with charges from the Federal Trade Commission that both its Folgers and
Clorox acquisitions violated antitrust statutes. In a case that found its way to
the Supreme Court, Procter & Gamble was finally forced to divest Clorox in 1967.
The Folgers action was dismissed after Procter & Gamble agreed not to make any
more grocery acquisitions for seven years, and coffee acquisitions for ten years.
In the late 1960s public attention to water pollution focused on phosphates, a key
group of ingredients in soap products. After initial resistance, Procter & Gamble,
along with other soap makers, drastically reduced the use of phosphates in its
products.
In 1974 Edward G. Harness became chairman and CEO of Procter & Gamble and the
company continued its strong growth. Many familiar products were improved during
the 1970s, and new ones were added as well, including Bounce fabric softener for
the dryer in 1972 and Sure antiperspirant and Coast soap in 1974.
In 1977, after three years of test marketing, Procter & Gamble introduced Rely
tampons, which were rapidly accepted in the market as a result of their "super-
absorbent" qualities. In 1980, however, the Centers for Disease Control (CDC)
published a report showing a statistical link between the use of Rely and a rare
but often fatal disease known as toxic shock syndrome (TSS). In September 1980 the
company suspended further sales of Rely tampons, taking a $75 million write-off on
the product.
Ironically, P&G was able to capitalize on the resurgence of feminine napkins after
the TSS scare. The company's Always brand pads quickly garnered market share, and
by 1990 Always was the top sanitary napkin, with over one-fourth of the market.
Food and OTC Drug Acquisitions in the Early 1980s
In 1981 John G. Smale became CEO of Procter & Gamble. He had been president since
1974. Smale led the company further into the grocery business through a number of
acquisitions, including Ben Hill Griffin citrus products. The company also entered
the over-the-counter (OTC) drug market with the 1982 purchase of Norwich-Eaton
Pharmaceuticals, makers of Pepto Bismol and Chloraseptic. The company completed
its biggest purchase in 1985, with the acquisition of the Richardson-Vicks
Company, maker of Vicks respiratory care products, NyQuil cold remedies, and Oil
of Olay skin care products, for $1.2 billion; and bought the motion-sickness
treatment Dramamine and the laxative Metamucil from G.D. Searle & Co. These
purchases made Procter & Gamble a leader in over-the-counter drug sales.
In 1985, unable to squelch perennial rumors linking Procter & Gamble's famous
moon-and-stars logo to Satanism, the company reluctantly removed the logo from
product packages. The logo began to reappear on some packages in the early 1990s,
and the company continued to use the trademark on corporate stationary and on its
building.
During fiscal 1985, Procter & Gamble experienced its first decline in earnings
since 1953. Analysts maintained that Procter & Gamble's corporate structure had
failed to respond to important changes in consumer shopping patterns and that the
company's standard practice of extensive market research slowed its reaction to
the rapidly changing market. The mass-marketing practices that had served Procter
& Gamble so well in the past lost their punch as broadcast television viewership
fell from 92 percent to 67 percent in the mid-1980s. Many large companies
responded to the challenge of cable TV and increasingly market-specific media with
appropriately targeted "micro-marketing" techniques, and Procter & Gamble was
forced to rethink its marketing strategy. In the late 1980s Procter & Gamble
diversified its advertising, reducing its reliance on network television.
Computerized market research including point-of-sale scanning also provided the
most up-to-date information on consumer buying trends.
In 1987 the company restructured its brand-management system into a "matrix
system." Category managers became responsible for several brands, making them
sensitive to the profits of other Procter & Gamble products in their areas.
Procter & Gamble brands continued to compete against one another, but far less
actively. The restructuring also eliminated certain layers of management,
quickening the decision-making process. The company became more aware of
profitability than in the past. A company spokesperson summed it up for Business
Week: "before it had been share, share, share. We get the share and the profits
will follow." In the later 1980s, Procter & Gamble was no longer willing to settle
just for market share.
In the late 1980s healthcare products were one of the fastest-growing markets as
the U.S. population grew both older and more health conscious. To serve this
market, Procter & Gamble's OTC drug group, which had been built up earlier in the
decade, entered a number of joint ventures in pharmaceuticals. Procter & Gamble
teamed up with the Syntex Corporation to formulate an OTC version of its best-
selling antiarthritic, Naprosyn. Cooperative deals were also struck with the Dutch
Gist-Brocades Company for its De-Nol ulcer medicine; UpJohn for its anti-baldness
drug, Minoxidil; and Triton Bioscience and Cetus for a synthetic interferon.
Noxell and Blendax Acquisitions in 1988
In September 1988 Procter & Gamble made its first move into the cosmetics business
with the purchase of Noxell Corporation, maker of Noxema products and Cover Girl
cosmetics, in a $1.3 billion stock swap. Procter & Gamble also planned to further
develop its international operations. In 1988 the company acquired Blendax, a
European health- and beauty-care goods manufacturer. The Bain de Soleil sun care-
product line was also purchased that year. By 1989 foreign markets accounted for
nearly 40 percent of group sales, up from 14 percent in 1985.
P&G's brand equity was threatened by the weak economy and resultant consumer
interest in value in the late 1980s and early 1990s. This value orientation
resulted in stronger performance by private labels, especially in health and
beauty aids. Private labels' market share of that segment grew 50 percent between
1982 and 1992, to 4.5 percent.
To combat the trend, P&G inaugurated "Every Day Low Pricing" (EDLP) for 50 to 60
percent of its products, including Pampers and Luvs diapers, Cascade dish soap,
and Jif peanut butter. The pricing strategy was good for consumers, but was
compensated for with lower promotion deals for wholesalers. Some retailers
objected to P&G's cut in promotional kickbacks to the point of actually dropping
products, but others welcomed the value-conscious positioning. P&G redirected the
money it saved from trade promotions for direct marketing efforts that helped
bring coupon and sample programs to targeted groups for brands with narrow
customer bases such as Pampers, Clearasil, and Oil of Olay.
In the 1990s Procter & Gamble also hopped on the so-called "green" bandwagon of
environmental marketing. It reduced packaging by offering concentrated
formulations of products in smaller packages and refill packs on 38 brands in 17
countries.
While P&G expanded its presence in cosmetics and fragrances through the July 1991
acquisition of the worldwide Max Factor and Betrix lines from Revlon, Inc. for
$1.03 billion, it also divested holdings in some areas it had outgrown. In 1992
the corporation sold about one-half of its Cellulose & Specialties pulp business
to Weyerhaeuser Co. for $600 million. While vertical integration had benefitted
P&G's paper products in the past, the forestry business had become unprofitable
and distracting by the 1990s. The corporation also sold an Italian coffee business
in 1992 to focus on a core of European brands. P&G hoped to introduce products
with pan-European packaging, branding, and advertising to capture more of the
region's well-established markets. Meanwhile, Pantene Pro-V was introduced in 1992
and quickly became the fastest growing shampoo in the world.
Major Restructurings and Acquisitions in the Mid- to Late 1990s
Company sales surpassed the $30 billion mark in 1993. Under the leadership of
Chairman and CEO Edwin L. Artzt and President John E. Pepper, Procter & Gamble
that year launched a major restructuring effort aimed at making the company's
brand-name products more price-competitive with private label and generic brands,
bringing products to market faster, and improving overall profitability. The
program involved severe cost-cutting, including the closure of 30 plants around
the world and elimination of 13,000 jobs, or 12 percent of P&G's total workforce.
Culminated in 1997, the $2.4 billion program resulted in annual after-tax savings
of more than $600 million. It also helped to increase Procter & Gamble's net
earnings margin from 7.3 percent in 1994 to 10.2 percent in 1998.
During the restructuring period, the company continued its brisk acquisitions
pace. In 1994 P&G entered the European tissue and towel market through the
purchase of Vereinigte Papierwerke Schickedanz AG's European tissue unit, and
added the prestige fragrance business of Giorgio Beverly Hills, Inc. That year
also saw Procter & Gamble reenter the South African market following the lifting
of U.S. sanctions. The company altered its geographic management structure the
following year. P&G had divided its operations into United States and
International, but would now organize around four regions--North America, Latin
America, Asia, and Europe/Middle East/Africa. In July 1995 Artzt retired, and was
replaced as chairman and CEO by Pepper. Durk I. Jager was named president and
chief operating officer.
In 1996 Procter & Gamble purchased the Eagle Snacks brand line from Anheuser-
Busch, the U.S. baby wipes brand Baby Fresh, and Latin American brands Lavan San
household cleaner and Magia Blanca bleach. In celebration of the 50th anniversary
of Tide's introduction, the company held a "Dirtiest Kid in America" contest. Also
in 1996 P&G received U.S. Food & Drug Administration (FDA) approval to use
olestra, a controversial fat substitute, in snacks and crackers. The company had
developed olestra after 25 years of research and at a cost of $250 million. The
FDA go-ahead came after an eight-year investigation and included a stipulation
that foods containing the substitute include a warning label about possible
gastrointestinal side effects. P&G soon began test-marketing Fat Free Pringles,
Fat Free Ritz, and other products made using olestra. No product containing
olestra ever caught on in the market, however, and olestra was eventually
considered one of the company's biggest product failures ever.
In July 1997 Procter & Gamble spent about $1.84 billion in cash to acquire
Tambrands, Inc. and the Tampax line of tampons, thereby solidifying its number one
position worldwide in feminine products. The company sold its Duncan Hines baking
mix line to Aurora Foods of Ohio for $445 million in 1998.
In September 1998 P&G announced a new restructuring initiative, dubbed
Organization 2005. In 1996 the company had set a goal of doubling sales from the
$35 billion of 1996 to $70 billion by 2005. But sales stood at just $37.15 billion
by 1998, only a 4 percent increase over the previous year--when 7 percent
increases were needed each year. A key element of this restructuring was a shift
from an organization centered around the four geographic regions established in
1995 to one centered on seven global business units based on product lines: Baby
Care, Beauty Care, Fabric & Home Care, Feminine Protection, Food & Beverage,
Health Care & Corporate New Ventures, and Tissues & Towels. According to a company
press release announcing the new structure, "This change will drive greater
innovation and speed by centering strategy and profit responsibility globally on
brands, rather than on geographies." Jager would be the person leading the
reorganization, as it was announced at the same time that he would become
president and CEO on January 1, 1999, with Pepper remaining chairman only until
September 1, 1999, when Jager would also assume that position.
In June 1999 Jager extended the Organization 2005 restructuring to include several
new initiatives. The company said that by 2005 it would eliminate 15,000 jobs,
shutter about ten factories, and record restructuring costs of $1.9 billion. The
aims were to increase innovation, get new products to the market faster, and
accelerate both revenue and profit growth.
In the meantime, P&G remained on the lookout for acquisitions and completed two
significant ones in the latter months of 1999. In its biggest deal yet, Procter &
Gamble laid out $2.22 billion in cash for the Iams Company, one of the leading
makers of premium pet food in the United States, with annual global sales of
approximately $800 million. P&G next acquired Recovery Engineering, Inc. for about
$265 million. Based in Minneapolis, Recovery produced the fast-growing PUR brand
of water-filter products, achieving $80 million in sales in 1998. Among new
products introduced in 1999 was Swiffer, an electrostatic dusting mop that was
part of a new category of household product: quick cleaning. The Swiffer line went
on to become one of P&G's fastest-growing brands of the early 2000s. Also debuting
in 1999 were Febreze, a spray used to eliminate odors in fabrics, and Dryel, a
home dry-cleaning kit.
Early 2000s: Further Restructuring, Hair-Care Acquisitions
Early in 2000 Procter & Gamble placed itself in the middle of a major takeover
battle in the pharmaceutical industry. Late in the previous year, Warner-Lambert
Company had agreed to a nearly $70 billion merger with American Home Products
Corporation (AHP). Pfizer Inc. quickly stepped in with a hostile bid for Warner-
Lambert that exceeded AHP's offer. Warner-Lambert attempted to fend off Pfizer,
bringing P&G into the picture in January 2000 to discuss a three-way deal
involving AHP. But Jager was forced to abandon the white knight maneuver, which
would have been a huge and risky move into the drug business, when word leaked out
to the press and the company's stock price plummeted. Around this same time, Jager
reportedly approached the Gillette Company, best known for its razors, about a
takeover but was quickly rebuffed.
In June 2000, after the company issued its third profit warning in a year, Jager
resigned. Taking over as president and CEO was A.G. Lafley, who had joined the
company in June 1977 as a brand assistant for Joy and had most recently been in
charge of the global beauty care unit. At the same time, Pepper returned to the
company board as chairman. Lafley slowed down the rush to get products to market
in order to make sure that they received the proper marketing support, while at
the same time focusing more of the company's resources on shoring up its big core
brands--the top dozen or so products, each of which brought in more than $1
billion in global revenues annually.
Among other developments in 2000, the Oil of Olay brand was renamed simply Olay in
an effort to dispel the perception that the product was greasy. As part of an
ongoing effort to focus on a smaller number of core brands, P&G sold Clearasil,
the acne-treatment brand, to Boots PLC for about $340 million. The company also
received FDA approval for Actonel, a prescription treatment for osteoporosis.
Aided by a marketing partnership with Aventis, P&G was able to achieve $1 billion
in annual Actonel sales by fiscal 2004.
Extending its 1999 restructuring still further, P&G announced in March 2001 that
it would shed several thousand additional jobs over the following three years and
double the amount of money it would spend to fix its operational problems. By the
end of fiscal 2003, when the restructuring was declared to be complete, Procter &
Gamble had cut about 21,600 jobs and incurred total before-tax charges of $4.85
billion. In the meantime, the company's fiscal 2001 results clearly showed the
dismal state of affairs at that time: Sales fell nearly 2 percent to $39.24
billion, while net income plunged 17.5 percent to $2.92 billion thanks to after-
tax restructuring charges of $1.48 billion.
In March 2001 Procter & Gamble reached an agreement with the Coca-Cola Company to
create a $4 billion joint venture designed to join Coke's Minute Maid brand and
distribution network with P&G's Pringles chips and Sunny Delight drink brands. But
Coca-Cola pulled out of the deal just a few months later, having decided to try to
build the Minute Maid brand on its own. Despite this setback, P&G succeeded in
paring back its ever more marginal food business by selling the Jif peanut butter
and Crisco shortening brands to the J.M. Smucker Company. The deal, completed in
May 2002, was valued at about $900 million. In November 2001, meantime, P&G
consummated its largest acquisition yet, buying the Clairol hair-care business
from Bristol-Myers Squibb Company for nearly $5 billion in cash. The deal melded
well with P&G's goal of securing faster-growing, more profitable product areas,
such as beauty and hair care. Also acquired in 2001 was Dr. John's SpinBrush,
maker of a battery-powered toothbrush featuring spinning bristles that at $5 was
much cheaper than existing electric toothbrushes. Soon thereafter, the newly named
Crest SpinBrush was successfully launched. Also brought out in 2001 were Crest
Whitestrips, a tooth whitening product. These two new products helped increase
global sales of the Crest brand by 50 percent, propelling it past the $1 billion
mark during fiscal 2002.
In July 2002 Pepper again retired, and Lafley took on the additional post of
chairman. Results for the fiscal year ending in June 2003 provided strong evidence
that Lafley had engineered a remarkable turnaround. In its best performance in
nearly a decade, Procter & Gamble posted an 8 percent increase in net sales, to
$43.38 billion, and a 19 percent jump in net earnings, to $5.19 billion. P&G built
on these results with another blockbuster acquisition--once again the largest in
company history. In September 2003 the company acquired a controlling interest in
Wella AG for $6.27 billion. Based in Germany, Wella was a leading maker of
professional hair-care products with 2002 revenues of $3.6 billion. The deal
provided P&G with an entr�e into the salon market, where about half of Wella's
sales were generated. Procter & Gamble also bolstered its dental care line by
acquiring the Glide brand of dental floss from W.L. Gore & Associates, Inc. In
September 2003, under a marketing and distribution agreement with AstraZeneca PLC,
P&G began selling Prilosec OTC, an over-the-counter version of AstraZeneca's
blockbuster heartburn medication, Prilosec.
In April 2004 Procter & Gamble reached an agreement to sell its Sunny Delight and
Punica drinks businesses to J.W. Childs Associates LP, a private-equity firm in
Boston. This further paring of the foods business left P&G with just two main food
brands, Pringles and Folgers. The snacks and beverages unit accounted for only 7
percent of the company's total revenues in fiscal 2004. At the beginning of fiscal
2005 P&G realigned its business units, shifting its five previous units into
three: global beauty care; global health, baby, and family care; and global
household care. Pringles and Folgers were placed within the latter unit.
Sales for fiscal 2004 surged 19 percent, surpassing the $50 billion mark for the
first time. Net earnings jumped 25 percent, hitting $6.48 billion. The newly
invigorated company continued its streak of paying dividends without interruption
since its 1890 incorporation, and it also increased its dividend for the 48th
straight year.
Principal Subsidiaries: Cosmopolitan Cosmetics GmbH (Germany); The Folger Coffee
Company; Giorgio Beverly Hills, Inc.; The Iams Company; Max Factor & Co.; Noxell
Corporation; Olay Company, Inc.; P&G-Clairol, Inc.; Procter & Gamble
Pharmaceuticals, Inc.; PUR Water Purification Products, Inc.; Tambrands Inc.; Vick
International Corporation; Vidal Sassoon Co.; Procter & Gamble Australia
Proprietary Limited; Procter & Gamble Inc. (Canada); Procter & Gamble France
S.N.C.; Wella AG (Germany); Procter & Gamble India Holdings, Inc.; Procter &
Gamble Italia, S.p.A. (Italy); Procter & Gamble Nederland B.V. (Netherlands);
Procter & Gamble Switzerland SARL; Procter & Gamble Limited (U.K.); Thomas Hedley
& Co. Limited (U.K.); Yardley of London Ltd. (U.K.).
Principal Operating Units: Global Beauty Care; Global Health, Baby, and Family
Care; Global Household Care.
Principal Competitors: Unilever; Johnson & Johnson; Kimberly-Clark Corporation;
Sara Lee Corporation; Kraft Foods Inc.; L'Oreal SA; Colgate-Palmolive Company.

Further Reading:

Berner, Robert, "Why P&G's Smile Is So Bright," Business Week, August 12, 2002,
pp. 58-60.
Berner, Robert, and Gerry Khermouch, "The Tide Is Turning at P&G," Business Week,
April 8, 2002, p. 44.
Berner, Robert, Nanette Byrnes, and Wendy Zellner, "P&G Has Rivals in a Wringer,"
Business Week, October 4, 2004, p. 74.
Branch, Shelly, "P&G to Buy Iams," Wall Street Journal, August 12, 1999, p. B1.
Brooker, Katrina, "Can Procter & Gamble Change Its Culture, Protect Its Market
Share, and Find the Next Tide?," Fortune, April 26, 1999, pp. 146-50, 152.
------, "The Un-CEO," Fortune, September 16, 2002, pp. 88-92, 96.
Canedy, Dana, "A Prescription to Keep P&G Growing Strong: Big Household Name Tries
to Be a Drugstore, Too," New York Times, November 4, 1997, p. D1.
Deogun, Nikhil, and Emily Nelson, "Stirring Giant: P&G Is on the Move," Wall
Street Journal, January 24, 2000, pp. A1+.
Dumaine, Brian, "P&G Rewrites the Marketing Rules," Fortune, November 6, 1989, pp.
34+.
Dyer, Davis, Frederick Dalzell, and Rowena Olegario, Rising Tide: Lessons from 165
Years of Brand Building at Procter & Gamble, Boston: Harvard Business School
Press, 2004, 496 p.
Eisenberg, Daniel, "A Healthy Gamble," Time, September 16, 2002, pp. 46-48.
Ellison, Sarah, "P&G Lays Out Wella Strategy," Wall Street Journal, March 19,
2003, p. B3.
Galuszka, Peter, and Ellen Neuborne, "P&G's Hottest New Product: P&G," Business
Week, October 5, 1998, pp. 92+.
Henkoff, Ronald, "P&G: New and Improved!," Fortune, October 14, 1996, pp. 151+.
"The House That Ivory Built: 150 Years of Procter & Gamble," Advertising Age,
August 20, 1987.
"Jager's Gamble," Economist, October 30, 1999, p. 75.
Johnson, Bradley, "Retailers Accepting P&G Low Pricing," Advertising Age, June 22,
1992, p. 36.
Kirk, Jim, "The New Status Symbols; New Values Drive Private-Label Sales," Adweek
(Eastern Ed.), October 5, 1992, pp. 38-44.
Laing, Jonathan R., "New and Improved: Procter & Gamble Fights to Keep Its Place
on the Top Shelf," Barron's, November 29, 1993, pp. 8-9, 22, 24, 26.
Lawrence, Jennifer, "Jager: New P&G Pricing Builds Brands," Advertising Age, June
29, 1992, pp. 13, 49.
------, "Laundry Soap Marketers See the Value of 'Value!,'" Advertising Age,
September 21, 1992, pp. 3, 56.
Lenzner, Robert, and Carrie Shook, "The Battle of the Bottoms," Forbes, March 24,
1997, pp. 98+.
Levin, Gary, "P&G Tells Shops: Direct Marketing Is Important to Us," Advertising
Age, June 22, 1992, pp. 3, 35.
Lief, Alfred, It Floats: The Story of Procter & Gamble, New York: Rinehart &
Company, 1958, 338 p.
Miller, Cyndee, "Moves by P&G, Heinz Rekindle Fears That Brands Are in Danger,"
Marketing News, June 8, 1992, pp. 1, 15.
Mitchell, Alan, "The Dawn of a Cultural Revolution," Management Today, March 1998,
pp. 42-44, 46, 48.
Nelson, Emily, "P&G Agrees to Pay $4.95 Billion for Bristol-Myers's Clairol Unit,"
Wall Street Journal, May 22, 2001, p. B7.
------, "Rallying the Troops at P&G: New CEO Lafley Aims to End Upheaval by
Revamping Program of Globalization," Wall Street Journal, August 31, 2000, p. B1.
P&G: A Company History, Cincinnati, Ohio: The Procter & Gamble Company, 2004, 17
p.
"P&G's New New-Product Onslaught," Business Week, October 1, 1979, p. 76.
Parker-Pope, Tara, "New CEO Preaches Rebellion for P&G's 'Cult,'" Wall Street
Journal, December 11, 1998, p. B1.
------, "P&G, in Effort to Give Sales a Boost, Plans to Revamp Corporate
Structure," Wall Street Journal, September 2, 1998, p. B6.
------, "P&G Targets Textiles Tide Can't Clean," Wall Street Journal, April 29,
1998, pp. B1, B4.
Parker-Pope, Tara, and Joann S. Lublin, "P&G Will Make Jager CEO Ahead of
Schedule," Wall Street Journal, September 10, 1998, pp. B1, B8.
Parker-Pope, Tara, and Jonathan Friedland, "P&G Calls the Cops As It Strives to
Expand Sales in Latin America," Wall Street Journal, March 20, 1998, pp. A1, A9.
Procter & Gamble: The House That Ivory Built, by the editors of Advertising Age,
Lincolnwood, Ill.: NTC Business Books, 1988, 234 p.
"Procter & Gamble's Profit Problem-Food," Business Week, January 26, 1981, p. 52.
"Procter's Gamble," Economist, July 25, 1992, pp. 61-62.
Rice, Faye, "The King of Suds Reigns Again," Fortune, August 4, 1986, pp. 130+.
Saporito, Bill, "Behind the Tumult at P&G," Fortune, March 7, 1994, pp. 74+.
------, "Procter & Gamble's Comeback Plan," Fortune, February 4, 1985, pp. 30+.
Schiller, Zachary, "And Now, a Show from Your Sponsor," Business Week, May 22,
1995, pp. 100+.
------, "Ed Artzt's Elbow Grease Has P&G Shining," Business Week, October 10,
1994, pp. 84+.
------, "Make It Simple," Business Week, September 9, 1996, pp. 96+.
------, "The Marketing Revolution at Procter & Gamble," Business Week, July 25,
1988, pp. 72+.
------, "No More Mr. Nice Guy at P&G--Not by a Long Shot," Business Week, February
3, 1992, pp. 54+.
------, "P&G's Worldly New Boss Wants a More Worldly Company," Business Week,
October 30, 1989, pp. 40+.
------, "Procter & Gamble Hits Back: Its Dramatic Overhaul Takes Aim at High
Costs--and Low-Price Rivals," Business Week, July 19, 1993, pp. 20+.
Schisgall, Oscar, Eyes on Tomorrow: Evolution of Procter & Gamble, Chicago: J.G.
Ferguson Publishing Co., 1981, 295 p.
Sellers, Patricia, "P&G: Teaching an Old Dog New Tricks," Fortune, May 31, 2004,
pp. 166-68+.
Swasy, Alecia, Soap Opera: The Inside Story of Procter & Gamble, New York: Times
Books, 1993, 378 p.
Vanderwicken, Peter, "P&G's Secret Ingredient," Fortune, July 1974, p. 75.
Weinstein, Steve, "Will Procter's Gamble Work?," Progressive Grocer, July 1992,
pp. 36-40.
"Why Procter & Gamble Is Playing It Even Tougher," Business Week, July 18, 1983,
pp. 176+.
Wilsher, Peter, "Diverse and Perverse," Management Today, July 1992, pp. 32-35.
Source: International Directory of Company Histories, Vol.67. St. James Press,
2005.