P&G volume recovers as shoppers pay for innovation

The news: Procter & Gamble’s sales rose more than expected in its fiscal Q2 despite “volatile” US consumer behavior and uncertainty in China as shoppers stocked up on household staples.

• Organic sales grew 3% YoY for the quarter ended December 31, driven primarily by volume growth—up 2% YoY—and favorable geographic mix.
• Pricing was flat YoY for the first time since 2019.

The underlying trends: Focusing on innovation and emphasizing nondiscretionary categories like toilet paper and diapers have helped P&G avoid losing share to private labels.

Instead, shoppers are trading up, either to bigger pack sizes or higher-value items, CFO Andre Schulten told Bloomberg.

• Consumers are “very focused on performance,” he said on P&G’s earnings call, which is why the company has held volume and value share steady in 8 of the 10 categories it operates in—and why private-label shares in those categories are holding steady or declining.
• At the same time, US consumer spending was volatile. Spending in October was strong as hurricanes and the threat of a port strike caused shoppers to stock up on toilet paper and other goods but softened in November before picking up again in December.

On the other side of the globe, P&G—like most companies—is struggling to break through to Chinese consumers, the majority of whom are “not confident” and “still struggling,” CEO Jon Moeller said.

• Organic sales in China fell 3% in Q2, although that was a considerable improvement from the 15% drop P&G reported the prior quarter.
• While the market is stabilizing, dependable growth is still a ways off, executives said.

Looking ahead: P&G’s ability to grow sales without leaning on price hikes is an encouraging sign for the CPG industry as companies try to win back volume lost to private labels and cheaper rivals.

While P&G is helped by the fact that its categories are more resistant to trade-down behaviors, its success emphasizes that shoppers’ conception of value is influenced by innovation and quality as well as price.

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