P&G gives Pantene a high-tech makeover

Atomic force microscopes and plenty of PhD's go into rebranding the struggling hair care brand

By InvestorPlace May 27, 2010 9:40AM

Pantene, the hair care line that generates $3 billion for personal products giant Procter and Gamble (PG), is no stranger to makeovers. And after the recession drove consumers into the arms of cheaper rivals, Pantene is reinventing itself yet again – the third rebranding since 1999 – in an effort to reconnect with consumers.

According to Business Week, some of the big ideas behind more than two years of research and reformulation include both an “atomic force microscope, similar to one used on NASA's Phoenix Mars Lander, and micro-computed tomography, used to measure bone density” to ensure the shampoos were truly making hair healthier.

Perhaps almost as interesting as that space age stuff is the fact that P&G execs have actually embraced the “less is more” philosophy after admitting that the wide variety of Pantene products actually did more harm than good. As part of the relaunch, Procter & Gamble has decided to reduce the number of shampoos, gels, moisturizers, hairsprays, conditioners and other hair care products by about 30%.

The big question for investors and consumers, of course, is whether the reformulation of Pantene actually boosts appeal of the hair care line and subsequently delivers bigger sales for P&G.

The good news is that despite previous price increases when Pantene was revamped, Cincinnati-based Procter and Gamble is holding prices steady this time around. Shampoo will still cost about $4 per bottle – not as cheap as store brands or discount hair care products, but certainly not in the premium price range.

P&P reported earnings at the end of April that showed its profit fell slightly, however sales jumped 7% as consumer spending firmed up and new products, price cuts and stepped-up advertising took hold. The reformulation of Pantene could help the PG stock build on this trend.

However, it’s worth noting that the $19.2 billion in quarterly sales still missed Wall Street forecasts and that the stock has been sluggish for the better part of a year. Though P&G has about 20 or so billion-dollar brands in its catalog -- including the Pampers baby care line and Gillette men’s personal products -- any drop-off in Pantene will only hurt the stock more.

For its part, P&G is convinced Pantene is better than ever and that all its products are on the resurgence. The company recently raised the low end of its guidance range for net earnings by 4 cents a share to a range of $4.06 to $4.12 for the current quarter on optimism that consumer spending will continue to firm up.

That may be true, but the real question is whether Pantene’s rebirth will allow P&G to maximize its sales with a dominant hair care line. If not, then you can expect the costs of this reformulation and the slow erosion of sales to weigh on this stock’s bottom line.

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