Procter & Gamble will become the biggest player in the UK cosmetic and toiletry markers once its merger with Gillette is complete, over-taking current market leader Unilever. But it may not be a smooth path ahead, a market report warns.
With combined UK sales of skin care, hair care, oral care and shaving preparations valued at £3.78 billion and set to rise 5 per cent in 2005, a lot is at stake with the proposed merger. But carving up an even bigger slice of this lucrative market will not come without its challenges.
P&G's proposed merger with Gillette is expected to create a group with global sales of £32 million, a move that will push Unilever into the second position, both in the UK and the internationally.
Although the merger is expected to bring about a significant reduction in costs due to synergies, implementing the necessary cuts to the operations is never easy. The Research and Markets Report entitled Toiletries Market Report Plus 2005 , points out that, in line with objective to cut the global workforce by 6,000 (4 per cent), job cuts will have to made at UK facilities.
In carrying out these objectives P&G will be tapping into a global trend whereby multinational cosmetic and toiletry manufacturers are re-locating their manufacturing facilities to countries where labour as cheaper, and at the same time taking advantage of a higher level of automation to cut costs further.
Most recently UK soap manufacturer PZ Cussons became one of the latest companies to implement these kind of changes, after it announced that it was shifting manufacturing from the UK to Thailand with the loss of 160 jobs when its plant in Nottingham closes in 2007.
As well as the opportunity to boost its turnover and profits, P&G will also find itself taking on Gillette's problems in the UK. The report highlight the ongoing battle between Wilkinson Sword out and Gillette for the biggest slice of the shaving market.
The latest disagreement centres on Wilkinson Sword's complaint to the Advertising Standards Authority that Gillette's current advertising campaign is misleading. If the ASA agrees to uphold this complaint, something that has already been done by advertising watchdogs in Australia and Germany, Wilkinson Sword may qualify for compensation for its resultant sales losses.
Although the merger of P&G with Gillette will undoubtedly create a stronger, leaner and more competitive machine, it is doubtless to say that this will involve a lot of challenges ahead, both nationally and internationally.