)
After reports of Procter & Gamble (P&G) planning to enter the toothpaste market through its Oral-B brand in June, Colgate's stock is down five per cent on fears the company could see its market share decline. P&G's entry will not only increase competition, but will, most likely, compel incumbents such as Colgate (estimated market share of 51 per cent), HUL (22 per cent), Dabur (14 per cent) and GSK Consumer to raise their promotional and advertising activities, impacting their profitability. Most analysts expect P&G to launch its toothpaste under Oral-B, given the huge investments it has made in the brand in recent years.
Analysts expect P&G to target the regular segment, which contributes about 50 per cent to Colgate's revenues; others have a highly diversified business portfolio. The fears, however, might be overdone, given Colgate's strong position and past record. Colgate has a robust distribution network (five million outlets), be a significant hurdle for P&G. P&G's distribution network is even smaller than those of HUL and Dabur, making it difficult for P&G to capture a sizeable share of the mass market. Colgate also has strong dentist prescriptions and while P&G is already aggressively improving this channel, it could take time to attain scale. But, P&G can push its products via the chemists channel and buy time to build a larger reach.
P&G is a key competitor for Colgate globally but Colgate has been able to protect its market share earlier as well, though at the cost of margins in the interim."When P&G entered the toothpaste market in Brazil in 2009, Colgate did not lose much market share but had to significantly increase advertising and trade spends to protect their turf. We expect a similar situation in India," says Arnab Mitra, analyst at Credit Suisse. Colgate obviously will be taking measures to protect its turf in India. "Adopting a one-sided stance that Colgate will lose significant share is probably incorrect, as one has to watch how it counters market developments," noted Citi's analysts.
What's more, India's toothpaste consumption levels are less than half that in China, which means scope for market expansion. The recent decline in raw material prices could also help incumbents in the interim. While analysts aren't majorly worried about the new competition, they believe the same along with Colgate's rich valuations (PE of 32 times FY14 estimated earnings) leave no room for error.
