Proctor & Gamble’s Purchase of Gillette Will Aid Competition

The people who make Duracell batteries, Pampers diapers and Gillette razors are now going to be one big happy family. Proctor and Gamble announced the buyout of Gillette last Friday in a deal worth around $56 billion. Usually the concentration of power is a bad thing for the consumer, but in this particular instance, the question of competition begs a different question – just who is competing with whom?

The two companies have very little over-lap, P&G doesn’t own a competing razor company and Gillette isn’t in the battery business. However a few dozen of the most popular brands of consumer goods in the world are going to be under one roof. As a result, European Union antitrust chief Neelie Kroes will probably review the deal, and require some changes, and the American authorities might do likewise. However, the consumer won’t be hurt by this deal much, if at all.

The competition in this instance is not consumer goods manufacturers but the big retailers like WalMart. With the huge buying power such chains have, manufacturers have had to squeeze margins to make the deals the huge retailers want. And with raw material prices up, this has made it very difficult for some consumer goods manufacturers to stay profitable. This consolidation effectively gives P&G and Gillette brands the power to say “enough!”

In addition, the ad agencies who flog these products are going to see their top line revenue shrink. Again, the manufacturers will have more power to negotiate prices for advertising – which is often money spent poorly and which only serves to drive up the final price. As proof, what is Coca Cola’s current slogan? “Coke Adds Life” has been dead for ages. People still buy the stuff, so how valuable is the advertising?

In any consolidation, there is job loss, and in this case, it looks like 6-7,000 people will be cashiered. If this is going to happen, it is best for it to happen when the companies involved are in a financial position to pay adequate exit packages and help with re-training. And perhaps there is enough cash to spread around to make most of the departures voluntary. Regulators ought to nod this one through.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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