Profitable Growth

Good growth has to be not only profitable but capital-efficient - that is, it needs to earn a return on its investment greater than the company could have received by putting its money in something ultra-safe, such as a Treasury bill. Colgate-Palmolive's growth is definitely profitable.



For more than a decade, Colgate has been on a sustained march to becoming number one in the oral-care consumer-products market, and, as mentioned, has edged out both Procter & Gamble and Unilever. As important as its growth in revenues has been Colgate's steady improvement in profitability. Its gross margin has increased from 39% in 1984 to close to 60% in 2003, an improvement of almost one point per year.



Gross margin - your revenue less what it costs to make the product to obtain those revenues - is an important indicator of a company's profitability and often not given the due it deserves. Increasing gross margin and at the same time growing revenues at a rate better than the overall market is what makes for a great growth company. It is here that you can directly see the relationship between improved productivity and profitable growth. Colgate for more than a decade has been able to find ways to consistently enhance its competitive position by making its operations more productive and streamlining its processes.

The improvement of Colgate's gross margin also reflects its ability to innovate ahead of its two chief competitors. Colgate has created a corporate "growth group" with two major responsibilities.

1. The first is to be continuously focused on developing new products, extending existing products, and improving packaging.


2. The second, equally important, job is to concentrate on logistic, production, delivery, and speed and responsiveness to retailers through the effective use of data warehousing, information technology, and cost productivity.

Again, it is an example of a top company recognizing that it must simultaneously improve productivity costs and grow.



Both processes resulted in Colgate's winning shelf space. It also meant lowering costs not only for Colgate but for retailers as well. Colgate reduced what it cost retailers to stock and sell its products while increasing retailers' inventory turns of Colgate products, thereby reducing the retailers' cost.



Colgate grew and grew more profitably than the competition, despite the huge lead that Procter & Gamble and Unilever had at the beginning of the race. It did so by continually focusing on the core business and findinng ways to make it better. It emphasized "singles and doubles." Colgate obsessed about what was happening to its brands in each retail outlet, focused on :

• the needs of retailers,


• created consumer awareness,


• continued to improve its products, and


• persuaded the consumer to prefer its products.

The growth path that Colgate chose has been good for shareholders and employees. The company's rapid growth has allowed it to attract the best managers in the industry - managers who are committed to growth.