P and G
would like to remind you that today's presentation includes a number of forward looking statements. If you will refer to P and G's most recent 10 ks, 10 Q and 8 ks reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. Also as required by Regulation G, Procter and Gamble needs to make you aware that during the presentation, the company will make a number of references to non GAAP and other financial measures. For completeness, Procter and Gamble has posted on its website, www.pg.com, a copy of the key slides from this presentation and a full reconciliation of non GAAP and other financial measures. There's still a few seats left in the front pews.
I'm going to wait a minute. There's still a couple of people coming in. All right. Good morning, everyone. I'm sure you're happy to come in out of the cold for a minute or 2.
John and I want to welcome you to Cincinnati and our global headquarters. We'd also like to extend a warm welcome to those listening to the webcast. We have a full agenda this morning. John will spend a few minutes recapping recent results and our outlook for the fiscal year. We'll spend the balance of the morning discussing 4 strategic focus areas: our strategic portfolio focus and strengthening, brand and product innovation, cost and cash productivity and execution, because execution is the only strategy that customers and consumers ever really see.
We'll also try to address a few of the questions we know are on your mind and then we'll of course open it up for other questions. So let's begin. John?
Thanks, AG. As you know, fiscal year 'fourteen organic sales grew 3%, in line with the medium performance at our industry. Fiscal year core earnings per share increased 5%. Both our organic sales and EPS results were within our target ranges. In fact, they were both within the pre Venezuela devaluation ranges that we established going into the fiscal year.
And that was despite more than a 25% reduction in market growth rates from 4 points a year ago to 2.5 to 3 points currently and significant foreign exchange developments versus our going in plan. Our productivity program was a significant enabler in delivering that result and overcoming those headwinds. On a constant currency basis, core earnings per share was very healthy, growing double digits. We generated over $10,000,000,000 in free cash flow. Free cash flow productivity was 86% all in and 94% excluding the voluntary contribution that we made to our German pension fund.
We returned $12,900,000,000 in cash to shareholders, dollars 6,000,000,000 in share repurchase and 6 $900,000,000 in dividends, about 110% of net earnings. We raised the dividend by 7%, the 58th consecutive year our dividend has been increased. Now July to September continued to be challenging from a macro standpoint with slowing market growth in both developed and developing regions, strong foreign exchange headwinds and market level challenges in the Ukraine, Russia, the Middle East, Venezuela, Argentina and Hong Kong and increased consumption taxes in several large markets, including Japan and Mexico. Despite this, we were able to deliver top and bottom results for the quarter, which met our going in expectations. Organic sales grew 2% and were in line with or ahead of year ago in each of our reporting segments.
Global value market share was about flat. Core earnings per share were $1.07 up 2% versus the prior year. Excluding FX, core earnings per share grew 9%. We generated $3,600,000,000 in operating cash flow and $2,800,000,000 in free cash flow with 96% adjusted free cash flow productivity. This was our best Q1 cash performance in the past 5 years, driven in part by our supply chain financing project.
We returned $4,200,000,000 in cash to shareholders, including $2,400,000,000 in share repurchase and $1,800,000,000 of dividends. As we announced earlier this morning, we'll be exchanging a recapitalized Duracell business to Berkshire Hathaway for Berkshire's share of P&G Stock. I'll talk more about the form of that transaction a bit later. We'll be restating Duracell results to discontinued operations, starting with current quarter results. The deal has no impact on our outlook for organic sales growth or core earnings per share growth this fiscal year.
Our forecast for organic sales growth remains in the range of low to mid single digits. This is based on current market growth rates of about 2.5%. Based on mid October spot rates, we expect foreign exchange to be a negative 2 point impact on sales growth and a 5 to 6 point headwind on core earnings per share growth. This is roughly double the impact that we'd estimated going into the year. We're currently maintaining our core earnings per share growth guidance range of mid single digits, though FX skews us towards the lower end of this range.
We'll do our best to try to offset the FX impacts with productivity savings and pricing without compromising increased investments in brand equities, value equations, innovation and selling capability. This is what we were able to do successfully last year. Excluding FX, we're now forecasting double digit core earnings per share growth for the fiscal year. Our guidance is based, as I said before, on mid October foreign exchange and commodity spot rates, Further significant currency weaknesses, including weakness including Venezuela is not anticipated in the guidance range. As I said, our outlook is based on current market growth rates, which we're monitoring closely.
We also continue to monitor unrest in several markets in the Middle East and Eastern Europe. We continue to closely monitor markets like Venezuela and Argentina, where pricing controls, import restrictions and access to dollars present some risk. Our guidance does not assume a prolonged business disruption in Argentina. On the flip side, our guidance also does not reflect potential tailwinds. For example, our results could improve if currencies and our commodities ease, if markets begin to expand in a sustainable way or if there's an easing of political tensions and consumer confidence begins to improve in a number of countries, particularly in the U.
S. There are a few things you should keep in mind as you construct your models for the remainder of the year. Our top line comps are more difficult in the second quarter versus the back half of the year. Benefits from new pricing to offset foreign exchange impact in both Venezuela and other markets will build throughout the year. We expect significant top and bottom line headwinds from foreign exchange in the October December quarter.
Currencies have moved further against us since our earnings were released 3 weeks ago. At current FX rates, we'll annualize a portion of the FX headwind in the back half, and productivity savings will of course increase as the year progresses. We expect to continue our track record of robust cash flow generation and strong cash return to shareholders. We're targeting to deliver at least 90% free cash flow productivity. Our current internal forecast is 96% free cash flow productivity against the stretch objective we set for ourselves of 95% to 100%.
We'll look to offset additional capital investments with continued working capital improvements. We plan to return this cash to shareowners through share repurchase in the range of $5,000,000,000 to $7,000,000,000 and dividend payments of about $7,000,000,000 In summary, Q1 sales and core earnings growth were in line with our going in expectations. We continued to build on our strong track record of cash productivity and of cash return to shareholders. With strong productivity progress in the back half of the year, we hope to be able to deliver our fiscal year objectives. We expect the headwinds facing our industry to continue blowing or consequently continuing to sharpen our strategies, accelerate and increase productivity savings and strengthen execution.
We're going to be popping up and down a lot. Bear with us. We're going to spend the majority of our time today talking about the main drivers of sustainable growth and value creation with most of the focus on the strategy and priority choices that we've made. Our aspiration is straightforward, consumer preferred brands and products that result in category leading positions that translate to superior industry value creation. Our objectives flow directly from this vision: deliver superior value for consumers and superior value for shareholders.
It's that simple. We use one integrated internal measure of value creation success, operating total shareholder return. Operating TSR keeps us focused and balanced on the real drivers of value creation, sales growth, gross and operating margin expansion and strong free cash flow productivity. As you would expect, operating TSR results correlate highly with market total shareholder return over time. Balance may be the single most important value creation concept for P and G.
We perform better, we perform best when we stay in balance. Operating TSR is fundamentally a measure of balanced value creation. We're becoming more balanced across developed and developing markets. We're getting more focused and balanced in our category and brand portfolios. We're balancing our need to invest for future growth with our desire to drive cost savings.
Our growth and operating strategies are relatively simple and mostly unchanged. We begin in and from our core in both developed and developing markets. That's where we grow the most value. We're working to strategically focus and strengthen our portfolio. While we work to simplify and streamline our current portfolio, we will also selectively and strategically address new category opportunities.
We're following shoppers into new fast growing channels. Developing markets will continue to be driven by demographics and household income growth and will continue to be a significant growth driver in our industry and for our company. We're focusing developing market on the categories and countries with the largest sizes of prize and the highest likelihood of winning. Our how to win strategies are also straightforward. Keep being consumers at the center of our decision making, driving value creation with innovation and productivity and executing with excellence across every aspect of our business.
Everything begins with understanding consumers and winning the 3 consumer moments of truth when consumers learn about our products and brands, when they purchase them and when they use them. Winning these moments of truth leads to trial, usage, purchase, repurchase and loyalty of P and G's differentiated brands and products. That builds leadership businesses over time and value for P&G Shareowners. There are 4 focus areas we will look at more closely today, starting with strategic portfolio strengthening. We're taking an important strategic step forward to simplify, to streamline and to strengthen the company's business and brand portfolio.
We will become a simpler, more focused company of about 70 to 80 category leading competitively advantaged brands, organized into about a dozen business units and 4 industry focused sectors. Over the last 3 years, the 70 to 80 brand portfolio is accounted for about 90% of company sales and an even higher percentage of profit. We will compete in categories that are structurally attractive and that we believe play to P&G strengths. Within these categories, we'll focus on leading brands where the size of prize and probability of winning are highest, with product lines and SKUs that matter to shoppers and customers. We will harvest, partner, discontinue or divest the balance 90 to 100 brands.
We're going to create a faster growing, more profitable company that is far simpler to operate. Every brand we plan to keep is strategic with the potential to grow and create value. These core 70 to 80 brands are leaders in their industries, categories or segments. They're brands shoppers buy, consumers use and customers support. They're generally leaders in brand equity and consumer awareness trial and loyalty.
They're leaders in product performance and product innovation and they're leaders in growth and value creation. In contrast, the sales and profit of the brands we plan to exit in aggregate have been declining over the past 3 years. Exiting them will mathematically increase top line growth and before tax operating margin will increase as will the rate of profit growth. We will retain sufficient scale in our largest markets, maintaining the vast majority of current sales across each of our top markets. The time it will take to streamline the brand and product portfolio will be guided by our ability to create value every step of the way.
We'll manage the portfolio process to maintain focus on growing our core strategic brands and businesses first and foremost. Some brands will be discontinued, some will be combined into other brands. And where it makes sense, multiple brands will be grouped in one transaction. In the end, the number of transactions should be very manageable and should not cause any significant distraction.
We're making good progress on the portfolio strengthening and focusing effort over the last five quarters. We've divested, discontinued or made plans to consolidate 28 brands. We exited, as you know, our bleach business, MDVIP. We've also exited the Naomi Campbell, Avril Lavigne and Puma fragrance brands and the DDF and Noxzema skincare brands, just to name a few. In the September quarter, we completed the exit of the Pet Care business, which transitioned 7 brands to new owners.
We closed the divestiture of the America's Pet business to Mars in July. Mars then executed their option to purchase the business in Asia. 6 of the option markets have received NHS approval and should close very soon. In September, we then signed an agreement to divest the European pet food business to Spectrum Brands. We expect all remaining elements of these transactions to close in calendar year 2015, pending of course regulatory approval.
We generated very good value in this 3 stage transaction earning more than a 20 times multiple on past 3 year average EBITDA on the Pet business. 3 weeks ago, we announced our plans to exit the battery business. Our goals in the process are to maximize value to P and G shareholders and to minimize earnings per share dilution. There are 2 transactions in this plan. The first transaction was the sale of our interest in a China based battery joint venture.
This transaction closed yesterday. I checked this morning, the cash is now in the bank. It's important. The second transaction is the exit of the Duracell business. As you know, we initially announced our preference to split off the Duracell business into a standalone company.
Today, we're updating that plan, announcing that we'll be exchanging a recapitalized Duracell company to Berkshire Hathaway for their shares of P and G stock. We expect to contribute about $1,800,000,000 of cash to recapitalize the Duracell company before it's exchanged. This is a tax efficient transaction. The value received for Duracell is approximately 7x fiscal 2014 EBITDA, which equates to a cash sale value at approximately 9x EBITDA. The combination of the China JV transfer of Duracell to Berkshire deliver on our goals of maximizing value for P and G and its shareowners and minimizing earnings per share dilution.
Last, we've just begun the process to divest about 10 more small brands with information currently in the hands of prospective buyers.
When we're finished with the strategic portfolio reshaping, we'll be more agile, we'll be more responsive, we'll be flexible and we'll be faster. We'll be a faster growing more profitable company that, as I said before, is far simpler to operate. We really believe less will be more. As we continue to strengthen our category and brand portfolio, we will strengthen and focus our brand building and product innovation efforts and investments against our biggest opportunities. Year after year, decade after decade, successful brand building and product innovation have transformed P and G categories and driven value creation, higher value for consumers, higher value for share owners.
We're committed to be the innovation leader in the categories in which we choose to compete. Innovation combats commoditization, stimulates category growth and builds the cumulative advantage of our brands and businesses over time. Ultimately, innovation that delivers superior value to consumers will drive value creation for share owners. As I said, when we win these three moments of truth with superior brand and product innovation, selling and sourcing, it drives all the critical metrics of consumer driven total shareholder return, the number of buyers we attract to our brands, how often they buy, how much they buy and how much they're willing to pay. Generating higher sales and profit per unit enables us to capture a greater share of the value of the profit and cash where we do choose to compete.
It is the share of value, the share of profit and cash that is generated that we really want to capture. We have about a 60 share of U. S. Laundry sales, but we earn about 85% of the profit in cash generated in the entire category. We have about a 35 share of global diaper market sales, but we believe we earn about half of the profit in the category.
We have nearly a 70 share of global blades and razors sales and earn about 90% of the value or profit in the category. We're able to earn these high shares of value by being the brand and innovation leader in these categories, leveraging product innovation to create, extend and sustain meaningful competitive advantages and product performance and brand equity that drive consumer trust and confidence and loyalty over time. We have a long history of brand and product innovation leadership driven by deep consumer understanding and meeting consumers articulated and often unarticulated needs and wants. The invention of one key ingredient may be enough to launch a brand, but to create and grow brands that live for decades, you need to take a long view of innovation. You need to have innovation processes and capabilities that can keep you in the lead.
Here's Cathy Fish, our Chief Innovation Officer, to tell you more about how we manage innovation cycles of our brands and categories.
Good morning. At P&G, all of our innovations start with the consumer. We develop deep consumer understanding of relevance, importance and often unarticulated needs, which our R and D organization then translates into consumer preferred product and packaging. We invest more than $400,000,000 a year in consumer interaction and research. We use a variety of research techniques ranging from traditional concepts and use testing to online research to rapid cycle learning where consumers essentially co create new products and packages with us.
We marry these consumer insights with a world class network of internal and external product developers to create the best performing products in our category. I've made this process sound simple. Talk to consumers, get some ideas, throw together some new ingredients, and you've got a new product innovation. It's obviously not that simple, and it's especially not that simple when your objective is to create a multiyear pipeline of innovation that can build and sustain competitive advantage of a brand for decades. We recently completed a study looking back through our innovation history.
We wanted to learn from our own successes and shortfalls. The study revealed that all of our $1,000,000,000 brands are built on 1 or more discontinuous innovations that created new S curves, which grow the brand over many years. S curve, which are a commonly used concept to explain the fast growth and fast fade dynamics for technology innovation have 3 phases. The investment emergent phase, the ascent phase and the maturity and stagnation phase. During the investment emergent phase, you build a new S curve by creating a new category or delivering a transformative innovation that meets the consumers unmet need by adding a major benefit to an existing category, solving a trade off for the consumer or in some cases creating a new job to be done.
Recent examples of these types of transformative innovations are Downy Unstoppable, Crest Sensi Stop Strips, Tide Pods and Always This early rapid growth phase of the S curve can last 5 to 10 years. These new and transformative innovations require significant investment in R and D, capital and marketing, so it's critical we extract maximum value from them. In the Ascent phase, we deliver innovations that build on our advantages by staying connected to consumers and to current social trends. These build innovations enhance the equity of a brand, reach consumers at the point of market entry and address trial barriers that may be inhibiting growth. The extension of Pampers Swaddlers into sizes 4, 5 and now 6 or the old Spice Wild Collection scents across body wash, deodorants and body sprays are great examples of innovations that extended the growth of brands several years after a transformative innovation.
The 3rd phase of the S curve is maturity and stagnation. In this phase, competition reduces our competitive advantage and growth slows. At times, competitors may initiate a new S curve for the category, which slows our growth even faster. In this phase, it is important not to panic and fall into the trap of increased product activity with little consumer benefit. We've been guilty of doing this in some businesses, especially some of our beauty categories when growth of our big brands stalled.
Instead of change for the sake of change, we need to extend the current S curve or start a new one with a transformational innovation. Given the time and investment it takes to create a transformative innovation, we are always working on multiple ideas at any point in time. The Gillette organization is two platforms are already being designed. In between new platforms, their innovations extend the advantages and build on Gillette's outstanding equity. We are making sure the innovation portfolio for every category is taking a similar approach.
By putting the consumer at the center of our innovation program and by taking a long view of our innovation process and pipeline, we build consumer preference for our brands, extend competitive advantage, grow sales and market share, and capture a larger share of category value, profit and cash. This is how P and G Innovations create value for our consumers and our share owners.
Brand building and product innovation have enabled us to create the leading global business in fabric and home care. In 1946 came the launch of Tide, the Wash Day miracle, built on a new formula that cleaned better than any other detergent on the market at the time at a price that offered outstanding value for consumers. By 1950, Tide was the leading laundry detergent in the U. S. Downy liquid fabric softener introduced in 1960 in bounced dryer sheets were added in 1972.
We haven't always been the innovation leader in the U. S. Laundry market. In 1984, we launched Liquid Tide about 25 years after the first competitive liquid laundry detergent was introduced. Since 1990, our U.
S. Laundry story has largely been one of continuous innovation and steady growth. However, when the economic crisis hit in 2,008, competition capitalized on a weakness in our mid tier portfolio, the market contracted, as you know, and our growth declined for a few years. More recently, innovations like Tide Pods and Gain Flings, upgrades to Tide Plus and the launch of the Tide Simply Clean and Fresh line have returned the P and G Laundry business to market share growth. We recently hit an all time record high value share in our U.
S. Laundry business. I'm going through this history lesson to demonstrate the importance of taking the long term view of product innovation and the importance of staying in touch with the consumer every step of the way. Letting consumers lead us to the product innovations we bring to market, ensuring our products deliver on their promise and offering them at prices that deliver excellent value. We won't be first with every new idea.
Competition will have their day in the sun. But over time, we're committed to be the innovation leader in every one of our core strategic categories, building our share of the market steadily and building an even greater share of the value, cash and profit created in the category. I've asked each of our sector leaders to talk about the consumer insights and innovations that are driving their businesses. We're going to start with Gianni Cezzrani in Fabric and Home Care. I stole a bit of his funders, so his comments are focused a little closer in on how consumer led innovations that we've launched over the last few years have accelerated Fabric Care Business Growth.
Here's Johnny.
Fabric and Home Care is a high engagement category. Consumers spend a lot of time dealing with our products every day. They really personally care about their clothes and their homes. Our goal is to make their life a little bit better every day. We spent countless number of hours with them at home, in store and in our technical centers.
The key question for us was to define a business model so that we can channel all these efforts for the best results, best for consumers and best for the company. The model we are using is the one of trade up, trade across, trade in. Trade up is when we formulate a new superior product that are sold at a higher price, so that consumers can move and have higher satisfaction with this product, while we also have higher returns for the company. The trade across is when we ask consumers to buy more of our categories. This is usually done with regimen, where they enter new categories and new benefits they were not using before.
Finally, there is the trade in. This is simply when we get new consumers that were not purchasing a category or not purchasing our brands to do so. One of the best examples of trade up has been the launch of pods or unit hose around the world. Today, we already make over $1,000,000,000 of sales in this very strategic segment. It is a win, win, win.
It is a win for consumers since they get a better performance, which led to a very high repeat rate, but also they get a major simplification of the laundry, no more messy overdosing, but now a very simple gesture of the pod. It is also a win for the company as we are able to charge a higher price and therefore gain a very important competitive position in the market. Let's start from North America. Today, the segment is about 12% of the total laundry, quite big already. And we have 75% of that new segment.
The first launch was Tide Pod, the first 3 chamber product in the market. It was intuitive to understand what PODS was doing, 3 chambers, 3 benefits, the famous 3 in 1. This was such a success, we decided to immediately follow with Gane. This time offering the very famous Gane Fresh ness and experience, gainflings. But pods went very rapidly beyond North America.
Today, we are selling POTS very successfully in Europe and we also launched Unitose in Japan, in Middle East and in other parts of the world, including South Africa. Let me now share an example on trade across. Trade across is when consumers buy more categories and more benefit in every job and in every trip. In the past, they were used to only buy and use laundry. Then we successfully created a category of fabric enhancers.
Nobody thought that we could convince consumer to buy a 3rd category, but we did. This is the one of beads. Beads offer superior freshness. They are freshness boosters. Today, we offer this benefit in 3 different brands in North America.
We have the Downy Unstoppable, Gain Fireworks and we have Bounce Birth. The category is already 15% of North America and we own 75% of this segment that is growing very rapidly. We also started successful rollout of deals around the world. It is already a big part of our business in Japan. And the last addition of the UK is off to an even bigger start with 8 share of the market after a few weeks.
The last part of our business model is the trading in. This is when we are able to get new consumers that were not buying the category or not buying our brands. In this case, the idea was very simple. Tide and Ariel are famous around the world for their performance, but many consumer decided that this performance was overdesigned for their needs. So what we did was to take Ariel, the brands and the performance and make it affordable for these consumers.
This was the launch of Tide Simply and Ariel Simply. The strategies are the same. The product is superior versus what is available to these mid tier consumers today. It is a trade up story versus what is available in the marketplace for mid tier consumers. Tier consumers and it was within the famous brand equity of Tide and Ariel.
The launch so far is off to a very good start. We are already bigger in North America with Tide Simply than what our financial assumptions was. But the most important news is not the size, it is the incrementality. We knew that the success dependent on our ability to attract new users, the trading in. And we are very happy to report that today Tide simply is more incremental to the rest of Tide and to the rest of the P and G portfolio than we had anticipated.
The business model of trading up, trading across and trading in is also effectively used in home care. Let's briefly discuss the case of DISH. Here we have 3 power brands around the world. It is Fairy, it is Cascade and it is Dawn. On all of them, we introduced a new lineup called Platinum that offers by far the best performance in the category for a higher price.
This has worked beautifully and we have been growing DISH business with a CAGR of 6% every year over the last 5 years. Fabrisca is a great example of trade across in home care. There are millions of consumers that are in love with the Fabreze benefit of freshness and Maloto removal. But until yesterday, they could only experience this product in their homes. Then we launched Febrizz Car.
First of all, the category grew exponentially. We now are market leader in this important segment in U. S, in Japan and in Germany. Fabris Car was one of the 14 Nielsen breakthrough innovation winners And this was out of over 3,000 launches that happened. A great example of moving consumers in love with our brands in 1 category into a new category.
I hope this has been a helpful perspective, how you start from a consumer centric focus and you develop a business model, which is a win win win. It is a win for consumers because they have access to better performing products and more of those. It is a win for P and G and the shareholders as we are able to start from a wider user base and then able to trade these consumers to higher price better performing products across more categories. Of course, it is a win for the category and retailers as our brands are now able to bring even more value into the category. We are very excited about the future, a future with fabric and home care in which we are able to offer better value to consumers and of course to P and G and the shareholders.
Thank you.
Before we move on to the next sector, Before we move on to the
next sector, I want to take a second to share
some of the consumer awareness and product safety work we've been doing on unit dose laundry detergents. We've launched an educational campaign that includes unpack reminders to keep area or tide or game hidden away from children. We're also running TV ads and educational campaign that started playing this month in the UK and will expand across Europe, Japan and North America in the next few months. Let's take a look at that campaign.
Discover the world. Animals have seen those before. But sometimes they do it on their own.
My body. Wow. Food for giants.
Definitely not a Lonnie pod. Kids discover the world with their mouth. Aerial 3 in 1 pods, always out of reach, always away from children.
Early next year, we'll be expanding the TV campaign to digital, including our brand Facebook sites and with influential mommy bloggers. I hope it's obvious we take the safety and security of our consumers and our products extremely seriously. With unit dose laundry, we're confident that more consumer education will make a difference to improve the safe storage and the safe and continuing usage of these products that many consumers prefer. Next up is Martin Ryant, the leader of our baby, feminine and family care sector.
In this sector, we know we can succeed when we innovate to meet consumer needs in a way that truly differentiates us from competition, reinforces the trust that consumers have in our brands and the value that we provide them and their families. One example is U. S. Baby Care, where this year we regained market share leadership from Kimberly Clark for the first time in 20 years. Our path to leadership started in 2002 when we introduced our premium baby stages of development lineup with Pampers Swaddlers and Cruisers.
This is born from deep consumer insights around babies' physical needs and moms' wants and aspirations for their infants and how these changes babies and parents grow and develop. With baby stages, we design products to reflect how babies grow faster in the first five months of life than at any other time and how moms love the idea of bonding by swaddling their babies in a diaper that provides blanket like softness. Swaddlers provide softness and skin protection these rapidly growing babies need along with a unique honeycomb top sheet to absorb that new baby runny poo. For the next stage of baby development, we introduced Pampers Cruisers with more stretch and flexibility with no leaks for babies who are starting to discover the world by moving and cruising everywhere. Consumer response to swaddlers and cruisers was very positive, growing dollar share for Pampers 4 points in the 1st year and starting a decayed long climb.
While both swaddlers and cruisers were very successful, the swaddlers experience created a connection with consumers that was in a class by itself. It is the 1st diaper the vast majority of moms come across in the hospital. And we discovered that quite simply, they didn't want to give it up as their babies graduated from size 3. So we listen to parents and over the last 2 years introduced swaddlers in size 4, 5 and most recently size 6. The response has been very positive.
In North America, Swaddlers has grown share more than 3 points to a 10% value share of the total U. S. Diaper category, while priced at a premium to the category average. This represents more than half our diaper sales growth in the region. Swaddlers today has roughly $600,000,000 in sales and is growing fast.
All this from understanding and listening to consumers' needs and focusing our innovation to meet those needs better than anyone else. We have become the leading diaper business America and globally by consistently delivering mom and baby preferred innovation primarily in tape diapers. However, over the last few years, we have seen an emerging consumer preference for diaper pants even for the youngest of babies. This trend started in Asia and is now extending to markets like Russia. Growth of the diaper pants segment has been rapid with a 45% CAGR in key developing markets.
We have been largely underrepresented in this form and have accelerated our innovation developing a new product to delight moms with improved absorbency, softness and increased convenience with an underwear like design at a cost advantage to our current pants product. We launched our new mid tier pants in India earlier this year and Cher is up 7 points versus year ago. We're now expanding Pampers Premium Care pants in Russia and then to China in the coming months. Over time, we expect pants to become a significant segment in these markets and another important building block adding to the cumulative product and equity advantage we've already established with Pampers. We've used a similar model of innovation leadership driven by deep consumer understanding on our Always brand.
Always launched in the U. S. In 1983 and reached 15 percent market share in the 1st year behind superior consumer benefits of unsurpassed protection and comfort. In 1980 6, Always was the 1st brand to introduce wings, an unexpected solution to women's biggest unmet need, leakage protection. We continued with a steady drumbeat of innovations that delighted our consumers by providing better absorbency with improved comfort and continue to build women's trust in Always, a critical element in the feminine care category.
In 2008, we launched Always Infinity, a proprietary technology with a foam based core that absorbed 10 times its weight, while still being so comfortable for a woman to wear that she can hardly feel it. We continue to develop and expand this transformative technology globally. Always has become the global leader in feminine care products, sold in more than 130 countries worldwide and gaining a 25% global market share. With over $3,000,000,000 in sales, Always is creating significant value for consumers, customers and share owners. Earlier this year, we launched Always Discreet, our new brand entry in the adult incontinence category.
This is a $7,000,000,000 global market, which is growing at over 7% per year. This is a category where we can make a real difference to women by bringing superior technology and usage experience to create life changing benefits. We have launched Always Discreet in North America and Europe with a range of products designed to help women manage urinary incontinence, a problem experienced at some level by 40% of women over the age of 40. Always Discrete is significantly preferred versus competition due to its thinner, more discrete form and superior odor control and because Always is a proven trusted brand. Importantly, Always Discrete is bringing femininity to the category.
We began shipments of Always Discreet in the UK in July, where the market growth has accelerated 20% since our launch and have quickly grown value share to over 9%. We started shipping always discrete in North America and France in August. With less than 2 months in the market, the U. S. Adult incontinence market growth rate has increased to 10% and we've grown to over 7% value share.
In summary, we have a broad global footprint on baby and feminine care, leading brand equities and share positions and a robust innovation portfolio. We are focused on building our brands and innovating to delight our consumers at the 0 first and second moments of truth, building our cumulative advantage and creating value for our share owners.
Next up, David Taylor, the leader of our health and grooming
In fact, some of our brands have been delighting our consumers for over 100 years. No one understands men's shaving needs better than Gillette. Innovation has been an important part of the brand's heritage since founder King C. Gillette invented the safety razor with disposable blades in 1901 and forever changed the way men shave. Since that time, Gillette began to innovate at an astonishing pace with the Super Speed razor, the 1st twin blade shaving system, the 1st razor with the 2 way pivoting head, the 1st spring mounted blades for comfort, the 1st razor to feature 5 blades and breakthrough shaving technology featuring thinner, finer blades.
Even with all these innovation and improvements in shaving performance and comfort, our constant search to better understand the science of shaving revealed that men still weren't completely satisfied with their shaving experience. Though Fusion ProGlide provided Gillette's best shave, users still found some areas difficult to shave. In fact, after surveying over 24,000 men around the world, we learned that an overwhelming majority of men, nearly 8 out of 10 in the U. S. Said that not missing hairs is very important when it comes to choosing a razor.
Here's the problem, whether we take long strokes or short, whether we shave with grain or against, we generally shave in straight lines, but our faces are not flat surfaces. Our faces are curved and contoured, which causes the blades to lose contact with the face, resulting in missed hairs. Armed with this new insight, we knew it was time to redefine shaving once again. This would require reinventing how the cartridge moves, which is exactly what we did. Our newest innovation ProGlide FlexBall is a new era of motion, joining our best cartridge with our best handle innovation.
It's the 1st razor designed to pivot in a 3 d motion to respond to the contours of a man's face, maintaining maximum contact and delivering a closer, more complete and comfortable shave. FlexBall extends the performance advantage of Gillette blades and razors and reinforces what consumers already know. Gillette truly is the best a man can get. Since the launch of FlexBall, we've seen improvement in the U. S.
Blades and razors market growth, including more than a 30 percent spike in razor sales versus a year ago and sequential improvement in our razor shares over the past 12, 6 3 month periods. Nearly 5,000,000 handles have been sold thus far and 94% of users report a better shave than with the previous razor. We will begin the global expansion of ProGlide FlexBall in early 2015. In addition, we'll extend our breakthrough technology to women with the market leading Venus brand. In our oral care business, Crest is a brand that is continually innovated to improve oral health for nearly 60 years.
In 1955, P and G launched Crest with Floristand toothpaste to address the issue of tooth cavities, which was the leading cause of dental disease in the U. S. And Crest has been innovating ever since, building on a clear market segmentation model to meet the needs of simplicity focused consumers with products like Crest Complete, beauty focused consumers with products like 3 d White collection, inclusive of white strips toothpaste, mouthwash and toothbrushes, which together provide noticeable whitening results one day and health focused consumers with our line of ProHealth toothpaste, brushes, floss and rinse to protect against all 7 areas dentist check. Most recently, the brand took innovation to a new level with the launch of Crest Scentsy Stop Strips, a new product providing unprecedented tooth sensitivity relief. A deep consumer immersion revealed nearly 60% of Americans suffer from sensitive teeth, but only 4 cold liquids, cold foods and cold air.
Sensitivity sufferers were actually sacrificing some of the simple things in life, such as having ice and a drink, sledding with the kids in the winter or enjoying a cup of ice cream with a friend. This insight led to the creation of Cinci Stop strips. Unlike toothpaste that takes several weeks to reduce sensitivity and need to be used twice per day, 1 SensiStop strip applied for 10 minutes provides immediate relief for up to 1 month of protection. Our focus now is driving awareness and trial this revolutionary new treatment for tooth sensitivity sufferers. We're making great progress on our journey to globalize our oral care business.
We've introduced or expanded our oral care presence in 43 countries over the past 5 years. We're a very strong number 2 player in this category globally and we'll continue to leverage consumer insight driven innovation to get us to number 1. In personal healthcare, Vicks is currently the number one cough and cold brand in the world with annual sales over $1,000,000,000 The brand got a start in 18/90 with the creation of Vicks Vapor Rub, the most iconic product in the Vicks lineup and still a favorite for moms today. After decades of success with Vicks Vapor Rub, the brand began expanding into new treatment areas. Vicks NyQuil, a liquid multi symptom cold remedy in a category dominated by tablets, a daytime remedy with Vyxtaqual and we entered the sleep aid category with ZzzQuil.
Most recently, Vicks branched out into the $3,000,000,000 sinus and allergy segment in the U. S. With the launch of Vicks Clearcoil, providing on demand relief for the occasional allergy sufferer who does not want to medicate every day. ZzzQuil and Clearcole are great examples of how we can offer new benefits to consumers from a brand they already trust. We're following a similar model with the transformation of our Metamucil brand.
The insights behind our plans are straightforward. 95% of Americans don't get enough fiber in their diet. We know they want solutions from trusted brands that stand for quality. To meet this need, we've transformed Metamucil into a new meta mega brand that gives consumers simple, effective ways to get their daily recommended intake of fiber with real health benefits. Our base Metamucil supplement powder now highlights Metamucil as the 4 in 1 multi health fiber solution, helping lower cholesterol, promoting digestive health, helping to maintain healthy blood sugar levels and a clinically proven benefit of helping you feel less hungry between meals.
In addition, we've introduced 2 brand new products, Meta Health Bars, fiber bars that can help lower cholesterol to promote heart health and satisfy hunger as a healthy snack and Metabiotic, a 2 in 1 multi health probiotic supplement. With this newly expanded MetaLine, we are well positioned to grow within this $40,000,000,000 segment in North America. In closing, we are committed to be the brand and product innovation leader in the health and grooming categories in which we compete. We'll continue to tap into the consumer insights that lead us to breakthrough innovations as we build on our legacy of strong brands going forward.
Over the last 14 years since we first formed the business, P and G has built one of the leading beauty businesses in the world. We've taken small, sometimes tired brands and built them into global market leaders. We've done this in skincare and haircare, in prestige fragrances and personal care. When you're building brands that you intend to live for decades, growth doesn't happen in a straight line. Even the strongest brands hit occasional flat spots.
But when we get back to basics and fundamentals, when we put the consumer at the center of our decision making and product innovation to delight her at each moment of truth, we put ourselves back in a position to get on a winning track. Here's Deb Henreta, the leader of our Beauty, Hair and Personal Care sector.
In Beauty, we believe that success is rooted in deep consumer understanding, superior brand building and innovation that creates noticeable consumer obvious differences. Consumer led innovation is especially important for beauty, a category that is deeply emotional and whose functional benefits must deliver on its promise of transformation, something we describe as beauty you can believe in. Building successful beauty brands that thrive for decades requires a steady flow of innovations to meet changing consumer needs and expectations, while still building on the core equity of the brand. This is how we have built a rich portfolio of so many iconic market leading beauty brands. It took a number of innovations to build brands like Pantene and Olay from under $100,000,000 in sales to the multibillion dollar global brand leaders they are today.
Head and Shoulders and Old Spice are 2 brands whose long term sustained successes have often been overlooked. And while Head and Shoulders and Old Spice are currently growing and have done so over the long term, it hasn't always been a smooth ride. Their successes have been built on innovations and branding that win at the 0, 1st and second moments of truth, with periodic reinventions to keep them in touch with consumers and growing profitably. Head and Shoulders is an unsung hero in our hair care portfolio, but it's a great example of consistently delivering breakthrough innovation and superior brand building, rooted in deep consumer understanding, year in and year out. Head and Shoulders was developed to address the unmet consumer need of dandruffree hair.
Nearly a decade research went into creating a new breakthrough shampoo formula. It launched in November 1961 with a powerful claim clinically proven to reduce stand drift. This claim has been the core of our brand promise ever since. Head and Shoulders continued to grow slowly and steadily through the 70s, 80s 90s as the clear authority in dandruff prevention. But after nearly 4 decades of steady growth, sales of Head and Shoulders began to stall at around $600,000,000 Head and Shoulders was getting stale in the minds of consumers.
It got pigeonholed into an equity limited to dandruff protection and not delivering other benefits consumers expect from their hair care products. By recognizing this issue, we improved our product formulations, our packaging and our marketing campaign to make and keep Head and Shoulders relevant. These innovations elevated Head and Shoulders powerful performance claim of eliminating 100% of the dandruff you can see behind a new brand promise, unbeatable dandruff protection and unbelievably beautiful hair. Our consumer insights also led to the iconic tagline, you never get a second chance to make a first impression. Recent innovations have built on this and taken it to a whole new level with Head and Shoulders 100% flake free guarantee, while improving the consumer experience at the second moment of truth with our new ScentVerse technology, which we introduced successfully around the globe just last year and is fueling growth.
The invention of Head and Shoulders was designed to meet an important unmet consumer need. The rejuvenation of Head and Shoulders was ignited by delivering danda free hair with a no compromise beauty experience. Delighting consumers with powerful innovation and ownable product technologies has driven head and shoulders to strong long term sales growth, more than quadrupling sales from just over $600,000,000 in the late 1990s to about $2,800,000,000 last year. Old Spice is another story of long term growth driven by consumer led innovation and brand reinvention. Many of you are probably too young to remember the early days of Old Spice.
The original Old Spice aftershaves were introduced in 1938 with its nautical theme and trademark sailing ships on the bottle. P and G acquired the brand in 1990 with the idea of leveraging our antiperspirant technology to expand and grow the brand. In the early days, the strategy worked well. Old Spice deodorant sales grew at double digit pace through the 90s, but unfortunately fragrance sales declined. Overall, the brand wasn't growing and was stuck at under $200,000,000 in annual sales.
So in the early 2000s, we improved our products, packaging and marketing to shake off the old image of Old Spice and make the brand more relevant and attractive to younger consumers. Sales nearly doubled from 2000 to 2,005. However, in 2006, Old Spice faced a new challenge from a new brand. Axe entered the category with good products and disruptive advertising that was highly attractive to young guys, a key point of entry. Growth of Old Spice stalled and once again we needed to put the consumer back at the center of our innovation and branding plans.
Deep consumer understanding led to a new positioning for Old Spice, one that leveraged the brand's core historical assets, its equities and its visual and auditory all touch points and led to major successes starting with the man your man could smell like, which led to very engaging and very funny ads and YouTube videos. We maintained a steady pace of innovation, including the launch of Old Spice Wild collection last year and upgrades to our proprietary scent technology with our new refresh body sprays earlier this year. We've also successfully launched Old Spice into big developing markets, including Russia, India and most recently Brazil. This drumbeat of consumer inspired product and branding innovations have enabled Old Spice to double sales again over the past 10 years. Over the past 3 years, Old Spice has been growing global sales at nearly a 9% annual rate.
I wanted to share these stories because I think they are instructive for how we are recommitting ourselves to consumers in all of our categories and across all of our beauty brands. We're also taking steps to improve our execution in all facets of the business, in innovation and branding and in product quality and supply systems. For example, we recently started up our new state of the art skincare plant in Greensboro, North Carolina. Investments and efforts like these are important components to strengthening the foundation of our beauty business.
2 of our largest beauty brands are Pantene and Olay. Together, they account for about 5,000,000,000 dollars in annual global sales and nearly 25 percent of the reporting segment. I asked Colleen Jay, President of our Retail Hair Care Business and Alex Keith, President of our Global Skin and Personal Care Business to provide an update on the progress we're making to improve the performance of these 2 leading brands. Here's Colleen.
Pantene is the leading hair care brand globally with annual sales of about $3,000,000,000 sold in more than 150 countries. Pantene nearly doubled sales and tripled profits between 1997 and 2,007 behind expansion in emerging markets and share growth in most of the developed regions. Success is driven by a few core fundamentals: deep understanding and connection with consumers in solving their daily and chronic issues, including hair fall control, damage repair, moisturizing or simply classic cleaning benefits outstanding brand building and iconic packaging built on big insightful ideas and clear, simple, excellent execution breakthrough innovation that resulted in superior products built on pro vitamin science, delivering healthier, more beautiful hair with every wash. All good news, but as sales growth slowed in a very competitive and fragmented market and as the economic crisis set in, efforts to restage the business in North America in particular led to a period of what I would call over action on product, on packaging, on variants introduced and confusing consumers with multiple consumer messages. Long story short, we drifted away from the core fundamentals that had made Pantene a global leader.
So what did we do? 1st, we re immersed ourselves with our target consumer to understand her wants and her needs. We also re grounded ourselves in Pantene's history and equity. What made consumers love Pantene? The brand's roots, including the promise of the most beautiful healthy hair through Pro V Science delivered with superior products.
2nd, we benchmarked ourselves versus competition and we acknowledge the reality of the challenge we were facing. There were a number of issues to address, which were created over several years and would take some time to fully fix. And third, we brought in experienced people who have proven successes in the hair care business. These steps led to a series of interventions. We put the consumer back at the center, simplifying the product lineup with a focus on core collections that matter most to her.
And we reintroduced the collection she loved that have been taken away. We innovated, investing in product formulations to restore Pantene's performance superiority and ensuring we have the best packaging in the marketplace. And we've ensured that our brand building is simple, holistic and grounded in Pantene's core equity of the most beautiful healthy hair, so you shine. We have communication that works at the right weighting and strong trial programs in place to accelerate the return of our lost consumers back to Pantene. Most of these interventions have just reached the marketplace in the last 9 to 12 months and they're beginning to work.
Pantene is now growing share in the U. S. And growing sales globally at a mid single digit rate so far this year. In the Q1, Pantene sales were up 4% globally and 6% in the U. S.
Market, encouraging progress. We're going back to Pantene's fundamentals, what's been proven through years of success, but in a refreshed contemporary way. It's still early days in the rejuvenation of this great brand, but the consumer is back at the center of our product, our packaging, and our brand building and we are winning more and more at the 0 first and second moments of truth. We're encouraged by the progress we've made but even more excited about our future plans. We're confident that Pantene soon will again be a brand so healthy it shines.
Thank you.
Next up, Alex Keat.
Olay is the number one facial moisturizer in the world. We built this leading brand with a decade of double digit annual sales growth from 1999 to 2000 and 9. We did this by innovating to create new anti aging benefit areas with breakthrough technologies that provided her with noticeable skin improvement, which allowed us to compete successfully across channel borders outstanding brand building that resonated with her in the most relevant and compelling way when and where she was consuming information. And growing the mass market skincare category by attracting high end prestige shoppers with noticeable benefits that were sometimes even better than the much higher priced products they were buying in department stores. Simply put, we offered superior consumer value.
Unfortunately, the brand has been declining at about a 2% average rate over the past 5 years and we're working hard to turn it around. So what are we doing? We've been engaged in a deep assessment of Olay starting most importantly with the consumer, understanding how she thinks of Olay, what she thinks the brand stands for and what benefits she thinks it delivers. 2 things came through very clearly in our consumer research. 1st, we have great assets to build from onaway.
The brand equity is very strong and remains the leader in the category. Our products continue to have significant performance advantages when tested against competition and women continue to vote for Olay at the shelf more often than any other brand. 2nd, while the brand equity is strong and product technology is superior, the relevance of the brand and the range of benefits consumers perceive it delivers has deteriorated. The declining relevance has happened in large part because we became victims of our own success. Olay built its equity and competitive advantage by promising and delivering superior anti aging benefits to consumers for over a decade.
For much of that time, our competition struggled to compete with the power of our innovation and branding. About 5 years ago, our competition began playing the category differently, focusing on benefits that Olay didn't own, things like tone and light hydration. They priced new products in the mid tier of the mask category, which was the weakest part of the Olay portfolio. They also increased the pace of innovation on cleansers, which had become a relatively sleepy segment of the facial skin care category. We give our competition credit.
They fought along the path of least resistance and of growing consumer interest and put Olay on the defensive. There are several key opportunities our new plans for Olay are addressing to put Olay back on offense. We'd like to share all of the details with you of what we plan to do and when, but for competitive reasons we can't. However, I will share some of the general areas where we expect to make improvement. Simply put, we're getting back to basics, starting with our fundamentals, deep consumer understanding, outstanding brand building and strong innovation.
We're letting consumers lead us to the most compelling benefit areas they want from Olay. We are clarifying the brand architecture, making each sub line of Olay, the benefits they offer and the packaging that goes with them more distinct on the shelf. This will make the shopping experience much easier. We are focusing our innovation on getting back to our past success factors, strengthening the power of our product claims and driving meaningful benefits and regimens that delight women at every price tier. We have taken the first steps in launching Olay Luminous regimen to deliver noticeable improvements in women's skin tone and in bringing compelling claims on our core Regenerist and Total FX sub lines as part of our new Your Best Beautiful campaign.
It's very early days, of course, but we're seeing positive results so far. With each new innovation in shelf reset, we will be enhancing product formulations and messaging to ensure the core SKUs of each sub line have shelf holding power, clearly communicate their benefits and are easy for shoppers to find. The elements of the brand where we've made improvements are showing promising early results, but there's more work to do. It will take time, but we are fully committed to getting the market leading Olay brand back to market leading growth.
While we're not there yet, we believe and early data shows that Pantene and Olay are moving in the right direction. We've had good success in the past on these brands and on our beauty business overall. We're making progress in the present by getting back to basics and fundamentals, starting with a real understanding
of the
consumer. And we're confident in the future. We believe we know how to do the things we need to do to build and when necessary rejuvenate successful beauty, hair and personal care brands. We've done it before. We're going to do it again.
I hope it's evident that we're focused on serving consumers 1st and foremost and that we are committed to being the brand and product innovation leader in those core categories we choose to compete in. We're increasing our investment behind product innovation because with productivity, it is a primary driver of total shareholder return. That completes the first portion of our presentation this morning. I think we'll take about a 20 minute break and then we'll reconvene. When we return, we're going to discuss productivity and execution and we'll address some very specific questions we know are on your minds.
Enjoy your break. I'll see you in 20 minutes. Thank you.
Ladies and gentlemen,
So we've just spent a good amount of time talking about innovation, which is obviously the lifeblood of the company and one of the key drivers of shareholder value. Productivity is the other key driver of total shareholder return along with innovation. And the best companies in any industry find a way to lead both innovation and productivity. We're turning productivity, as you know, into a core strength at P&G, making it a systemic and enduring value creation pillar alongside innovation. We'll accelerate and we'll exceed the $10,000,000,000 cost savings goal we set 2.5 years ago.
We're driving savings up and down the income statement and across the balance sheet, getting more productive in all areas of cost and cash. Here's Ioannis Kupelous, our Global Product Supply Officer, to talk about progress we're making first in cost of goods sold.
At our 2012 Investor Day, I said our plans to deliver $6,000,000,000 of cost of goods over 5 years. Today, I'm pleased to share that we are ahead of that commitment. Over the last three fiscal years, our savings have accelerated from a €1,200,000,000 to €1,600,000,000 per year. We are working to deliver this level of savings again this fiscal year and for the foreseeable future. Engaging our 70,000 plus product supply employees around the world in this effort has been critical to our success.
To ensure their mastery, energy and passion are linked to value creation, we have identified our most critical product supply measures that drive operating total shareholder return. We have linked individual plans to these measures on every product supply floor from our manufacturing plants to our purchasing desks to our engineering and quality labs and to our planning service centers. This journey of total employee involvement brings total shareholder return to life across our entire supply network from our suppliers to our customers. The 3 big cost areas that make up cost of goods sold are manufacturing expense, transportation and warehousing and materials. Here are some examples of how we are making our savings program bigger and more sustainable in each area.
We begin with manufacturing productivity, which we measure as the number of cases produced per person. Manufacturing productivity is the single biggest driver of manufacturing operating expense. On a monthly basis, we measure the number of cases produced per person. We have accelerated our progress from 0% improvement in fiscal 2012 to 7% last year and we are on track to deliver 7% again this year. We have accomplished this while building 16 new sites, all production modules at existing sites over the past 3 years.
Our manufacturing productivity performance is rooted in proprietary methodology called integrated work systems or IWS. It focuses on constantly improving metrics such as productivity, cost, inventory, customer service, process reliability, quality and safety through a relentless process of losses identification and elimination. Within IWS, we have 4 phases of excellence. Over the last 24 months, phase progression has accelerated 6 fold and we now have 24 of 136 sites at Phase 4, the highest level of excellence and savings contribution. The 2nd major spending element is transportation and warehousing.
This is an area where we have driven $1,100,000,000 of savings over the past 6 years, more than offsetting diesel and freight inflation in markets like North and Latin America. The most effective way to deliver breakthrough transportation savings is through the optimization of our supply network design. In North America, we are bringing this to life by building 6 new mixing centers. We have 2 of these centers started up with a balance coming online in 2015. These mixing centers will allow us to serve 80% of our customers within one day transit time.
Thus, increasing replenishment rates, maximizing vehicle fill, reducing cost to serve and lowering inventories. Our final spending element is raw and packaging materials. This is an area where we have consistently delivered close to $1,000,000,000 per year of cost savings and where our strategic decision to invest in global manufacturing platforms is critical. 65% of our business units now have platform standardization roadmaps and we will implement this as part of our supply network redesign project and with new product initiatives. We truly believe this effort will enable us to reduce material costs by up to 20% in some businesses, deliver scale cost advantages with suppliers and increase the global impact of future cost savings innovations.
Our current cost savings plans are strong and we are exceeding our original commitments, but we know there is more value to capture. Recently, we announced supply network redesign studies in North America and Europe with more opportunities to follow as we localize and optimize production in developing markets. Through these projects, we have established an overarching goal of delivering EUR 1,000,000,000 to EUR 2,000,000,000 in shareholder value and $400,000,000 to $600,000,000 of annual cost savings. These savings come on top of our original commitments. This will work will transform our supply network into an engine of top line and gross margin growth, will improve cash productivity and will be critical to creating sustainable cost structures, innovation speed and unmatched customer service advantages for P and G.
So as Janus said, we're on track to exceed our original annual target savings run rate of $1,200,000,000 for the 3rd consecutive year. We'll approach $6,000,000,000 in savings in just 4 years, but we see a long road of additional savings ahead. The next cost area that we want to talk about this morning is marketing. It's roughly a $13,000,000,000 spend pool made up of about $9,000,000,000 in advertising costs and $4,000,000,000 in non working marketing costs. Here's Mark Pritchard, our Global Brand Building Officer, to talk about the ways we're simultaneously making our advertising more effective and more cost efficient and how we're reducing non working costs.
Good morning. By following the consumer, we're improving marketing spending effectiveness and efficiency to deliver more with less. Marketing spending is our 3rd largest spend pool behind people and materials. By following the consumer, we are increasing advertising spending to deliver more awareness, trial and purchase of our brands, while decreasing non advertising costs, which add less value to the consumer experience. Following the consumer means shifting more advertising to digital media, search, social, video and mobile, which is where consumers are spending more of their time.
Depending on the brand or market, consumers spend between 30% to 45% of their daily media viewing time on various digital devices for entertainment, news, information and social communication. Our brands understand these media behaviors of their target consumers and allocate advertising spending to digital media accordingly to reach consumers when and where they're most receptive to the brand's promise. This matches high quality advertising messages with the medium preferred by consumers to create top of mind awareness of the brand's benefit, which leads to trial, purchase and loyalty. Digital media offers significant benefits versus traditional media. It delivers a higher return on investment through lower rates driven by greater supply, while achieving the same or better sales lift as TV or print.
Digital data provides the opportunity for more precision targeting to improve ad effectiveness and eliminate waste. For example, P and G brands are broadly using programmatic buying that allows brands to precisely buy and direct ads to target consumers based on their individual online and mobile behavior. Our proprietary automated system significantly improves digital media effectiveness and efficiency by targeting the right ad to the right consumer at the right time with no waste on a mass scale. The television and print advertising remain an important part of our media mix, so we're also improving their effectiveness and efficiency. With the overwhelming amount of information clutter in today's world, we're finding that fewer advertising messages communicated more consistently and with fewer changes are more effective at delivering top of mind awareness and trial.
This enables us to build advantages over time in consumer recall with strong brand campaigns like we're doing with Pampers Love Sleep and Play, Tide, My Tide, Febreze, Breathe Happy, Venus, Bring Out The Goddess in You, Crest, GoPro and Gillette's the best a man can get.
Let's take a look
at the Pampers and Gillette examples.
For every morning to be a good morning, all your baby needs is your love and a dry night sleep. Pampers Baby Dry has double dry zones, a new absorption layer, and the core that locks wetness in better for up to 12 hours of dryness and good morning. Pamper, wishing you nothing but love, play and play.
Strong brand campaigns lead to producing fewer original ads using shorter length ads and running the ads for longer periods. That means lower production costs, lower agency fees, fewer agencies and suppliers, fewer spokespeople and less spending on changes that don't add value, while being more effective with consumers. Some of the savings we're achieving will improve operating margins, but we're reinvesting the majority to create greater consumer awareness and trial. We're using non advertising savings to increase investment in advertising and critically important point of market entry trial programs such as Pampers Hospital sampling for newborns, Gillette's 18th birthday razor sampling, Tide sampling in new washing machines, Tide, Don, Swiffer, Fabreze, Pantene and several other brands sampled in new homes and Crest and Oral B Dental Professional detailing. With past 12 month trial levels under 30% on many of our brands in both developing and developed markets, we see a long runway ahead for increasing trial and sales growth.
Finally, delivering more with less makes our organization more effective and efficient. We've combined 4 separate brand building functions into 1, returning single point responsibility for brand building And we're And we're eliminating organization duplication and work processes to create a direct line of sight between brand planning and execution in market for consumers. These steps are clarifying accountability, eliminating extra work and reducing unnecessary touches with a third fewer resources. Jobs are richer, more meaningful with greater responsibility and more direct contact with the consumers we serve. In summary, by following the consumer, we're confident that P and G Brands will continue to improve marketing spending effectiveness and efficiency to deliver more sales growth and value creation for consumers and share owners.
As Mark said, our marketing effectiveness and efficiency efforts enable us to take full advantage of investment opportunities. We're making targeted reinvestment to support strong innovation. We increased marketing support behind the Tide brand in the U. S. By 60 basis points last year and increased Pampers marketing by 230 basis points.
As we generate efficiencies in marketing spending, we'll look for good opportunities to put some of these savings back to work to drive top line growth. Now moving to overhead. We've reduced nonmanufacturing enrollment by more than 16% in 3 years, enabled by several important organization design choices. In the Q1, we again reduced enrollment versus the prior quarter despite the addition of many of this year's new hires to our enrollment ranks. We've organized around 4 industry based sectors with each sector having primary responsibility for business choices affecting their categories.
We've reorganized our markets into 5 or 6 regions to increase scale, for instance, across Europe, drive faster growing emerging markets and leverage scale further across the support activities that span multiple regions. We've refocused our selling and market operations organizations on selling products and refocused our business units on designing, making and marketing products. As Mark said, we've consolidated 4 brand building functions: marketing, market research, design and communication into 1 brand management function. We've continued moving work from individual countries into our regional service centers, which drives standardization to best in class work processes and cost savings. We developed flow to the work systems in areas such as financial analysis and forecasting and moved to centralized supply planning centers.
We've reduced hierarchy and will soon have a top team that is smaller than in the year 2000, leading the company with double the annual sales of 2,000. Each of these changes I just talked about reduces complexity and each creates clear accountability for performance and results. A more focused portfolio of brands and businesses will enable further change. In addition to driving savings, we're making targeted of best in class scale and mix adjusted core SG and A costs as a percentage of sales. We'll exceed the high end of our revised overhead enrollment reduction goals, and we'll accelerate this progress.
We're also making strong cash productivity progress. We're driving the new supply chain financing program, which is a strong contributor to improved payable results in the Q1. We continue to be best in class in receivables and many elements of the supply chain reinvention work that improve free cash flow by reducing inventory and improving capital efficiency. I hope these examples bring to life how we're driving savings up and down the income statement across the balance sheet to become more productive in all areas of cost and cash.
The final priority area that I want to touch on this morning is execution. Execution is incredibly important in this industry and it's the only strategy our consumers and our customers actually ever see. We're bringing renewed focus to brands. When we get it right, we deeply understand consumers and we create leadership brands with iconic equities that become the prototype often in their categories. We consistently express the brand promise with ideas that attract consumers to the brand's superior benefit to create trial, ongoing preference and ultimately lasting loyalty.
This brand focus allows us to improve execution and build our most strategic brands. Building trial is a significant executional opportunity, as John said, for many of our big brands. Despite their size, increasing trial rates is a huge opportunity. We're working to grow these trial rates with targeted advertising and sampling programs. We're focusing selling resources to improve coverage, expertise and execution in key retail channels, wholesalers and distributors that make a difference.
This should lead to improved distribution, shelving and merchandising to consistently win at the first moment of truth. We are and will continue to increase the amount of sector and category dedication of our sales force to improve category expertise and experience and to increase channel coverage. Here's Carol in Tasdat, our global well, currently our Global Customer Business Development or Sales Officer and soon to be our Group President for the North America Sales and Market Operations. She's going to talk about the strategic importance of selling and execution.
As AG often says, execution is the only strategy our customers and consumers ever see. It brings to life how we innovate, communicate and sell. No value is created at P&G until our brands win at the 0 moment of truth and the first moment of truth, when shoppers learn about and then purchase a P and G product, whether online, on a mobile device or in a physical store. Every day, our people sell and execute plans that drive profitable category growth for our customers, more trips, higher closure rates and bigger, more profitable baskets. These same plans increase trial and penetration for our brands through better distribution, shelving and merchandising support and winning pricing execution.
This is how we sell. It's how we create value. One example is Pantene's recent product upgrade in North America, which promises healthier hair with every wash. Our customer teams brought this promise to life with outstanding sales execution and customer support. We built comprehensive plans to drive trial of the new product technology, trade up to premium products and trade across with regimen programs.
As Colleen shared, early results are encouraging with U. S. Pantene as a bright spot in the September quarter. Sales were up 6% with double digit growth in September and value share is starting to grow and once again over the 10 share mark. We have many examples like this with large and small customers and in stores around the world, all illustrating the power of selling and the power of execution.
Selling and execution are about winning with our customers. And for that to work, it has to be about winning with our shoppers. The consolidation of our brand portfolio is a major enabler of this, and our customers see it. They understand that less truly is more, that fewer leading brands will simplify the shopping experience by making it easier for people to shop the category and purchase the brands that they want and need. Focusing on fewer leading brands has 2 key benefits for the retailer.
It allows for more investment in our leading brands, delivering stronger innovation and sales plans, which then drive positive category growth and value. And it enables a more dedicated sales team, which drives more focused effort on solutions that grow our brands and grow categories. Our consumer research has shown that when a customer simplifies a shelf and reduces the clutter, shoppers feel that they have more choices. They purchase more and sales of the category grow. This is perhaps the most important benefit of all.
An example of this work is what we've done with a major retailer on our Feminine Care business. This customer was losing Feminine Care sales. People were still coming to their stores, but they were choosing to buy their Feminine Care products somewhere else. The main reason for this was that shoppers were having difficulty finding the product, either because the assortment on shelf was too complex or because out of stocks were too common. This was a clear opportunity for better execution and to demonstrate that less really is more.
We gave the retailer suggestions for how to optimize their overall assortment, tailoring the product mix by store based on specific shopper demographics. Based on the retailer's assortment strategy, the retailer reduced the number of items by nearly 10% and we worked with them to design the right product shelf layout so shoppers could find the product they wanted quickly and easily. We improved in stock conditions and created a much better shopping experience overall. Our customers saw a 3 point increase in their feminine care category with P and G leading the way, increasing both sales and household penetration for our brand, a big win for the retailer, a big win for P&G. The 3rd area I want to cover is the growth potential available when we follow the shopper and execute with excellence.
There are 2 significant shifts happening. Around the world, drugstores, pharmacies, dollar stores, discounters, mini markets and proximity stores or convenience stores are growing. We're going after this opportunity in a big way and we're making tremendous progress. Over the past 3 years, we've delivered on average high single digit growth in pharmacies and nearly 50% growth in dollar and discount stores. Still, we have more to do.
Broadly speaking, we're underdeveloped in these small box formats. We have a multi $1,000,000,000 opportunity in the next few years by taking advantage of the growth as shopping patterns shift and on top growing share to our best in class level. A second pocket of growth is winning online. E Business is becoming increasingly critical for our brands. Today, while less than 5% of consumer goods are purchased online, 50% of all purchases are influenced online.
This is important. It's not really about the size of e commerce as a separate channel. It's more about how digital is influencing shopping habits and purchases, both online and offline. This is an area where we're developing significant capability and shopper understanding. We're learning and showing customers how to win the shopper path to purchase in the digital world, where the 0 and first moments of truth are converging.
We're helping our customers thrive in multichannel formats. In our most developed regions, over 80% of our sales are with omnichannel or multichannel customers. Customers with a variety of formats, big box, small box and online. The latest global customer survey from McKinsey put P and G in the lead in this space and we're committed to stay there. At the end of the day, the value we create comes down to a few fundamentals executed with discipline and excellence by our people in the field, in the stores, on the front line.
We're proud of the selling organization we've built at P&G. We know that our SMOs and sales teams are a great source of value creation for our shoppers, for our customers and for our shareholders.
Improving our branding and selling execution will be significantly enabled by the portfolio focus we've embarked on and talked earlier. There are 2 critical areas that directly impact our ability to win the first two consumer moments of truth. If we do these two things well, we'll earn more chances to win the 3rd moment when consumers use our brands at home and are delighted with the benefits and the value our products offer. Hopefully, you can begin to see that we're making improvements in every area that drives success from strategy and structure to leadership and culture to clearly defining what winning means for every business at P&G. We're trying to make good progress in every area.
Well, I'm going to shift
to address some specific questions, which we think are on your minds. And then, of course, we'll close and take questions from you. The first topic I wanted to address is gross margin growth. While all in gross margin has declined over the past few years, we are making strong underlying gross margin progress behind all the elements of the productivity program that we talked about earlier. Last fiscal year, we delivered over $2,000,000,000 of productivity savings, averaging 2 70 basis points of cost reduction each quarter.
If not for FX and commodity impacts, and I'm not making excuses for them, but if not for those, gross margin progress would have been positive in each and every quarter last fiscal year. We delivered positive core gross margin growth in the Q1 this year. And while it won't be a straight line quarter by quarter, we expect to see positive gross margin growth for the fiscal year. Going forward, there are several large enablers of gross margin expansion. First is the continuation and the acceleration and strengthening of the cost savings program that Janus discussed earlier.
We'll continue to deliver meaningful savings for the foreseeable future with the productivity improvement and localization work we're already doing with the growing contribution from the total supply chain redesign. Another source of gross margin improvement will be pricing to offset foreign exchange. And while not in our control, stabilization of FX trends should it occur would help significantly. A third enabler of gross margin improvement is the stabilization and potentially modest improvement in commodity prices that we're seeing currently. Crude oil and diesel prices are down, and we expect this will begin to carry over into our oil based derivative materials later in the fiscal year.
And a 4th important driver of gross margin improvement is something we've been talking a lot about today, which is innovation. Innovation, especially at the premium end, is often gross margin accretive and more importantly, gross profit accretive. And finally, the work that we're doing to improve the profitability of our developing market businesses, which I'll talk about in more detail in just a minute, will reduce negative mix impacts and increase gross margin growth. Each of these enablers should help to drive future gross margin improvement. Now let me come to the question of developing market margins, which are a question in and of themselves but obviously impact the gross margin growth equation as well.
Our developing market margins are pretty good by most comparisons. Several of our most developing markets have after tax margins that are at or above the company average, and many P and G businesses hold the highest margins in their respective markets. In other developing markets, though, we've been investing and should now begin to earn returns. Encouragingly, in many developing markets, the fastest growth is occurring in the super premium and premium price tiers. We position ourselves well to take advantage of this growth.
In Brazil, close to half of the market is in the super premium and premium segments, which are growing faster than lower tier segments. We currently hold leading positions across those higher tiers. In China, over 50% of market sales in the categories that we compete are in the super premium and premium tiers. These premium tiers are again growing volume and value double digits, while the lower priced tiers are essentially flat. This trend is also similar in Russia, where the premium and super premium and high tiers represent nearly 50% of total market sales, and the premium and high tiers are growing well above total market average rates.
We hold the number one share position on average across the categories in which we compete in mid, high and premium price tiers. Another developing market margin improvement driver is localization of manufacturing. We currently have around 15 greenfield and brownfield sites being developed in developing markets at some stage of design, construction or qualification. And we've recently started up plants in South Africa, India, Nigeria and Brazil. Local production enables margin improvements of a few 100 to as much as 1500 basis points behind reduced transportation and warehousing costs, lower duties, lower taxes.
Shortening the supply chain to our customers and consumers improves customer service, reduces out of stocks and improves cash productivity by reducing inventory. Localization also creates an operational hedge against foreign currency moves. We've made good progress on developing market local currency margins, growing profit twice as fast as sales in fiscal 2012, growing profit on a constant currency basis 4 times as fast as sales last fiscal year. This year, again, we're forecasting constant currency profit growth at double the rate of sales growth in developing markets. Over a longer period of time, with some cooperation from foreign exchange rates, developing market margins should approach those of developed markets.
The last question I want to address this morning relates back to one that was asked by Steve Powers on the last earnings call. I thought it was a very good question. I'll paraphrase this question. It was to get back to your long term growth objectives, how much is in your control and how much is dependent on improvement in the macro environment. First, I want to put the gap between our recent results and long term goals into perspective, starting with the top line.
We need about one more point of growth. Last fiscal year, our markets grew a little over 3%, and we grew organic sales at 3%. We'd be better off at 4%. We have a number of opportunities to accelerate top line growth. As I mentioned just now, the previous segments of the market where we're overdeveloped We're entering, creating and growing new categories with innovations like laundry scent beads, Crest Sensi Stop Strips and Always Discrete.
We're improving our brand building and selling execution. We're strengthening our presence, as Carolyn said, in faster growing channels, including e commerce. We're making improvements on a few key brands and a few key markets. And we're focusing the portfolio. And as A.
G. Said earlier, that should enable us mathematically to gain a point of top line growth while focusing on our biggest opportunities, which could further accelerate growth. Any one of these items I've just mentioned could add 0.5 point or more to top line growth. Collectively, these items should enable us to get back to our goal of growing organic sales modestly above underlying market growth rates. On the bottom line, we've been growing at or above our target rates excluding FX on a constant currency basis.
With FX included, we need 2 to 3 points faster core earnings per share growth to get back to the high single digit range that we're targeting. Each of the top line opportunities I mentioned will drive obviously better bottom line growth. And in addition, the portfolio work will improve our underlying margin structure and therefore the rate of profit growth. We're accelerating and increasing our productivity savings to enable faster earnings growth and provide insurance against foreign exchange and commodity cost headwinds. Again, the combination of these improvements should enable us to get back to our goal of high single digit core earnings per share growth.
Finally, free cash flow productivity has generally been at or over our target of 90%, but we see improvement opportunities here too. The supply chain redesign will enable lower inventory levels while delivering better customer service. We'll continue to drive improvement in payables with our supply chain financing program. As I mentioned earlier, we're already the best in class in receivables management, but we're still finding improvement opportunities. And finally, the manufacturing productivity.
But as I said earlier, we're targeting more internally. Of course, we would welcome a better macro environment, but we aren't making excuses and we aren't waiting for the environment to improve. We're accountable for our results and we're in control of getting them back to target levels. All of the factors I mentioned offer opportunity for improved results. Addressing each of them should get us back to our long term growth objectives over time.
With that, let me turn it back to AG.
Thank you, John. A problem well defined is half solved, an opportunity well understood, half realized. Most of our problems are opportunities and there are plenty of opportunities in addition. As we work them, they are better defined, better understood, and they are being solved and realized one at a time. We are not naive about the marketplace and its realities.
It continues to be tough going in the real world. But we believe we're learning how to grow and create value when markets and categories don't. And we have a much clearer, more balanced, consistent and sustainable view of what constitutes growth. On the 3rd try, we have moved to 1 single coordinated and integrated measure of growth and value creation in operating total shareholder return. There are 3 drivers.
The ultimate foundation is operating cash flow, the financial lifeblood of our business, which enables a robust capital allocation, including a strong annual dividend, a reliable return of earnings to share owners in the form of share repurchase and the optionality to make strategic bolt on or fold in acquisitions to core businesses. P and G is a strong cash generator among peers and comparable companies. We've been delivering $10,000,000,000 to $11,000,000,000 a year operating cash flow, free cash flow over the past 4 to 5 years. We believe we can deliver more as we improve capital cash conversion sorry, as we improve working capital cash conversion, operating profit performance and the free cash flow productivity further over the next few years. The second key to operating total shareholder return is gross and operating profit margin expansion.
Leverage from sales growth combined with savings from our ongoing productivity plans driving them to completion are reliable enablers of margin expansion. The 3rd key is consistently growing sales. By staying focused like a laser on the shopper and the consumer. We grow when and where consumers prefer our brands and products. Consumer preference enables our brands to become leaders in their categories and segments.
Delivering consistently strong operating TSR performance requires balance, reliable sales growth, consistent margin progress and asset efficiency that generates operating cash flow like a clock. Whether we achieve top third industry operating TSR and ultimately market total shareholder return on a consistent basis will depend on the choicefulness and the clarity of our business strategies and the precision and robustness of our business models and the excellence of our execution. The company portfolio move announced in August strategically resets P&G's where to play choices for the next 5 or 6 years. The disposition of 90 to 100 brands that are no longer strategic not only enables stronger net sales growth and better before tax margins, but also enables focus, focus on the core strategic brands and businesses. When we are crystal clear on what is winning, attracting consumers who matter most to each of our brands, we trade those consumers into our categories, our brands and product lines.
We trade them across regimen product offerings that deliver better performance and value and experience and we trade them up the brands, products and pack sizes that better meet their evolving needs and wants. We've been working our way through our core brand and category problems and opportunities in a very focused and deliberate way. I want to take a few more minutes to go a little deeper on a few specific brand businesses that the team talked earlier. Pampers is our biggest brand with over $10,000,000,000 in sales growing at 5% over the past 3 years. The U.
S. Is our biggest Pampers market and one of our more profitable. We lost share leadership here over 20 years ago when our principal competitor brought a pull on diaper market and build a strong point of exit position with their trainers. In the meantime, we were struggling in the U. S.
Post the financial crisis and global recession. 1st were declining. Competitors and retailers were driving category sales down with heavy price discounting and a 25% increase in promotional deals. Pampers set out to rekindle category growth and to change the game back to 1 of consumer value creation via brand equity building, product differentiation and superiority, marketing and selling execution. Given the competitors' strength at the point of exit, we focused on the point of entry.
1st, on new mothers coming into the baby diaper category. We redoubled our efforts to sample new mothers at or before their child's birth. We committed to reaching more than 3,500,000,000 new moms every year or more if we could. We sampled our mom preferred Swaddlers product and we significantly improved our hospital gift pack by offering useful new mom education and information and both samples and coupons on a wide range of other P and G brands and products of real importance to mothers and babies. In addition, as Martin described, we built our Swaddlers product line over time to the point where mom can keep her baby in Swaddlers until she or he is potty trained.
The result, the U. S. Baby care category is growing again, profitably for P and G and for retailers. P and G share has been growing steadily with consumers at over 90% of retail customers. P and G has regained category share leadership and opened up the 8 point lead that Martin talked about.
And as Martin said, Swaddlers has surpassed $600,000,000 in sales and we believe is headed to $1,000,000,000 The learning here is twofold. First, we must take responsibility for the profitable growth of the categories and segments in which we choose to compete. 2nd, deep shopper and consumer understanding, a choiceful and clear business strategy, Brand and product preference, sales and marketing execution, in other words, playing the P and G strengths, focusing on these fundamentals can restore growth to the category and enable strong growth and value creation for P and G. Taking responsibility for getting the category growing profitably again has never been more important than in the U. S.
Fabric care category. Tide is our 2nd largest brand to Pampers and the U. S. Our largest and most profitable laundry business. This category has been declining since the financial crisis and recession.
In fact, this category has been struggling since 2007 when the leading branded competitor chose to effectively exit the U. S. Market. The middle of the market disappeared and all that was left was P and G in the premium end and 3 competitors in the economy end, all of whom began to take prices down. The U.
S. Fabric care challenge has been more complex and more difficult than baby care. There were important consumer trends to manage, fewer smaller U. S. Households doing significantly fewer loads per week and high efficiency washing machines.
And there was a widening price gap between economy and premium P and G brands. This was fueled not only by their competition with us, but also by their competition with each other and by retailers who drove price discounting and promotion in an attempt to arrest declining traffic, boost shopper trips and spur listless sales. Without an innovation, this category was headed to commoditization. This would not have been in consumers' interests, it would not have been in retailers' mid or long term interests and it certainly would not have been in our interest. So again, the situation called for a change in strategy and business model that would take ownership for laundry category growth and value creation.
1st, as Johnny said, trade in new to the category consumers to Tide. Category household penetration is 99%, but Tide household penetration had actually been declining for several years. We strengthened our point of entry programs to be sure new washing machine buyers, new home buyers, new apartment renters would all have a chance to try Tide. We also wanted to offer consumers an opportunity to trade into our brand and product lines at more accessible and affordable price points from Era and Tide Simply to GAIN. And we added and continue to add a number of brand product sizes priced at affordable $1 to $5 price points.
2nd, we trade up consumers to premium innovations like the ones Johnny mentioned, the Tide value added products on heavy duty liquids, the Gainflings and Tide pods. 3rd, again, as Johnny mentioned, we trade across by encouraging regimen usage across additives and pretreaters, fabric enhancers specialty products, on shelf regimen sets, displays at end dials and all of our coupons provide incentives to trade across and trade up. The result, Tide and Gain are both growing share. Pods are now 12% of the category and P and G has a 75 to 80 share. In the U.
S, beads are 15 percent of the fabric enhancer category and again we have about an 80 share. Together beads at $250,000,000 of net sales in the U. S. And pods at $750,000,000 are approaching $1,000,000,000 in net sales. Tide's brand equity, net promoter scores are as strong as they've ever been.
Tide is building household penetration again and the category profit and cash flow are coming back. P and G's total laundry share 60% and our share of category profit contribution, as I mentioned earlier, at an all time high 85%. Decade after decade, in our core categories, we have to find the business strategy and the business model that wins for consumers, wins for customers, wins for the category and wins for P and G. Another big growth and value creator for P&G is Gillette. For the 3rd consecutive year, our global Gillette business continues to grow share in a growing global category and to expand both gross and operating margins.
However, we have a very specific challenge in the U. S. Where the male shaving business is under pressure from 3 different angles. First, shaving incidence is down driven by societal and fashion trends. 2nd, an increasing number of consumers are interested in value and having trouble we believe perceiving what constitutes real value.
As a result, the barriers to trial and specifically trade in and trade up have increased. 3rd, the emergence of new e commerce shave club competitors, leveraging convenience and value is changing the competitive landscape. Again, these three trends are all forces restricting category growth. And since Gillette is nearly 75% of U. S.
Male blades and razors category sales, P and G Growth and Value Creation, we are incredibly interested in and take responsibility for category growth. To accelerate category and share growth, we are evolving our trade in, trade up and trade across business model. We're beginning to bring more men into the category and the Gillette brand franchise by shifting our focus from shaving to grooming, grooming the face, grooming the body. We're driving big and obvious innovations like Gillette FlexBall, which continues to perform strongly as David described. We're transforming our point of market entry program.
This year, for the first time in several, we will aspire to reach 100% of 18 year olds with strong trial and education tools and of course the new FlexBall razor. We're driving Gillette subscription via our retail partners programs as well as our own Gillette Shave Club. So we're going to trade up within systems and from disposable disposables to systems. FlexBall is the 1st Gillette system that attracts a meaningful number of disposable users. We're sourcing 3 times more disposable users than we have from any other prior system.
We're using our broad vertical product portfolio behind targeted trade up offers to encourage trade up and trade in. We've increased our value messaging. You can shave with our best system for as little as $1 a week and we've lowered our opening price points. You can buy a 2 count cartridge pack now for $10 or a bit less depending on how the retailer chooses to price it. Finally, we are we will be trading consumers across by continuing to drive trial behind new Gillette body grooming products and de commoditizing the preps category with a superior new product coming in January next year.
The latest results are encouraging with the U. S. Blades and razors category back to growth, up a couple of percent in October and share up nearly a full point also in October. Now, a 4th big value creator for us is hair. Hair is a $9 plus 1,000,000,000 net sales business that is very profitable with above category and leading competitor attractive operating total shareholder return.
At the core of the hair business, as was described earlier, are Head and Shoulders and Pantene, both of which deliver about $3,000,000,000 in annual sales. Unfortunately, these two brands have been a tale of 2 cities over the past 4 or 5 years. Head and Shoulders has grown consistently, sales, margins, profits, cash. Our challenge has been Pantene, as Colleen described, particularly in the U. S.
And the problem, frankly, as Colleen described, has been primarily of our own making. When we got off track, instead of returning to our consumers and our brand and product core, we chased competitors with SKUs for news and joined in the promotional tit for tat game that only confuses consumers about value and performance, undermines brand equities and erodes category growth and value over time. The good news is that with a good brand, we can and are beginning to get back on track and we're beginning to see encouraging early returns, as Colleen described. Even better news is that the renaissance of Pantene has only just begun. One of the first decisions we made last summer was to invest in hair care product innovation.
The first major product upgrades will come to market in 2015 2016. In the meantime, we designed a consumer preferred product with existing technologies and rushed it to market this year. We rationalized the product collection so consumers can actually find the Pantene they want and need. We improved the package, got it back on Pantene Equity. We're rebuilding behind a superior brand equity, one of the best in the hair category with a strong net promoter score.
The really good news is that when we get Pantene growing consistently and sustainably, which we will, the higher margins will generate strong profitability and cash flow. Now, I took some time taking you maybe back through these 4 brand case studies because I want everyone to understand the deliberate and focused strategic and executional approach we're taking to building and rebuilding P and G's position and establish core categories on leading brands. We build brands and we build categories. And when we do, we build sales margins, profits and operating cash flow. That's the kind of growth we want.
That's operating total shareholder return growth. We bought and continue to bring the same deliberate and focused approach to building our oral care business with Creston Oral B. And we are bringing the same deliberate and focused approach to transforming the female incontinence category. We believe this opportunity is very similar to the one we seized in the 1980s with always feminine hygiene products. A big obvious idea or promise that addresses a real consumer need and a full line of superior products consumers prefer and even in this case find irresistible and life changing.
Here are a few consumer testimonials. We get a lot of testimonials on a lot of our products, but the ones coming in on Always Discreet are truly extraordinary. Four times in my P and G career, we started a decade off balance and underperforming. The good news is that every time we learn from our adventures and misadventures and mistakes, I personally learned 10 times as much in my professional career from mistakes is from success. And every time we delivered strong growth and value creating operating total shareholder return and top third industry market total shareholder return by the end of the decade.
I'm looking forward to another good decade for P and G through 2020. That concludes our presentation. Now we'd be very happy to take any questions that you have. Ready? Yes.
Should we
Hi. Thanks. I've got two questions. You clearly highlighted some of your recent successes, but I feel like even in P and G's darkest days, there have been some brands and some new products that have been successes. And yet I still look at in your 10 Q for the Q1, 60% of your business is losing share.
So in terms of your confidence in the timing of when that reported metric is going to get better, AG, where you sit today versus 12 months ago, is the batting average going to improve? That would be question number 1. And then just a quick clarification. Gianni talked last night about what sounded like a new strategy to me to have a little bit less tiering in the emerging markets. You're getting out of laundry bars, for example.
And I thought you might address that today because that seemed to me to be a pretty big change in terms of how you're attacking entry level consumers in the emerging markets?
Thanks. Okay. Yes, good questions. Look, on the first one, I'll just say 2 things. I'm the first question I always ask is share of what.
And the share of what I'm most interested in is the share of the value created in the category. We've had some long running successes in categories like family care, tissue towel, where if you really look at the market shares over time, they might move a point or 2, okay, on Bounty or Charmin. But what we really do is we stimulate a fair amount of category growth. And with our business model, we're able to take a bit more than our fair share of the category growth and it ends up with a very attractive run of operating total shareholder return and a heck of a lot of operating cash flow. The second thing I'll say, Wendy, and this will probably may surprise some of you, I really don't care about our market shares on a slug of our business.
One, the 10% of the business that's headed out the door, really, okay? And secondly, and it doesn't mean that we don't operate those businesses with excellence to the last minute. We do, okay? But some of those businesses have been in short, mid and long term decline and we're not going to reverse that in the last few months or last year that we operate them. And then in other cases, I think it's I just think it's bad strategy and bad operating procedure to drive for market share until you're ready.
And I would say in my experience, if you look at this industry over decades, there are sort of 3 2 times when you really build meaningful share. 1 is when you have a real disruption. We'll see with Always Discrete. We'll see with some of the product innovations that we talked about, whether it's Sensi Strips, whether it's the pods or beads, whatever. And the other time that you gain share, I hate to say it, is when somebody makes a mistake.
And that's when share progress is really made. So I pay attention. So I guess the real answer to that question is, I'm real interested in Pampers share in North America. I'm real interested in our laundry share in North America. I'm real interested in our market shares on several brands in China, which are not growing right now, okay.
They're either flat or modestly declining. So we try to pick our spots, all right. And the last point I'll make, a lot of value creation is shredded in short term price discounting and promotional battles for one more tenth of a share point, which is like a snake swallowing a frog, right? You see the frog go in one end, it's consumed and the snake is still the same size, right? Hey, on the second question, look, I think we're sharpening our strategies for developing markets and particularly for what I would call frontier markets.
But we are our game is in general win from the top. So where we've been successful, very successful, we've gone in and established the premium brand equity. We've gone in and established a level of product performance that consumers find noticeably better and the value is created in the brand promise, the product performance and a premium that is still considered a good value. I think in a number of cases, we and laundry is one of them, we are reevaluating both our brand portfolio lineups and we're reevaluating our product offerings. And we will be exiting and or deprioritizing ones that don't fit because we want to I mean, I think Johnny also mentioned that we've introduced pods in places like South Africa and Brazil and they're even shipped into Chinese cities on an export basis.
So we're going to go into developing markets with our best brands and our best products and we're going to find a way to make them accessible and affordable, but it's not going to be by compromising performance and we're not going to be terribly interested in product forms that have commoditized. And I probably went on too long, but I want to make sure that I did that get it or at least try to answer it? Okay.
Thanks. I want to revisit the trade up versus trade across versus trade in. As you think about the portfolio and your innovation, how do you think about the bucketing of that? How much innovation goes in each of those three tranches? And can you talk about the implications that has on product mix and then also gross margin?
Thanks.
You're going to bat that one to me too, right? I probably said this a 100 times last night, it's extraordinarily difficult to generalize across industries and categories and even categories and markets. So the first thing I will say, it depends. If you think of the 4 case studies that I chose to illustrate at the end, in the case of laundry detergent in a highly developed economy like the U. S.
Or Western Europe or Japan, household penetration is already 99% of the category, right? So there's not a huge opportunity to trade into the category. So we focus principally, right, on trading into the brands, but trading up once they come into our portfolio and then trading across. The big change we had to make in that category was when the middle of the market disappeared, we had to move to the middle. So eventually, it took us too long, but first we moved gain towards the middle, then we moved Era and Simply to the middle and it looks like Simply found a niche there.
So I would argue trade in and trade trade into the brand and trade up is really important there. And we've actually gotten a fair amount of traction on trade across. John or Mark or somebody mentioned, we just have huge trial opportunities. I mean, you would be amazed at the number of leading brands that we have in a mature market like the U. S.
That have single digit trial levels, single digit trial levels, okay? And so any trial we can generate with products that in testing get 50%, 60% conversion rates, which are pretty doggone high for household products and personal care products. You heard about the conversion rate on the FlexBall razor. 90 plus percent of men who try the razor say it's a better shave than what I'm using now. So it's all about trial and it just depends.
In razors, the big opportunity for us is to trade disposable users into systems. Now having said that, we've also moved into the high end of the disposable business because if you can't beat them, we're going to join them. But it just depends. It depends category by category, situation by situation. But that mindset is a great front end driver of the operating TSR model.
And on some of our businesses, we're to the point where they know exactly how many consumers they have to trade in. They know which segments those consumers come from and that's the kind of precision I happen to like. We're not there everywhere, but we're there on some of the brands and businesses.
If I could, let me just make a comment on gross margin. And I don't want to take anything away from our the intentionality in which we're trying to improve gross margin. But we need to be a little bit careful. I care much more about gross profit than I care about gross margin. And there are times we ask about innovation where we have a premium price innovation that is gross profit accretive, so higher gross profit per case, but the margin may be a little bit lower, right?
I'm not going to get hung up on that. So gross profit is the first frame and then margin kind of falls out of that.
Thanks. First question is on the emerging markets. I think in an earlier slide you mentioned that you're looking for 7% growth this year. In the Q1, I think it was up 4% and you lost shares. How do we get comfortable with that reversal?
And then second on pricing that is supposed to be a gross margin driver in terms of offsetting FX. How have your European competitors in particular responded to the strong dollar
in the weak euro? Thanks.
You want to talk about markets first?
Yes. Look, we've got the developing market story is not unlike the category and brand story. It's a checkered current situation, right? So my focus is where it matters most. So I'm conducting monthly and weekly reviews on the China businesses.
I'm very involved in the Brazil business. I'm pretty conversant with the India business. So I stay on top of the bigger developing market businesses and we've got some work to do. Okay, we've got some work to do. But even in those cases, I don't I think we're to the point where there aren't any mysteries.
We have a pretty good idea of what we need to do and it's just a matter of sort of lining it up and getting the operating business plan executed market by market. But I think it'll come and we have to make it work and we've made it work in the past. And the reason we have to make it work is because demographics and household formation and household income rising is going to continue to drive there. The other thing that John mentioned, which I think is really important to understand is I think once you get the flywheel turning, it can actually turn pretty fast because some of these markets now have fairly significant premium and super premium segments. The urbanization that's going on around the developing world, the continued migration to these cities, the rising incomes, they're going to be a help.
They're going to be help for the industry, but they're going to be help for us because that's where we play. On the European question, John, you want to comment on?
Yes. Just one build on what AG is talking about in developing markets. I still continue to believe that we're on the precipice of the greatest trade in and trade up cycle in human history. Those developing market populations, you saw those premium price tiers, that's happening as we speak with an accelerating rate, which is very exciting. But we have to be disciplined and we have to approach, as AG said, the things that the opportunities that matter most first.
On pricing for foreign exchange, the good news is that where foreign exchange is a real issue, it's a real issue. And so first, as it relates to local competitors, inflation that's coupled with that devaluation is driving their need to price. So we're seeing pretty good movement on the part of local competitors. And if you look at the major devaluation markets, whether it's Russia, the Ukraine, Venezuela, Argentina, their devaluation amounts are much higher even than the euro devaluation. And so you still have, while it's not as big of an issue for our European domicile competitors as it is for us, they still have a strong incentive to price and we see that generally
happening. Our biggest issue on FX, John has talked with you a number of times and that's simply our footprint. We have big businesses, big businesses, the biggest businesses in the industry in some countries that have been chronically devaluing. So that's a bigger challenge for us.
AG, you're probably tired of this question, but can
you just tell us what your biggest surprises were? It's about a year and a half back to the company. And then when you look at the organization, would you guys ever think about going to the outside for talent? I mean, now that you've sort of an outside perspective, is that something you can consider? And then sort of part and parcel with that, would you ever move businesses closer to the center of gravity for the industry?
Like, for example, the beauty business, would you ever move it to New York or LA or Paris? Because you think of where people are succeeding, like L'Oreal, for example, I
mean, that's kind of where their operations are?
Yes. Okay. Make sure I don't lose any of these. I'll do the last one first. Our hair business is in Geneva, right?
And our prestige skin business is in Singapore. So we do distribute the businesses. I happen to believe if you're looking at skin, you better be in Japan and Korea, okay? I don't think Paris matters for skin. It matters for fashion.
It matters for fashion and trend. If you really want to get into what consumers care about skin, you really better be in Japan and Korea. And we know that and we have people there and I sincerely hope we're learning at the rate we need to be learning at. On from the outside, yes, and we are bringing in more people from the outside. I can't remember if we were chatting this last night, but the big question is to do what and where, but there are active searches going on right now.
Sometimes when you get the question, it's, are you going to bring in somebody to run one of these major businesses? We'd certainly look at it if we didn't have anybody that we thought was qualified and ready to go. But I'm more inclined to bring them in a level or 2 below, right? And if you think about Debbie Majoris, our Chief Legal Officer, she came in and spent a year or 2. She probably fairly easily could have moved into that job.
But give her a year or 2 to figure out who we are, to figure out how to work her way around the businesses here. And she's doing a great job. Head of Media Relations, we just hired from Merck. A lot of our digital people, a lot of our some of our e commerce people
Most of our design group.
Yes, virtually all our design group is hired from the outside. So I think we do more hiring from the outside than people realize that we do outside the U. S. And inside. But I have no aversion to it.
For me, it's an important part of talent flow, okay? And the other thing I'd mention, which I think is really important to understand, We don't have a partnership with everybody, but you'd be surprised with the network. You would really be surprised with the network. We think we're reasonably well connected and that's incredibly important. It's incredibly important.
And in a lot of cases, I'd rather be networked and connected than hire all of that on or hire it in, okay. The first question was Biggest surprises? Yes, the biggest surprises. Maybe if it's okay, I'd just slightly shift the answer to the biggest changes, okay. There's clearly been a huge change in shopper and consumer behavior, okay?
And this whole zero moment of truth is incredibly important. The whole really understanding what goes on in the digital world is incredibly important. And we're throwing a lot of resource at it. We spend a lot of time on it. But I think everybody is on a learning curve, okay?
Our shopper behavior has changed faster than our consumption behavior. If you look around the world, the way household and personal care products are consumed hasn't changed very much, but shopper behavior has changed a lot, right? And who influences and how someone is influenced has changed a lot. Second thing that's changed is, I think there's been a fragmentation in the customer world, okay, not just in the big developed economies, but also in developing markets. So when I joined the company, we called on grocery stores and then, oh my God, there were mass discounters and then, oh my God, we've got maybe we've got to call in drug As Carolyn just touched on, the job that our sales and distribution team has to do is much more complex.
It's much more fragmented. And frankly, we have a lot of opportunity in the new and growing channels. Our share is pretty much fair share in e commerce. That's not one that I worry about is that's as big an opportunity. It's variable, okay.
We're below fair share in some categories and above fair share in others. But that one we're sort of scratching our way up the learning curve. But there are a whole bunch of other channels where there's a lot of business out there for us if we get organized to go after it. Consumer, customer. Big change in the competitor set we talked about last night, although it's not really a change, I think it's more of a change in developing markets, but it's always been there and developed is the strength of local competitors.
Our best competitors in Germany are often German. I think our best competitors in places like China and Brazil over time are going to be Brazilian and Chinese, just like they're Korean or Japanese. And I think where you have a strong economy, where you have a vibrant population, where people are moving up the education and economic curves, that's just going to be the natural outcome. And I guess the last thing is, again, we talked last night from 'eighty two to 2,007 or 'eight, we were essentially in a relatively benign world. There were occasional economic flare ups in the world, okay.
The Asian crisis in the late '90s, Brazil would flare up once a decade, etcetera, etcetera. But this constant pressure of currency and commodities has been it's obviously something you've got to manage against every day and every week. We're hoping and we're watching to see whether we get a little bit of commodity help here, which would be nice. But that's been different. That pressure has been on since 2,008 and it's pretty much I think we got 1 year off.
I was looking at the last 7 years. We got to break 1 year, but every other year we've had to absorb well over $1,000,000,000 of some combination of currency and commodity, which is a big number, big number on a $10,000,000,000 to $11,000,000,000 operating cash flow, right?
John, can I ask a follow-up question on your comments regarding cash flow productivity? You said you're already at 90% or above and you're maintaining that target. But it sounds like from the various cost savings, from the incremental productivity savings, the asset disposals and so forth, there should be more upside to that target. So I wonder what are the offsets that prevent you from raising that objective?
Well, when we talk about that objective, it's a sustainable objective. So the divestitures, for example, will be episodic. So we wouldn't put those into a going target. But you're absolutely right, that will be additional source of cash, which we'll put to work. And then just generally, we should it's just a question of timing.
This year, I feel reasonably confident that we'll be able to get between 95 100. Our internal goal is 100. And I think you should hold us to something between $90,000,000 $100,000,000 So think of it as raising or establishing a range. How about that? That's a partial give.
We're definitely keeping the focus on there.
Thank you. A. G, you closed by talking about decades fans. Around this time last year, you characterized what a decade of success looks like for you. You talked about driving improvement or acceleration in the core, check.
We covered awful lot on a lot of today. You talked about opening up new markets or new channels. Again, check, we talked about that today. You talked about productivity, which has been part of the dialogue here for a while. The one ingredient that we aren't talking about has been bringing up something new into the core.
So can you talk about whether or not you think you could achieve your ambitions without that ingredient or whether you do need it? And if so, what might it look like and how might you go after that?
Yes, okay. Yes, because to be fair, Always Discrete could be considered an extension of the Feminine business. Although I think if it's successful, it could be a fairly healthy extension. I think it's first things first. And I'm a big believer that on an established business, you fix the base and you fix the core and then you then and only then, when it's fully performing, do you begin to consider extensions and expansions because extensions and expansions are far more difficult and far more risky and you've got to really be ready strategically and operationally and executionally to go there.
We do have we did on the one hand weed out our new business group projects. We kept a handful, which we I think are promising, most of which would create a totally new category of business for us if they end up being commercialized. So we're actively working those. And we kept and increased some of our investment in very interesting new technologies, more than one of which would have an impact on not only existing categories, but also give us an opportunity to get into new. So again, my view is you've got to deliver in the present, you've got to manage for the midterm and you definitely cannot be eating your seed corn, you've got to be sowing crops that are going to deliver 5, 10 or more years down the road and we're making those investments.
But again, we sort of sorted through that portfolio the way a venture capital team would sort through their portfolio, narrowed it down and now we're doubling down on a couple of technologies that we think are interesting. The big issue there is success rate, right, and timing. So, the early returns look good and we're at least in early consumer. So we have product prototypes, right? It's not just a molecule, right?
So in some cases, we have product prototypes and we're actually beginning to interact with consumers and those are early stages of development. So I tend to be optimistic, but I also know that if we get 1 or 2 out of 5 commercially successful, I'll be pretty happy with that.
The other thing I'd say is if you think about the things that I was talking about in terms of how we could incrementally improve our sales growth rate, incrementally improve our core earnings per share growth rate. There were a number of items there on both the top line and the bottom line, all of which I think are viable and none of which in the near term required that. So I view that in the near term as very doable. Yes.
I think that's a really important point. We showed at CAGNY an exhibit where we were trying to show you that there are at least 10 product lines that are still unique and superior and frankly pretty dramatically consumer preferred, whether it's the foam pads on Always, whether it's the Swaddler line in baby, whether it's the pods or beads, whether it's the Sensi Strips, I don't think we've taken the strips technology. Because if you think about if you're really going to treat a whole bunch of oral issues, you can't do it in a 2 minute brushing. And by the way, most of us don't brush for 2 full minutes, all right? So I do think in our current portfolio, we have 10 or 12 products that we've come nowhere near close to realizing the trial potential of.
We've had Swiffer in the market for 15 years, okay, and you wouldn't believe how low the trial rate is. And it's a $1,000,000,000 business, right? So we have to be careful. I think we have to be intentional about making sure that we get product lines and brands like that tried by consumers who may very well be in the target. That doesn't mean we're not doing the investments in core technologies for the future.
That doesn't mean that we're not going to place the bets on totally new categories. It just means that we have other options.
Thank you and congratulations on Duracell on that change in the portfolio. And building on the comment of the fragmentation of retail.
That was a 9.9 dive on behalf of Jan and the team. Well done.
And coming back to changes in the portfolio and the changes that you made in the SMOs, right? And building on the comment of fragmentation of retail, one of the things that is happening also that that fragmentation of retail is also breaking fragmentation of the brands. So there is a lot of niche brands that these new retail outlets are bringing. So now with the new SMOs, do you think that they will be able to deal with these more fragmented retail because if you step back and see, for instance, your prestige business, for some of your competitors, specialty retailers, freestanding stores, travel retail are more than 30% of their business and we don't see that at least we don't hear you talking about that for SK II, for the fragrance business. So, would you consider divesting those businesses if these SMOs cannot realistically support these fragmented channels that are growing so importantly in these categories?
Thank you.
Okay. I guess there are I think there are 3 things that I hope we're clear on. One is 80% to 90% plus of the resource in a sales market operation or region will be sales. 2, we will use more distributors, more wholesalers and more partners to either reach some of those channels or we may do the headquarters selling, sometimes it's bought very centrally. But our partners will do the in store coverage detailing and merchandising.
So we're going to build a network, okay? And 3, I mean, I really like some of those businesses, right? I mean, SK II is well above $1,000,000,000 I think it could double, not this year, okay? But it certainly has the potential to double. And you're right, although we're represented in several of the specific channels you mentioned, you're right, there's still an opportunity for distribution on brands like that.
But a quick comment on niche brands because we often get this. I like focused niches where we're well established and they're adjacent to our core. But frankly, we were performing better in the fragrance business when we were very focused on 3 or 4, Hugo Boss and La Coste, Dolce, Gabbana and Gucci than when we ended up with an assortment of 20 plus. We in general, okay, don't that's not our forte running a dozen little brands out. That's not what we do really well.
In fact, a number of household categories we're in, I like one brand, okay. One brand, multiple product lines. When you get into beauty and healthcare, it's different. It's a portfolio game. I can think of maybe one case where we maybe need a bit more portfolio, but for the most part, I think we have plenty of portfolio.
So I would go back to where I began. We're going to have sector dedicated. We're going to be 90 percent sales and distribution in these countries and regions. We're going to have partners to help us get the coverage and get the retail intensive merchandising that we need. And that's an area that we have to invest, as John has been saying, I think, for over a year and we are investing.
And we're not all the way there, but we are clearly rotating in that direction and it's just moving at different rates in different businesses in different countries. Okay.
PG? Yes.
Down here, sorry. Hey, so I have, I apologize, 3 questions. So one is, how do you feel and how should investors interpret on the Duracell deal that Buffett is essentially saying I'd rather own and run Duracell 7 times versus owning P and G. How should we think about that? Yes.
2 is I think he's smart not to not own P and G, but it will take you 30 seconds to figure out that that was a good deal for him. And if you look at Berkshire's strategy, I think it's pretty clear that Warren and his team have been shifting out of equities and shifting into businesses that they can own. And thirdly, I will be on the phone and out there on a regular basis to convince them that we're still a very good investment. Okay. That's very helpful.
On taking what you've been saying today and what the Presidents have been saying today and bringing that down to GM level below, what accountability tools do you have today that you don't think were in place a year or 2, 3 years ago? Yes. I think you asked a couple of questions in that regard last night. I guess I would say, in my view, there are sort of 3 or 4 fairly simple things, but powerful things that we're trying to activate around here. The first one is, I only want to talk about your operating total shareholder return.
Don't give me a dance on any other metrics. I don't want to ever hear about volume again. I can't turn volume into cash, right? So I think that's incredibly important. The second thing that I think is incredibly important is we're chasing shoppers and consumers.
We're not chasing competitors. Without going into all the details, I think in a number of cases, we were chasing competitors and that makes you very short term, makes you very reactive and it drives activity and a lot of SKUs for news. It doesn't drive what we're trying to drive, which is really understand what the shopper and consumer wants and then give it to her or him with our brand and product in a very intentional and very powerful way. And then the 3rd piece I think that's important is, yes, we're a team, but job 1 is play your position and do your job, okay? And we've been talking about that since the moment I arrived.
And it's really important because and by the way, I think it's fairly human and fairly natural. I mean, this isn't the first time I've been involved with a business that was struggling a bit. You become more internally focused. It becomes more intramural. You become more concerned about things that are outside of your control and influence.
So if you're selling into the travel retail channel or you're selling into small box discounters, whatever their form is in some country around the world, that's your job. And these are the brands that are on the list and these are the product lines to sell. And so operating TSR, one goal has been important. The consumer and shopper centricity has been important. And I think the other point I was trying to make is when you're in the activity churn and you're running around chasing activity and you're watching every move a competitor makes, you don't take the time to think the strategy through.
You don't take the time to think what the business model is really going to be and then and only then, okay. Let's get an operating plan together and then let's go through the details of the execution. I mean, I went through every retail account in North America on the sell in of the laundry bundle, not because I didn't have tremendous confidence in the team as an incredibly strong team that we had working on that, but just to remind, I was trying to make a point that it doesn't even begin until we're in distribution shelved in the right place with the right position, with the right space, etcetera, etcetera, etcetera. So I think that I think driving it all the way through to execution is the last piece. You have a third question?
I do, sorry. Yes, no, go ahead. I apologize. Thank you. Talking about the tax structure?
Tax structure, yes. Tax structure. Yes. And want to understand the risk you see from a regulatory perspective on the one hand In the news again this morning. And then exactly.
And on the other hand, risk from an operational perspective, not having decision makers close, right? You have them in Panama and Singapore and Cincinnati, Geneva, but not close to perhaps where the actual operations and accounts are, etcetera? Thank you. Thanks for the 3rd.
So there are probably three things I'd comment on there and Ajay can build. First, and it's our fault, we've done a poor job of communicating. Our global business units have global personnel, they have regional personnel, they have local personnel, what we call LBUs, local business units. And in all of our big important countries for each of our big GBUs, there's somebody on the ground. So we're not sitting in Singapore, Geneva, etcetera, exclusively.
I think that's important. From a I'll come to policy in a minute, but I want to make one other comment because we've received a fair amount of questions on it. From the standpoint of how we operate and whether that creates any exposure in itself outside of policy change, I feel extremely comfortable. This is a business model that we've been operating now for 15 years. We've gone through numerous rounds of very supportive audits.
We have a very high level of what we call APAs or advanced pricing agreements between different markets where the 2 countries agree with each other not with us, how we're going to operate and conduct transactions. And so I feel very good about the viability and the sustainability of our operation. The other point that you bring up is something that you deal with in the world we live in, which is policies can change and the ways that governments choose to interpret policies can change. And we try to be very, very transparent.
We try to be in active dialogue, so they
understand what we're doing. They immune to a immune to a desire on the part of
the government to change the
way that they want to look at the world. But I think we're in
as bad shape as we can be.
Yeah. I mean, really the when we started this 15 years ago, we said we weren't going to do anything on the tax front that was supportive of the business objective and the business strategy. So actually, the move to Geneva was a consolidation of 3 or 4 separate centers in Europe that was more centrally located. And I think the part that is not well understood is the people that actually run the business in China are on the ground in China, right? The people that run the business in Mexico are on the ground in Mexico.
We do have to have certain functions done in the regional centers that you talked about, but it's not constraining the way we operate the business. Last point, I mean, this is fairly obvious, right? I mean, governments need more revenue. There are big corporations and high individual earners and that's where they're going. So I don't think that's going to change.
I don't think that's going to change. Yes, John? Sorry. Okay.
Angie, could you elaborate in more detail about what's going on in China? You said that's one of the places where you do look at share. Why are you losing share? What did you miss that led to losing share? And what are you doing to change that?
Okay. Well, first of all, the basic story in China, I think I mentioned this, but I can't remember now. About a third of our businesses are growing share, about a third are holding and about a third are losing. The places in some cases, we're out of position on product. Martin and Ryan talked about that.
There's been a flurry of imports mostly from Japan and the baby diaper business. We had quite a strong Pampers share in China that we built over a decade. And we still have quite a good share. I can't 35 to 40 somewhere in there, that'll be approximately right. But the fastest growing segment of the baby diaper category has been pull ons.
Most of them have been exported from Japan. And we absolutely we've been working a long time to catch up on pro ones. I won't take you through all the gory details. But the important thing is we have one that moms prefer. We have one that has incredible fit and finish and fits like underwear.
And more importantly, we have one that we can run on our high speed lines around the world. So it's going to roll out pretty fast over the next year or 2. And I don't get too excited about the baby market because it turns over completely every 3 years, right? So it's tossed up. I'll just mention I'll mention the problems, okay?
We're out of position in laundry and that sort of relates to Wendy's question. We were frankly, we're were stronger in the low end of the business, bars and powders. We were don't ask me how this happened, the last one to move, not the last one, but slow to move into heavy duty liquids. So what we've done in the last 18 months is we made a fairly big commitment there. It's one of the local manufacturing sites that John alluded to.
I think it's going to be up and running sometime around mid year next year and we'll be in that game. And in the meantime, we've been exporting or importing depending on if you're in China importing pots and beads, right? So it's not a big business, but we're trying to understand sort of how quickly will Xi move up the ladder, right? Because washing machine penetration is reasonably high in China. I'll just mention a third one, but I could go I could probably scarily go through all 20 brands.
In fem care, it's a somewhat unusual market for a market that's this developed. Most markets that are this developed are predominantly in what's called the mesh form, which has always been our long suit, mesh moving to foam. That market is still in what's called cotton, okay? Cotton is nonwoven predominantly and still a fair amount of pulp in the product. It's a bulkier product.
So we're working on 2 things. 1 is we're working on conversion, trading new consumers into directly into Mesher Foam. And the second thing we've done is we said, okay, if you can't beat them, join them. So we've introduced our own non woven product and I think we have a non woven product that's pretty competitive now. So I mean, it sort of depends.
We're doing quite well in some businesses, but those are 3 pretty good sized ones, important ones to it. We still have a very high share of the hair care market, although it's predominantly a shampoo share and we think there's a tremendous amount of opportunity and conditioners and treatments. We have a very we have the best Vidal Sassoon business in the world there. We do over $300,000,000 It's premium positioned, premium priced, premium packaging and our best products. So the reason I tell you that is, I don't think I'm not discouraged by China.
It's just that we've got to get it going on more categories and more brands. We know what to do, as I said earlier. We've now just got to do it and bring it to market.
Time for one more question.
Thanks. John, can you 2 questions. 1, can you just sort of talk about when the shares come in, in terms of the Duracell deal and how you see that affecting the share count going forward? And then you talked about the ability to take the developing margins up to developed markets. You also talked about the greatest trade up cycle in history.
So how much of that movement, because it's a pretty big gap right now, is going to come from just simply things that you control, going back to what you talked about before, versus needing the markets to continue to trade up. I mean, if the market if the trade up cycle doesn't happen, you still feel like there's some pretty significant margin opportunity there?
So first, kind of on the housekeeping question relative to share count and the impact of the Duracell exchange, those shares will come out at the point that the transaction closes. So it won't affect share count in the current fiscal year. It will likely affect share count in the following fiscal year. On the question of if trade up didn't occur in developing markets, where would we be left? I think that there's I named several additional things beyond that.
And I think those all provide us the levers to get margin to a much better place than it is today even absent a significant consumer move. The way to conceptualize it, I think, is we did it in China, we did it in Russia, we did it in Saudi, we did it in the Philippines before this dynamic occurred. And we did it with the levers that I talked about. So I think, again, the big question there in the near term, I talked about the underlying progress we're making, 2 times the rate of sales growth 2 years ago, 4 times last year, 2 times. The big question in the near term is just FX.
And the simple answer is we have to get it up. And the other thing I would say is it's pretty a big chunk of getting it up is concentrated in a couple of categories in a few markets. So we know where the big opportunities are, right? And we're getting after those.
Thanks a lot. I think we're going to have to break at this point. So that concludes our session and the webcast this morning. Thank you very much for joining us. Thank you for your time and thank you for your engagement with our