Admark’s Weblog

Posts Tagged ‘Strategy

Adage points to a good piece on how package-goods company Reckitt outperformed heavyweights like Unilever, P&G. Some snippets –

Globally, Reckitt has posted 10% organic sales growth so far this year,
besting all peers. And in the past five years, it has beaten all
competitors with average organic sales growth of 8% and net profit
growth of 17%, according to data from the company based on Credit
Suisse analysis.

Surprising if that is, then consider this –

The company spent nearly 90% of its media dollars on TV last year.

Half of improvements in gross margin get invested in increased
marketing spending, said Mr. de Groot, and the other half drops to the
bottom line.

Even as some competitors cut or slowed marketing spending amid a
turbulent economy, rising private label and high commodity costs in
recent quarters, Reckitt didn’t. Its spending in July and August
(excluding outdoor) was up 10.8% from a year ago, according to TNS
Media Intelligence, and spending through August puts it on pace to
increase its 2007 outlay of $402 million by about 10% for the year.

And the results say –

Since January 2007, Reckitt’s all-outlet share of household categories has risen five points, to 29%, Mr. de Groot said.

The company culture –

The nine people on the company’s global executive committee come from
seven countries, as do the top 10 U.S. managers. The top 400 managers
(those getting options and restricted shares) come from 50 countries.
And of the top 50 global managers, 79% work outside their countries of
origin, and 95% have had at least one global transfer.

Instructive piece – do read.

There’s a lot of hullabaloo regarding the inflation and how it beckons doomsday for the Indian industry. Well, the FMCG industry seems to have tackled it pretty well till date. So here’s a review into their strategies.

Inflation hits the FMCG industry in multiple ways. While the price of raw materials keeps spiralling upwards, the end consumer does not have the ability to take the burden of this price increase completely. To add to this is the pressing need to pay higher salaries, which forms a large part of the fixed cost in this industry. With the increasing clutter and reducing wallet strength of customers, inflation brings an era of high spends on advertising too. It’s not a happy scene everywhere. An Assocham report shows that net profit margins of Marico and Dabur India ltd. recorded a decline of –11.1 per cent and –5.55 per cent on sequential quarter basis owing to the rise in their wage costs by 18.29 per cent and 48.71 per cent respectively.

The good news, however, is that the FMCG industry is growing by 18.8%, partly due to increased prices and by more than 8% volume growth. The strategies have been manifold, tapping opportunities at every part of the value chain. For example, to prevent down trading, the companies have introduced packs with lower SKUs so that the per unit purchase does not pinch the consumer’s wallet. For example, Henkel has introduced a new 400 gm pack of Henko washing powder at Rs 40 and withdrawn the 500 gm pack that used to sell for Rs 46. Some companies with huge war chest have been able to maintain the prices which they are identified with. For example, Parle Agro has not changed the price of Frooti in spite of upward pressure on prices. Soap companies have shifted to cheaper options of raw materials to source their products at a competitive price. Companies are also reworking on their packaging, product line while aggressively pursuing branding exercises to be differentiated in the market.

While the examples show how the smartness with which the industry faces inflation, the question remains if this buoyancy will continue if the effects of inflation are passed on to the consumer in priority sectors like oil and LPG. Will the consumer still buy without any worry?

-Nemo