Reckitt Benckiser CEO talks the corona crisis
The 53-year-old Indian-American executive has been at the helm of the consumer goods giant since last September. His appointment came after a decline in net profit since 2017 and a massive write-off in 2019, albeit at a star player with the highest margins in its global peer group.
Narasimhan has been on a productivity drive ever since. He is certainly a lucky general. Social distancing may not have been good for the company's Durex brand, but this has been far outweighed by a surge in demand for disinfectants such as Sagrotan, Dettol and Lysol during the coronavirus crisis.
Thus group net sales grew by nearly 11 per cent in H2, and net revenue growth for the full year is likely to be in the high single digits. But, not content with being on such a roll, Narasimhan is already focussed on success in a post-Covid world...
"Humans will be humans"
I think profit is too harsh a term to use. We fulfill our role in this special situation. Why do we exist as a company? It's because we protect, heal, and nurture people in a relentless pursuit of a cleaner and healthier world. That's our purpose.
That sounds like marketing hype...
It's not marketing. It's what is pivotal to us. The entire company is motivated by that. Our team is driven by the task of fighting the virus. On top of that, we donated a significant amount to help society.
How much is a 'significant amount'?
We have committed to give away the equivalent of 1 per cent of our adjusted operating profit, for example, to the Centre for Disease Control in the US or to the International Rescue Commission for refugees. Sagrotan has made donations in Germany. These include both products and money of over £2m to ASB, DRK and Diakonie. In India we gave away 10 million bars of soap and 1m liters of Lysol.
We launched international campaigns for behavioural change. On TikTok, for example, we showed 115 billion views on how to wash their hands properly.
When did you first become aware of the pandemic?
We experienced it first in China in the middle of January because one of our factories is situated just outside the city of Wuhan. We had to find ways to ensure the factory stayed open. We learned a lot from that.
Firstly, we developed a whole protocol to protect our people, to train them how to stay safe, to test them and isolate them in case of an infection. It was a great blessing that we didn't have a single Corona case in China. In addition, we knew that there would be a high demand for some of our disinfectant products including Dettol and Lysol.
How successful have you been in meeting this increased demand?
Our second priority was serving our customers. We had to work on our supply chain. We activated third-party capacities and invested in our own capacity. We ran our factories with a simplified set-up in order to concentrate on the top products. We also simplified our portfolio. In China, for example, we cut down the number of SKUs we make by 80 per cent.
By these means in July we produced 13 times the amount of hand sanitizer that we did last year. But we still haven't been able to meet all the demand.
How about Durex, though?
Durex has had a slow start this year. People are not going out as much. Products depending on social interactions haven't done well in general. But there is no question that they will come back as soon as things start getting back to normal. Humans will be humans.
What has corona taught you?
We have used the crisis to reshape the company. We have become faster. We were fast before, but now we have moved to another level. What's more, crises have the amazing ability to show who the real leaders in a company are and who know how to make things happen. We have embedded purpose more deeply into the company.
Our people have risen to the challenge, and it has taught me how resilient they are in responding to external challenges with a 'can-do' attitude.
Hygiene will remain very important. When people try a new behaviour for 60 days, they change. Therefore, we are investing in capacity, brands, and innovation to ensure that we can sustain some of the benefits that we've had from the crisis.
Will the rise of e-commerce be permanent, too?
Yes, we expect it to be. The online percentage of our business is already in double digits and it's growing fast. Especially for products like Durex, where people want their privacy.
Does this leave offline retail with a bleak future?
No, consumers still like to go to stores. They want to be social and see what's happening in-store. Therefore, we are investing in both offline and online. We haven't shifted any staff from one to the other. Offline and online are only two sides of one coin anyway. Retailers will have to learn how to manage both. There are great examples for that in China and the US.
Meaning Alibaba and Amazon?
We serve all our customers. We are also seeing strong growth with our customers who are omnichannel or with bricks & clicks.
How are you preparing for the global recession caused by corona?
Consumers will look for value. But trust will remain important, especially in our categories. We will keep ensuring attractive price points for different brands that consumers trust. We have learnings from various crises around the world that we will rely on.
Won't retailers urge you to lower your prices in a recession?
I prefer a cooperative approach. For us, partnership with our customers is a big deal. If we both make investments, the whole category will grow.
But is this working in the current crisis?
It surely does. I'm in contact with so many of my customers. We have a very collaborative approach and our thought leadership is valued by them. We learn a lot from our customers as well. We have a lot of respect for the people in the front line who are risking themselves to serve consumers.
That sounds almost too good to be true...
Well, you always get the level of partnership that you allow. There are so many examples of this happening. And we learn, as do they. If I could wish anything from retailers, I would love them to engage more strongly in innovation and sustainability.
But are consumers still looking for innovation? People have become more conservative during the crisis, haven't they?
That is true. Right now, consumers are going back to things they know. But when restrictions are eased again, people will be more open to new things.
When do you think that will be?
It's hard to tell as this is an evolving situation. We closely monitor it. And we are open to input from all. As soon as you can predict the time, please let me know.
Many retailers claim that start-ups are more innovative than big corporations these days. Would you agree?
I don't think that's true. We are launching new things all the time. We have a lot of fine, flexible small units for research and development, which we are able to scale up as required.
Take the innovation centre for our detergent Finish in Heidelberg, for example. It is like a Mittelstand enterprise, with German innovation and technology at the heart of it. We take their findings all over the world. The trick for a global company is to have many Mittelstand units.
You sound like a big fan of Germany...
Yes, I love Germany. I studied German for 13 years. In 1991, at the time of the reunification, I studied in Munich. As my team in Heidelberg discovered to their surprise, I can still recite the romantic poet Heinrich Heine. And Benckiser started in Germany 197 years ago.
Germans, however, are quite worried about Brexit. How much will it affect your business?
We love the UK, and we get a lot of very good, talented people here. But on a global scale our business here isn't huge, only 5 per cent of our overall turnover.
Do you consider yourself as a British or a global enterprise?
We are a multinational company headquartered in London. We are very connected to the rest of the world. Therefore, for us, Brexit is only highlighting the need for cooperation across different countries.
That sounds like you are against Brexit...
That's not true. In my role, I can encourage what is needed for a global business to thrive. I know this for sure: a global business needs clarity on the rules and stability. If there's ambiguity and uncertainty it becomes harder to justify investments.
Before Corona, your revenues hardly grew. How do you intend to dynamize these?
We need to innovate and raise our productivity. We are entering discussions with retailers about joint growth. We are streamlining our operations and costs.
That sounds quite general. What are you concentrating on?
We are focused on penetration and market share. In Europe, for example, we haven't reached the level I want yet. We are also constantly looking at new markets. We already have 75 country operations, our category market units, but we want this number to grow to 100 in the medium-term.
Especially in health, you put a strong emphasis on developing markets. Why do you think this is the right strategy?
We're looking for growth everywhere. The US is strong, developing markets are, too; Europe is good, and China is very big for us as well.
Last year you had a net loss. How do you intend to make the company profitable again?
That was just the one-off write-off of an acquisition. In addition to that, we paid for a settlement with the US justice department. The underlying business is profitable, healthy, and growing.