Talk with Reckitt Benckiser CEO Bart Becht
Under his aegis since 2000, net revenues have doubled and market cap quadrupled at the household cleaner products giant.
Yet, talking in Slough headquarters, just west of London, the 52-year-old Dutchman seemed more like a shy rocket scientist than the leader of a global brand manufacturer with a legendary "take-no-prisoners" corporate culture.
The interview got off to a cautious start as Becht felt that he had been misquoted in the UK media recently regarding statements he had about Tesco.
However, once Becht realised that he wasn't going to be pinned down to trade marketing topics, he was more than happy to analyse the success machine that is Reckitt Benckiser (2008 revenues: €7.1bn).
The interview was held in a company meeting room which replicates the detergents & household cleaner section of a UK supermarket. Although the merchandising obviously displays company brands prominently, own label and even rival products are also included on the shelves.
After publication of the interview, Reckitt Benckiser's HR department called our newspaper asking permission to use the interview on their website for recruitment purposes. We said yes.
"We must stick with the consumer"
Mr Becht, Reckitt Benckiser has always tended to be a low-profile organisation in terms of media coverage, and you rarely give occasional interviews. To what do we owe the privilege today?
As CEO, I consider recruitment one of my top priorities. We are trying to gradually raise our awareness and profile among young professionals in order to ensure a pipeline of quality talent to our company.
An interview with you gives us more direct access to professional readers than one with the national press which is necessarily broader.
So you are not looking to sell in Germany?
Sell in Germany?! On the contrary, it is one of our best growth markets because we can focus on our power brands, which tend to be in growth categories. Also the market share of brands in our category has increased at the expense of own label.
Isn’t own label market share increasing in the current recession?
Discounters grew in Germany for many years simply because they opened more stores. That has largely petered out.
What you see now is that Lidl has been introducing more and more brands, including Reckitt Benckiser brands, to their stores over the last two years. So, in our category at least, private label is losing share.
But in other countries private label is gaining ground in the recession. Are you feeling the pinch elsewhere?
Private label is growing, but we are not losing share, so clearly there are other players in the market who are.
The German market is very price-oriented. How do you see it?
In Germany the trade must focus more on brand value-added. Generally, this means better products, more innovation, proper support and extra service, good communication and consumer solutions etc.
However, the dominance of the discounters has created a tendency to talk only about the lowest price.
In this year of global economic turmoil some competitors such as Unilever refuse to give guidance. How then can you predict growth in 2009 of 4 per cent for sales and 8-10 per cent for net income?
We are not giving guidance, but set ourselves firm targets regarding what we want to achieve. This is important for both our employees and our shareholders.
These targets are deliberately challenging, but reflect what we believe is in the current environment. To date we have always met or exceeded our targets.
Have consumers reacted to the recession by reducing the number of times a week they clean their homes?
No, we haven’t seen this. The first thing that consumers are going to do in the current environment is to shop somewhere cheaper, rather than to down trade from brand A to brand B or C, because clearly this is the easiest and most efficient thing they can do.
If you know that store B has cheaper products than store A, you will go to store B.
Surely consumers could have done this before the recession?
You might not have done that before because store A might have been closer to your home, but, if you come under pressure that is the first thing that you are going to do. This is one of the key reasons why Wal-Mart is winning in the current recession because American consumers know that Wal-Mart is cheaper than most other retail outlets.
But people can buy from a cheaper shop and also down trade to secondary and tertiary brands?
Downgrading has mainly occurred on the food side of the fmcg business, where innovation is also much harder to achieve.
Why hasn’t this occurred in your product categories?
When someone gets a bonus they don’t suddenly run out and buy a more expensive cleaning product. Fortunately for us, this also means that consumers don’t tend to downgrade on cleaning products when they have to tighten their belt.
How do you market your existing brands in the current recession?
We have to make it clear to the consumer what the value of our brands is. We communicate to them that our brands are better products overall than cheaper alternatives because they have more mileage in them and they perform better.
You have partially reduced packaging sizes and advise consumers on how to apply your cleaning agents more sparingly. This may be good for customers, but how about your shareholders?
We must stick with the consumer. At the end of the day it is consumer preference for our brands which makes us successful. When consumer income comes under pressure, we need to make sure that we remain the preferred brand.
This might mean that we need to offer better value by adjusting our promotional offers, launching re-fill packs etc.
What is your philosophy on special offers?
We are not focussed on price per se, but on providing the right quality product and the right innovation to fit consumers. We use special promotional offers here and there to generate interest during trials or to reward very loyal and heavy users with a large pack offer.
Your major fmcg competitors are expanding aggressively in threshold economies. Does your emphasis on more mature economies put you behind the curve?
We believe that strong growth can be generated in North America and Western Europe because we are still in relatively underdeveloped categories.
For instance, the penetration of automatic dishwashers, even in Germany or the US, is only about 60 per cent, compared with 98 per cent for washing machines. The same is true for many of our other brands.
How about Eastern Europe?
Growth rates in Eastern Europe and our developing markets are much higher than in Western Europe. Despite the recession they are still showing double-digit growth. However, we are not taking money out of Western Europe and North America in order to develop these markets.
You have steered Reckitt Benckiser, essentially via the major acquisitions of BHI and Adams, towards higher-margin body and health care. Will you continue on this route?
Our acquisitions strategy has two main elements. We aim for geographic infill, which is still very much focussed on Eastern Asia, because we need more critical mass in certain countries such as China, Japan etc. We are also looking at category infill.
In household cleaning?
No, because we are already in all the interesting categories. So we are very much looking at health and personal care brands with global expansion opportunity.
Could there be another mega-merger as between Benckiser with Reckitt & Colman in 1999?
There could be some combinations which might make sense, but this type of thing happens only once every 20 years. Also don’t forget that the Reckitt Benckiser deal was the only major merger in our whole history
Where, however, could such a merger make strategic sense?
The household cleaner segment is already very concentrated so there are a lot of combinations which simply couldn’t be done for cartel reasons.
On the healthcare side we would be far more likely to go for an acquisition than for a merger because the industry is very fragmented.
How long could it be before you hit the acquisitions trail again?
We spend 95 per cent of our time on organic growth and not on acquisitions. We only make acquisitions when they make real strategic sense and there is a great strategic fit, i.e., when they would compliment our existing portfolio and promise both good growth potential and margin profile.
You already have 17 power brands. How many more could you acquire without complicating your portfolio excessively?
I don’t want to be pinned down as to a specific number, but I believe that we could increase our power brands to the higher 20s. That said, we try to stay tightly focussed and even deleted one power brand last year.
Some analysts commenting on your Q4 figures have said that, if one strips out consumer healthcare, they reveal an underlying trend of slowing core sales growth? Fair comment?
I’m not sure that it is fair comment because there will always be some categories in any company’s portfolio where there is higher growth and others where there is lower growth, so it is simply nitpicking.
But weren’t margins under pressure?
Margin has very little to do with specific categories. Raw materials and packaging costs increased substantially last year and peaked in Q4 before our second round of price hikes at the very end of 2008 hadn’t fully impacted. This why margins were hit hardest in Q4.
Will you reduce prices now that raw materials costs have fallen?
The price hikes we made last year were not enough to offset the increase in raw materials and packaging costs as well as the margin hit we took in Q4. So there is very little reason for us to reduce prices.
How much of your success is due to your unique business culture?
A lot. We try to give our people considerable responsibility from virtually day one so that they develop a sense of ownership. We also try to develop a spirit of entrepreneurship unlike a lot of other big companies where it gets stifled.
We actively encourage people to come up with new ideas. We are very focussed on achieving results, but we don’t punish people for failure just because a new idea doesn’t happen to work.
But most entrepreneurs have big egos and aren’t team players?
Obviously there is an inherent tension between the two, but we also work in groups all the time, so team spirit is also very much part of our culture.
But you are not exactly regarded as a consensus organisation.
Only because we fight as hard internally for the best ideas as we fight externally to achieve results for the company. We do indeed have many heated debates, but we also try to accommodate minority ideas by trialling and testing them as these can sometimes be the best ones.
How do you achieve your high rate of innovation?
You need a cultural attitude where you really encourage all your people to come up with new ideas. You also need a process and a programme because innovation doesn’t come by accident, it has to be managed.
By focussing on Research & Development?
Clearly R&D plays a key role, but innovation starts with ideas. This is one of the big differences between Reckitt Benckiser and a lot of other companies who obviously believe that all innovation starts in a laboratory with people in white coats.
Where then do your best ideas come from?
They have many different sources, and we are not particular as to where they come from. They can come from the competition, consumer research, completely different industries, or our own websites where we try to engage people to bring us new ideas.
To conclude, if you had one message to our German retail readers, what would you say to them?
Let us move away from day-to-day pricing discussions and really focus on how we can create better and higher-growth categories. This implies high-quality products and innovation which is our key focus.
Do you think that German retailers will heed this message?
They are quite pre-occupied with price, but I hope that they will heed it as it could lead to better business all round.