Ahead of our Senior Executive Breakfast on June 8th in Geneva in Hotel Des Bergues, we will release every few days brief insights of the drivers behind the wildly successful FMCG companies. Those insights will be developed further during the Executive Breakfast and put in perspective with detailed case studies.
Today, we are talking about RB (previously Reckitt Benckiser). For people not familiar with RB, here are few facts:
– 9bn£ revenue, 27% operating margin
– Key categories:
– HQ in Slough, UK
RB or how to reconcile rocket revenue growth and record profitability
RB logically created more shareholder value than its peers over 2000-15, multiplying by 10 its market cap
How a small company succeeded to grow twice faster than its mighty competitors, how did it succeed to reach unseen level of profitability?
We isolated 5 ‘genes’ for success spread across strategy, culture and execution that explained RB outperformance.
1. A portfolio strategy focused on accretive gross margin categories
RB GM% expanded by 1000bps from 49% to 59% in 15 years mainly behind 2 key strategies:
i. A focus on niche categories on which RB can record a high GM% and almost ‘own’ the category with high market shares. Vanish (stain remover), Calgon (washing machine water softener) and Finish (auto dish washing tablets) in a lesser extent are good examples.
ii. A focused expansion on margin accretive categories on consumer health that meet the above niche requirements like condoms (Durex), sore throat (Strepsils), analgesics (Nurofen) or cold & flu (Mucinex). Consumer Health turned out to be a true strategic sweet spot over the last 15 years with limited competition both from FMCG and pharma companies that displayed a high level of fragmentation. RB focused on this strategic sweet spot successfully.
2. A master at acquisition and integration
RB completed a string of acquisitions focused on consumer health categories on businesses with strong brands with high distribution increase potential and that could leverage its innovation capabilities:
i. In 2006, it acquired Boots HealthCare International (BHI) and the brands Nurofen, Strepsils, Clearasil among others. Most of BHI business was in Europe. It was a golden opportunity to build critical mass on OTC and drugstore channels while leveraging further RB distribution capabilities outside Europe.
ii. In 2008, it acquired Adams Respiratory and the brand Mucinex.
iii. In 2010, it acquired SSL International and the brands Durex and Scholl.
iv. In 2012, it acquired the Schiff vitamins company (Airborne, MegaRed…)
In 2015, Consumer Health accounted for 34% of RB. A great example of this strategy is the footcare category and the Scholl brand that succeeded to almost double Footwear category value from 2013-14 with the introduction of new products (Express Pedi…)
3. A machine at cutting non-value adding costs and reinvesting them quickly in value enhancing activities
Cost-cutting and scarcity mentality are part of the RB DNA and rooted in every level and functions. Cost-cutting is a highly multifunctional affair. Over the years, RB moved from product specification optimization to a more holistic and end-to-end profit improvement approach. Most of the generated savings are then reinvested (often in the same quarter) in value-enhancing activities (increased media support, GTM capabilities, CAPEX, innovation…). What sets RB apart is its velocity.
What sets RB apart is its velocity.
4. An agile decentralized organization
Decision making process sits firmly at the local level. Even though organization changes took place since 2012 to delayer the organization and generate economies of scale on some specific areas, RB is still the FMCG with the most decentralized organization I know. Agility and focused in-market execution are paramount. As Rakesh Kapoor (RB CEO) likes to mention: ‘The biggest asset of the company is that there is clear P&L ownership – people can say ‘it is my P&L, my business”. Where most RB competitors have a highly matricial organization with large regional HQ that can dilute ownership and slow down speed of decision; at RB, P&L ownership and speed of decision are really unique.
Where most RB competitors have a highly matricial organization with large regional HQ that can dilute ownership and slow down speed of decision; at RB, P&L ownership and speed of decision are really unique.
5. A unique entrepreneurial culture favoring speed over perfection and risk taking
‘People have the hunger you usually only find in companies that are just starting out’ – ‘What sets RB apart is its unique entrepreneurial culture, its focus on speed over perfection, its culture encouraging opened and constructive conflict and the way it rewards disproportionately disproportionate performance’ – All verbatims from Rakesh Kapoor – RB CEO.
Test small, learn, scale-up fast has been a mantra at RB well before the Lean Start-Up book was published. Many large innovations have been launched within 12-18 months time from inception to shipment and rolled out after a successful launch in 50 markets within sometimes as little as within 12 months time.
Test small, learn, scale-up fast has been a mantra at RB well before the Lean Start-Up book was published.
Last but not least, not everything is perfect at RB. Most of its performance came from successful acquisitions/integration/distrubution increase and to keep this momentum, it is critical to continue this dynamic of acquisitions. The last sizeable acquisition was in 2012 with Schiff.
RB is just showing (again) that culture eats strategy at breakfast and it is we think one of the biggest lesson to draw from RB success
Having said that, 2015 was the first year since 2006 for RB where no sizeable acquisition was recorded over the previous 2 years and it recorded in 2015 one of its best organic growth ever. Q1 2016 was also very strong with +4% organic growth. With or without acquisitions, RB is just showing (again) that culture eats strategy at breakfast and it is we think the biggest lesson to draw from RB success.
In which extent those genes of success can be inoculated to companies like P&G, Unilever, Henkel, Colgate, J&J…? Which of those genes would be the most relevant and to whom? A company cannot change fundamentaly and P&G or J&J will never be RB and the other way around, but we are persuaded that things should and must be learnt from the RB success story
What do you think? Join the discussion!
Now the really interesting question is: In which extent those genes of success can be inoculated to companies like P&G, Unilever, Henkel… Which of those genes would be the most relevant and to whom? A company cannot change fundamentaly and P&G will never be RB and the other way around, but we are persuaded that things should and must be learnt from the RB success story.
What do you think? Join the discussion!
To know more about the drivers behind RB success and 6 other wildly successful FMCG companies, please join me at our Exclusive Senior Executive Breakfast in Geneva at Hotel Des Bergues, Salon du Lac on June 8th from 8 am to 10 am.
The event is free but the number of seats are strictly limited to 20 to maintain quality interactions.
Frederic
To discuss further the above, please email at: frederic@fredericfernandezassociates.com
About the author:
Frederic Fernandez is an expert and thought leader in the FMCG industry. He is the Managing Director and Partner of Frederic Fernandez & Associates a bespoke Strategy Consulting Firm exclusively focused on the FMCG industry. His focus areas are mainly in growth and profit turnaround, restructuring, corporate strategy and digital business model design in the FMCG industry. His passion is to help FMCG leaders to develop, achieve and exceed the potential of their business. He spends his time advising senior FMCG leaders across Europe, Middle East and Africa (EMEA). Before joining the world of management consulting, he spent more than 10 years working with Fortune 500 companies like Procter & Gamble, Reckitt Benckiser, PriceWaterhouseCoopers and Societe Generale in leadership positions across Europe (France, UK, Nordics, Germany, Switzerland, Austria), Central Africa and India.
