by Greg Thain
FMCG The Power of Fast-Moving Consumer Goods
Greg Thain and John Bradley
First Edition Design Publishing, Inc.
FMCG
The Power of Fast-Moving Consumer Goods
First Edition Design Publishing
FMCG
The Power of Fast Moving Consumer Goods
Copyright ©2014 Greg Thain and John Bradley
ISBN 978-1622-876-48-8 PRINT PBK
ISBN 978-1622-876-63-1 PRINT HC
ISBN 978-1622-876-47-1 EBOOK
LCCN 2014942766
July 2014
Published and Distributed by
First Edition Design Publishing, Inc.
P.O. Box 20217, Sarasota, FL 34276-3217
www.firsteditiondesignpublishing.com
ALL RIGHTS RESERVED. No part of this book publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means ─ electronic, mechanical, photo-copy, recording, or any other ─ except brief quotation in reviews, without the prior permission of the author or publisher.
FMCG
The Power of Fast-Moving Consumer Goods
Greg Thain and John Bradley
Table of Contents
FMCG
The Power of Fast-moving Consumer Goods
Where and When?
Coca-Cola
Colgate Palmolive
Danone
Dean Foods
General Mills
Heinz
Henkel
Kellogg’s
Kimberly-Clark
Kraft
L’Oréal
Mars
Nestlé
Procter & Gamble
PepsiCo
Reckitt Benckiser
The Estée Lauder Company
Unilever
Emerging Markets
Global FMCGs:
Money, Mojo or Marketing?
FMCG – Background Reading
FMCG: What You Didn’t Know
Who are the CEOs
Financials
Authors
Acknowledgements and Thanks: Greg Thain
This was a large undertaking and we need to thank more than a few people for their help and understanding. First my co-author, John Bradley, who is always fun to work with, either across the Atlantic or from even further afield: I am writing this in the Manila Airport lounge. John’s extensive experience of the industry shines through every one of the 500 plus pages. Our editors have also had a major task, so thanks to Tim Bettsworth, but special thanks to John Varnom, who has driven the process to completion over the last few months. John amongst many other achievements was the original marketing director at Virgin,
Ekaterina Safronova and Alexander Utochkin have contributed enormously, with additional data and tireless organization. Individual thanks must also go to Ben Aris, Simon Dunlop, Marat Hasanov, Patrick Cue, Jonathan Tubb, Kim Nicholson, Simon Tyler, Anastasia Lavrenuk, Lionel Thain, Inna Stewart, Adam Duthie, Tic Nica, Dawn Smith, Lumila Belokonova, Leonid Krongauz, Jai Agarwalla, Danny Unger and Martin Cross, all of whom have given us valuable assistance in recent years. We are also very grateful to all the other team players in our offices in Monaco, Manila, Moscow, Shanghai and Dubai.
Finally as always I would thank my family, Katya, Sarah, Nick, Poppy, James and Magnolia.
Acknowledgements and Thanks: John Bradley
I would like to thank Professor Niraj Dawar of the Richard Ivey School of Business for his input and suggestions and especially my wife Audrey for her diligent copy-checking and all-round support.
E-books and Information
This is a new style e-enabled book, allowing twice-yearly updates of all information contained. For updates please see our linked web page at www.Fmcgbook.com.
For information on current books, please see www.storewars.net. Our next publication, E-Retail Zero Friction in the Digital Universe is out in July 2014. Please see our linked web page at www.eretailbook.com for further details.
FMCG
The Power of Fast-moving Consumer Goods
FMCG: Dinosaurs or Deciders?
It has become fashionable in some quarters to regard the FMCG category as old hat: a motley crew of yesterday’s manufacturers of humdrum products populating the boring centre aisles of yesterday’s bricks-and-mortar retail outlets. MBA course attendees want new and they want exciting: Apple, Amazon, Facebook, Google. Yet the biggest four companies in this book, Nestlé, Procter & Gamble, Unilever and PepsiCo, have combined revenues of more than $300 billion - neck and neck with Amazon, Facebook and Google.
OK, so these FMCG companies might still be big, but hasn’t all the power shifted to the retailers? Are not the manufacturers a collective spent force? Once again, the numbers say otherwise. Virtually all our 24 companies are enjoying record turnovers and record margins. If power is shifting to the retailers, the cash isn’t. And if the cash isn’t, the power can’t be.
The fact is that the world’s largest FMCG companies have never been more successful or more interesting. They still drive the world’s advertising industries: where would Google or Facebook be without them? And they have adapted and evolved faster than ever before to remain relevant to consumers in all corners of the globe. FMCG companies are at the forefrontof new retail developments, emerging markets, E-Retailing and online engagement. The Estée Lauder Company founded its online division in 1998 and now has over 340 web and e-Commerce sites, through which sales have grown ten-fold in a decade.
Our Choice of Companies
So how did we arrive at the list of companies profiled in this book? We began with a simple list of FMCG companies ranked by turnover. But we did not stick with this religiously. We decided to exclude three categories: tobacco, beer and spirits. We did so for two main reasons. Firstly, the retail environments in which such products are sold can differ quite dramatically around the world, which lessens the transferability to other product categories or countries of the lessons such companies can teach us. Secondly, particularly for tobacco and beer, a prolonged process of industry consolidation has drastically reduced differentiation. Scale, and the relentless pursuit of more of it, has become their predominant feature.
A further criterion we used in deciding the final list, and in excluding alcohol and tobacco conglomerates, was a subjective one: any company on our final list could quite conceivably end its days as part of any other. However, whilst it is relatively inconceivable that Nestlé or Unilever might buy SABMiller or Japan Tobacco International, we could easily envisage (ignoring family roadblocks) their acquiring Esteé Lauder, L’Oréal or even Mars Inc. There is also a spread in age: some of the businesses in this book are old, such as Procter & Gamble, which was established in 1837. Others, such as Dean Foods and Reckitt Benckiser, are surprisingly new: both assumed their current forms within the last fifteen years. We have also taken pains to include as many FMCG categories as possible. So we have Dean Foods in the chiller, whilst a couple global giants hold regally forth over on beauty.
How the Book is Organised
The structure of the book is effectively two-fold. We first take an in-depth look at eighteen of the world’s largest FMCG businesses, then undertake a less concentrated survey of nine companies based in emerging markets that one day soon might get onto, let alone buy part of, the list. Within the eighteen, there is an almost ten-fold turnover difference between the largest, Nestlé, to the smallest, Esteé Lauder. But all have something to teach us: their differences are as much to do with scope as with capability. Indeed, one of the least impressively performing companies in recent years is Procter & Gamble, now losing out to Colgate in the dental category and to L’Oréal in beauty. Yet P&G are almost twice as big as Colgate and L’Oréal put together.<
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To understand how this happened, we do not just look at each company’s recent performance - we leave that to the investment analysts. We, however, are essentially brand marketers. We look at our chosen companies much more deeply, going right back to their founding and their founding fathers. Despite the prevalence of management consultants sharing best practices and the ubiquity of the MBA case study, we believe each company’s performance is as much to do with the strength and uniqueness of its corporate DNA as to how well its senior executives attend to their INSEAD courses.
We are firm believers in the power of institutional knowledge to shape and direct these gigantic businesses. Indeed most companies in this book show a remarkable degree of management continuity. L’Oréal, for example, has had just four CEOs in a century. At Danone, for forty years, there were two, and they were father and son. Itinerant, heroic, parachuted-in CEOs are few and far between at the top of the FMCG food chain.
Sheer Personality
We also start each chapter by looking at how, where, when, why and by whom the company was formed and founded. This is often overlooked by students of business and even by employees in the firms themselves: a quaint bit of historical kitsch irrelevant to the titanic business struggles of today. But the often highly charismatic and driven men and women of the sometimes distant past very frequently bear a wonderfully close relationship with their modern companies’ DNA that can still be clearly perceived today. Danone’s Daniel Carasso is an excellent example, as certainly is Henkel and, of course, L’Oréal’s Eugène Schuller and Estée Lauder, all of whom defined right from the outset the character and strategy of the company and all of whom, were they to walk into head office tomorrow, would feel very much at home right now with what the company was doing and how. Remarkably, the clearest example of this kind of continuity is Mars – only the biggest confectionery company in the world. So, much insight is to be gleaned from quaint historical kitsch after all.
In other businesses, we meet insightful strategists who saw that their existing world was changing, so transformed their businesses to leapfrog the trends. General Mills’ James Ford Bell, for example, saw only doom for his regional flour milling company, but reinvented it, revolutionised an industry and created a colossal branded business almost out of nothing.
Competence and Coping
In the second section we look at how each business evolved once it had become established and had developed a core competence or two. In some cases, such as Kellogg’s and Heinz, competence was rapidly exploited to create dominant market positions, and then taken international early. In others, as original competences became redundant, it was a case of change them or die. Kimberley-Clark’s tariff-driven need to get out of newsprint forced the bet-the-farm commercialisation of their interesting, apparently irrelevant and – at first – highly socially sensitive use of Cellucotton. Henkel’s management was almost permanently in crisis mode for forty years, coping with Germany’s defeat in the First World War, the French invasion of the Ruhr and their factories based there, the devastation of the Second World War and the post-war Russian theft of almost three quarters of its production capabilities, which were dismantled and shipped off to the Urals. And Nestlé’s Swiss head office was surrounded by the Axis powers for years. How management managed has left a permanent imprint. Understanding this imprint means looking at personalities as well as balance sheets.
How Were They Formed and Where Did They Go Next?
The next two sections look at how the modern businesses of today were formed and where they went from the point of formation. And in terms of formation, there were several fronts. For some, it involved the sloughing off of the diversifications that had engulfed many businesses during the 1960s and ‘70s. Unilever went through trucking, fishing, car dealing, advertising and packaging. General Mills was at one time the world’s leading toy company, as it simultaneously solved America’s ‘What’s for supper, Mom?' problem with convenience foods and the Red Lobster and Olive Garden chains. Other businesses reinvented themselves from within: Colgate’s George H. Lesch was recalled from their thriving international division to reinvigorate a moribund US organisation. Acquisitions and mergers transformed PepsiCo from serial bankrupt one-hit-wonders into major industry players, while the influx of Phillip Morris tobacco money created new company breed Kraft Foods, formed from the imposed amalgamation of Kraft, General Foods and Nabisco.
All of our chosen companies have, of course, vast international markets. Unilever, Nestlé and Henkel have been regional or global businesses for decades. Nestlé recently celebrated its first hundred years in India, while Unilever has dominated South America for almost as long. In India, Hindustan Lever built the country’s leading FMCG business. Kellogg’s and Heinz built hugely successful businesses in the U.K. and are so well-established in some of the former British colonies that local customers consider them home-grown.
Of course, the race to conquer the emerging markets of the former Soviet Union, China, India, Indonesia, Brazil, Africa and all the rest is hugely important and hugely influential in shaping policy and progress. And while the stories of Pepsi’s Richard Nixon-driven conquest of Russia and Coke’s of China are well known, Heinz’s steady, even stealthy, accumulation of soy sauce businesses in China and Danone’s success with the Aqua brand of water in Indonesia are just as important – in unit terms, Aqua is, in fact, the world’s biggest-selling brand of bottled water. International success can also be achieved through collaboration: the Cereal Partners Worldwide relationship which combines General Mills’ brands with Nestlé’s global reach has been giving Kellogg’s a difficult time for many years.
Year by Year
After a quick look at how each company is structured, and how and why their structures have evolved over time – an exercise that convinced us of the inverse relationship between frequency of structural changes and robustness of company strategy – we then look in detail at what each company has done year-by-year over the past decade. Whilst giving a very useful insight into the strategies and activities of the companies, the What Have They Been Doing Recently sections are an excellent way of highlighting changes in momentum, both positive and negative. Procter & Gamble’s current malaise was a long time in the making, while the gradual deceleration of the Reckitt Benckiser innovation machine, imperceptible on a quarterly or annual basis, stands out when viewed over a decade. The section also proved to be an excellent device for identifying the severer cases of corporate amnesia, where much-vaunted strategies to transform the business can fade alarmingly when the reality of execution sets in. Take Coke’s and Pepsi’s hugely expensive acquisitions of their US bottling operations. To get the business back, Coke paid 12 billion times what they originally sold it for. But performance has remained resolutely unchanged at best.
DNA
We then combine all of the above to define what we see as each company’s unique DNA, a fascinating exercise in summation intended to highlight the many and varied routes to success that criss-cross the FMCG environment. Some, such as Kimberly-Clark’s mastery of absorbency, its marketing of perhaps the world’s most embarrassing subject and its subsequent building of consumer trust, are very product specific. Dean Foods’ essential make-up rests on the broader managerial skill-set of defining and integrating countless acquisitions, while L’Oréal’s is embedded in an ability to think in decades, allied to an unbeatable lead in the science of skin and hair. Sadly, more than one company was, shall we say, genetically challenged: Kellogg’s, for example. And one, Kraft/ Mondelēz International, probably still traumatised by continual structural upheaval, may still be fighting to emerge from the consequences.
Now Read On
This book, then, is a comprehensive history of a broad selection of the world's most famous brands, from their humble beginnings to their current exalted status: world leaders and resonating icons of the fast moving consumer goods industry. From smudged pamphlets drafted on kitchen tables to the latest multi-million, multi-p
latform ad campaign, from backyard experiments with passably dangerous chemicals to global research in pristine laboratories, the book charts in detail the evolution of eighteen household names, whose modern business activities literally define our lives; how they rode the tides of change, built and continue to build their modern empires to establish global structure and reach. The Power of FMCG examines the most recent developments in these glittering trajectories. It takes you on a journey through setbacks and astonishing successes, highlighting the key factors that have led to modern pre-eminence, ingenious and often sophisticated brand-building, revealing the DNA of the brands themselves.
As we have indicated, and as you will find in the pages that follow, we analyse how these FMCG giants are responding to emerging markets, their response to the internet and how they have adopted old marketing strategies to this new medium and its very different consumer expectations. It highlights the power that market leaders wield over the global FMCG industry. How PepsiCo, Henkel, Coca-Cola, Colgate Palmolive, Procter and Gamble - to mention just a few – read trends, gather information and monitor technology to best respond to ever-changing, ever-growing, ever more precisely identifiable consumer choice and purchasing power. If you work in retail, FMCG, marketing or consumer goods, this is a must–read book. Consumer marketing and consumer purchases drive our modern world. Every day, the FMCG market leaders expand their reach and increase their dominance. In the global race for consumers and market share, and outside in the world as we know it, here are the giants who have transcended business boundaries to become, in their own right, global financial powers. Here also are some of the emerging contenders. Reports of the demise of FMCG are, we suggest, definitely premature.