by Greg Thain
But as early as 1951 the company was sufficiently back on its feet to open its first overseas subsidiary in South Africa. Three years later there was an exclusive trading partner in Japan, the start of a prolonged series of joint ventures in that country culminating in an agreement to market Henkel products with the Japanese Lion Corporation. In 1955, Henkel do Brazil SA was founded; a series of acquisitions there gave Henkel adhesives market leadership. In 1959, a similar story played out in Mexico after the founding of Henkel Mexicana SA. In the 1960s, Turkey and Argentina were added to the list and in 1971 offices were opened in London, Montreal, Athens and Hong Kong, followed by Lagos and Bangkok a year later. The 1972 Solvite acquisition made Henkel the UK adhesives market leader.
In 1977, there was a step change. Henkel bought General Mills Chemicals, Inc., which had substantial operations in the US, Ireland, Brazil and Japan. Now, foreign acquisition followed foreign acquisition, all in the careful Henkel style, leading to a 1988 entry into the Chinese market in 1988 soon after foreign companies were allowed to enter and an approach Henkel had diplomatically stage-managed by restoring a 747-metre stretch of the Great Wall. The wall building paid off handsomely, as the company now has fifteen subsidiaries and joint ventures in China. Henkel was equally quick off the mark when another wall was not repaired but demolished, moving very swiftly into both Russia and Poland. By 1995, Henkel had seventeen companies in Central and Eastern Europe.
By 2011, 68% of company employees were located outside Western Europe, 55% in emerging markets. Henkel’s European region is still the largest, turning over around €8.5 billion. Next in size is North America, with sales of €2.7 billion, then Asia-Pacific at €2.3 billion each, Latin America at just over a billion euros with Africa and Middle East not far behind at €930 million. With 85% of its sales coming from outside Germany, Henkel is the most global of companies.
How Did They Build The Modern Business?
By now the running of the company had passed to the third generation of the Henkel family, normally a risky transition for family-run business. But two sons of Dr Hugo Henkel, Jost Henkel and subsequently his brother Dr Konrad Henkel (Jost died suddenly in 1951 at the age of 52), successfully propelled the business out of the post-war chaos, added a new stability and finally launched the company into a new, expansionist phase that would create a global enterprise. The new intent was signalled in 1960 with the first American acquisition, Standard Chemical Products, Inc., a manufacturer of textile industry chemicals and adhesives, and the 1962 purchase of Henkel’s main adhesives competitor in West Germany, Sichel-Werke AG, founded by the inventor of the first ready-to-use decorators’ paste. New products such as Dor, an all-purpose cleaner; Somat, for automatic dishwashers; and Saptil, an innovative tube-dispensed stain pre-treatment, ensured the household cleaning businesses kept growing.
Detergents were a different matter. Henkel had had a pre-Tide technology-sharing agreement with P&G, so P&G’s late 1950s announcement of its intention to enter the West German market did not go down at all well in Düsseldorf. Henkel broke off the relationship. P&G responded by offering to buy the company, an offer Henkel flatly refused. Both companies limbered up for battle. P&G opened an office in Frankfurt in 1960 and immediately set about looking to buy manufacturing and route-to-market capability. By 1962, Camay and Fairy were being produced under contract; a year later P&G opened its first West German factory.
In the early phase of its market entry, P&G had two distinct advantages over Henkel. First, with a number of breakthrough brands - Crest toothpaste, Crisco shortening, Head & Shoulders shampoo and Lenor fabric conditioner, all of which became very successful in West Germany - it had a greater critical mass in the grocery. Second, it had detergent innovations in the pipeline - Ariel, for example, launched in Germany in 1967 – that were ahead of anything Henkel had. Even so, it wasn’t quite all plain sailing. P&G was still a naive enough internationalist not to appreciate crucial local differences, particularly the European preference for low sud-quotient washing machines powders; low sud-quotient next to Tide, anyway. Nevertheless, P&G established itself in West Germany, cementing its permanence with some acquisitions.
So Henkel lost a significant amount of its home market share as the P&G Tide came in. But it did far better than Unilever. When the somewhat sleepy Unilever threat materialised, Henkel responded aggressively, launching a slew of new products: Persil 65, with its temperature-dependent foaming control agent, Dato, for white fabrics, Weisser Riese for heavily soiled white fabrics, Fewamat for automatic washing machines, Henk-o-mat prewash detergent and Fakt, the company’s first enzyme-based detergent. Henkel’s strategy was to segment the market as much as possible and box Tide in. Unilever’s own tide went out; you might say it was taken to the cleaners.
As the competitive dramas played in the foreground, in the background Henkel was laying the groundwork for a longer-term response to P&G’s assault on its heartland. A good ten or twenty years ahead of the competition, Henkel set up an ecology department in its Düsseldorf laboratories, focused on finding fully biodegradable surfactants and a replacement for phosphates. And Henkel could also continue to grow its adhesives business virtually unhindered and, in 1969, it made the crucial leap of combining an adhesive innovation with its well-honed consumer marketing skills to create Pritt, the world’s first glue stick, almost instantly a standard fixture in every offices and school in Europe.
By acquisition and its own inventiveness, Henkel had also gained a foothold in cosmetics and toiletries sectors, particularly since the launch of Creme 21, a hand cream. So, in 1971, it merged these various elements to create one focused business unit, while still adding to its ever-expanding ranges of household cleaners and detergents. In 1974, the company took another major step, this time into the American market, buying a significant shareholding in the Clorox Company. Clorox produced and marketed some of Henkel’s brands in the US, Canada and Puerto Rico in return for access to Henkel’s formidable research and development expertise. Henkel was now also by expanding rapidly overseas: in Australia, Guatemala, Venezuela, Indonesia and Jamaica.
The laboratories’ search for a phosphate replacement in detergents had also come up trumps with the patenting of the compound Sasil in 1974. Three years later, the company’s first low-phosphate brand, Prodixan, completed trials. Sasil trumped anything P&G or Unilever had to offer; it was the engine that regained Henkel’s dominant share of the European detergents market. More technological breakthroughs followed: HEDP, a tartar inhibitor which in 1979 propelled Henkel into the toothpaste market in Theramed, Weisser Riese with Sasil had hit the market in the same year.
Meanwhile, in 1980, in America, Henkel bought itself into the automotive supply industry and acquired a maker of adhesives for the household and schools sectors. Back in West Germany, the company re-launched Persil, with Sasil, as a low-phosphate brand, having already won both consumer and retailer approval with two previous brands using the compound. There were also further acquisitions in the German personal care category.
But these imaginative and clearly decisive moves were testing the internal structure of the company. The key issue hinged on ownership. When Fritz had died he had willed a third of his shares in to each of his three sons. The tradition had continued since, with the result that the company now 66 family owners of the company, most of who did not work in the business. It was this diffuse arrangement that was beginning to restrict both the company’s access to capital - to fund the increasingly large acquisition and overseas expansion strategies – and its ability to make quick decisions when it had to. So the family decided to take the company public, issuing non-voting preference shares but keeping 100% ownership of the voting ordinary shares. The family, or parts of it, could continue to control the direction of the business – they still own around 80% of the ordinary shares – while being able to fund more ambitious moves. And there was now a far better defined authority structure, a consequence of the flotation.
A sign
of the powers came in 1987, when Henkel acquired a minority stake in the US Loctite Corporation, America’s leading sealants and adhesives firm. It wasn’t that Henkel couldn’t now afford a full bid; it was just that it preferred to approach acquisitions cautiously, looking long and hard at all potential purchases, retaining the existing management where possible and avoiding currently unprofitable companies or those with too different an operating cultures. The company was by no means afraid of forming strategic partnerships: they were a low-risk way of evaluating new markets and potential acquisitions. In 1988, the Wall Street Journal described the approach as ‘a blend of America’s short-term interest on profit and West Germany’s long-term emphasis on the future’. The result? Very few, if any, of Henkel’s acquisitions came unstuck. The same year revenues exceeded ten billion Deutschmarks for the first time.
With Persil completely phosphate-free by 1987, Henkel published new corporate guidelines which placed environmental protection on an equal footing with profits as company objectives. This was one of the advantages of continuing family control; such commitments could be made without objections from bothersome activist shareholder and financial analysts. This early commitment to environmental protection would be to Henkel’s competitive advantage in the future. As early as 1989, all Pritt products were solvent-free and all company detergents sold in West Germany phosphate-free; these were both industry firsts.
In 1990, following the fall of the Berlin Wall, Henkel re-entered the East German market, buying back the factory expropriated in 1946 and fortunately not dismantled or shipped off to the Urals. The main product, the somewhat basic Spee brand, was reformulated then launched nation-wide as a heavy-duty budget detergent. In 1995, and by rather stark contrast, Henkel bought the Schwarzkopf cosmetics and personal care business. Combined with existing assets in those categories, and alongside household cleaning and adhesives, the purchase gave the business a genuine third leg to stand on. A year later, Henkel launched a hostile bid for the 65% of Loctite it didn’t already own. The deal was finalised in January 1997 for $1.3 billion, the largest acquisition in Henkel’s history and one that catapulted it to global leadership in the category and increased company sales to over twenty billion Deutschmarks.
A year later, the acquisition of the Los Angeles DEP Corporation gave the company a foothold in the US hair care market. It was a move followed almost immediately by a very substantial 50:50 partnership with the Dial Corporation to develop new laundry detergent products sold under Dial’s Purex brand and another example of Henkel’s extreme flexibility and openness in accessing new markets. In 2000, the two partners bought an 80% stake in one of Mexico’s leading detergent manufacturers. 70% of Henkel revenues were now coming from outside Germany.
As Henkel entered the 21st century, it finally took on its current form. It sold off the chemicals division, previously been spun off as a 100% Henkel-owned separate entity. It also continued to spread its global presence, acquiring companies in China and opening the Henkel Loctite Technology Centre Asia Pacific in Yokohama, Japan. It was chosen out of 50 applicants to provide adhesives for the space shuttle, a notable first, and won the approval of the US health authorities for a skin and tissue adhesive now used under licence all over the world. But probably the least-biggest surprise to seasoned Henkel watchers was the announcement in 2003 of the company’s intention to acquire the Dial Corporation and thus become a direct rival of P&G on its home turf – an eventuality P&G would have found unthinkable when it first locked horns with Henkel in 1970s West Germany. Was this a case of revenge served cold?
How Is It Structured?
As early as 1919, Fritz Henkel and his three children appointed an eight-strong management committee to run the day-to-day business, and they wasted little time in setting up an up-to-date management structure. Although family owned, Henkel was no personal fiefdom like William Lever’s Lever Brothers, nor was it a convoluted bureaucracy as Unilever became
Today the company is structured along product sector rather than geographical lines. There are three distinct branded product sectors: Adhesives – led by the Loctite brand group. With main brands Persil, Purex and Dixan, Laundry and Home Care account for slightly over a quarter of sales. Thirdly comes Beauty Care, growing quickly, with brands like Schwarzkopf, Dial and Syoss. The business does have a fourth division: Henkel Technologies, established in 2001. HT deals in adhesives and sealants, but highly specialised examples, used in such products as cars, books, computers, aircraft, cell phones, shoes and refrigerators. Any one house will have a multitude of Henkel products in it - the owner would never know how many - in addition to those in the bathroom, laundry room, under the sink and in the tool shed.
At the corporate level, and like most German companies, Henkel is run by a triumvirate: the Management Board, responsible for the day-to-day running of the company, the Shareholders’ Committee, which meets regularly with the Management Board to discuss strategic direction and the Supervisory Board, a sixteen-member with equal numbers of shareholder and employee representatives who advise and monitor the Management Board in its stewardship of the company. All this is combined, and the family’s continuing possession of around 80% of the voting shares, creates a structure that balances the needs and inputs of all the key stakeholder groups.
What Has It Been Doing Recently?
2004
The big event of the year was a transformation of Henkel’s position in North America. Several acquisitions effected the change. The largest was Dial, whose Purex brand greatly increased Henkel’s share of the US detergents market, added to its range of toiletries and moved the company into air fresheners. The purchase of Advanced Research Laboratories significantly added to Henkel’s share of the US hair cosmetics market, and Henkel also exchanged its 29% stake in Clorox for Clorox’s household cleaners and insecticides brands in North America and South Korea. With the additional acquisitions of the MAS liquid detergents in Mexico and three American adhesives companies, Henkel’s total share of US sales increased from 12% in 2003 to a forecast 25% in 2005. Following this burst of acquisitions, Henkel was now global number three in Laundry and Home Care behind P&G and Unilever, number one in Germany and number two in Europe. In cosmetics/toiletries, Henkel was number one in Germany, number four in Europe and number eight worldwide, while in adhesives Henkel remained a clear global number one.
The acquisitions added 13% to annual sales, reaching €10.6 billion, but underlying organic growth was a rather more sedate 3% increase. The Laundry and Home Care category was juiced up the second half-year with the launches of Bref Power cleaner and Persil Megaperls with ShortWash. Underlying sales of cosmetics/toiletries inched ahead by just under 2%, keeping pace with market growth, the main progress coming from Diadermine, a high-performance skin care range that apparently guarantees a visibly younger-looking skin. A dollop of Diadermine appeared to have rejuvenated sales in the two adhesive products sectors, with underlying growth of over 5% in Consumer and Craftsmen Adhesives, due largely to the innovative Power Pritt and Power Pritt. Henkel Technologies put on 8% across its key sectors of automotive, aerospace, electronics and steel.
Strategically, the company focus was on driving the internationalisation of key brands while nurturing the strong regional and local offerings.
· In laundry and home care, the company’s critical markets mass came from its range of heavy-duty detergents supporting its more profitable range of special detergents (for colours, light wash loads etc.), together with the household cleaners range, which provided the highest rate of growth. The plan with the recently acquired air fresheners and insecticides brands was to expand distribution to more Henkel markets.
· Within cosmetics/toiletries, the emphasis was on growing the European businesses organically through innovation and the continued rollout and expansion of the Diadermine brand, while international growth would be achieved primarily through acquisition, providing new markets for Henkel’s key international brand, Schwarzkopf.
· In consumer and craftsmen adhesives, the basic strategy was to launch innovative new products in the Craftsmen sector then roll out consumer-friendly versions into the DIY business.
Henkel Technologies focused on providing bespoke products to individual customers.
Obviously, this strategy relied quite heavily on a constant stream of innovation from the 2,800 employees in the company’s R&D department who were spending just under 3% of sales per annum. Henkel had adopted a two-tier approach to R&D with Central Research, (consuming 13% of the budget), focused on exploring basic technologies in the fields of biology, chemistry and engineering. Examples of areas being pursued in the year were:
· Increasing efficacy in combating infectious, odour-forming and destructive micro-organisms
· Active ingredients that would noticeably stimulate hair follicles
· Anti-ageing ingredients
· New and better detergent enzymes.
The rest of the R & D budget was spent on the development of go-to-market applications in each of the four product groups. Overall, the company’s product range was protected by over 7,600 patents with a further 5,200 pending. Elsewhere, Henkel’s Sustainability Report was awarded first place out of 150 German companies evaluated by Capital magazine, news that will surely have cheered up the next round of employees being slated for redundancy as the ‘Strong for the Future’ restructuring programme, first launched in 2001 and rebranded as Advanced Restructuring Measures, was extended for another year.
2005
Another double-digit sales increase of 13% took sales to within a whisker of €12 billion, once again powered more by acquisitions than underlying growth, which had risen to more than 3.5%. The major acquisitions of the previous year had been seamlessly integrated, with only the Dial food business deemed surplus to requirements, but sales in North America didn’t quite reach 25% of the total, clocking in at 23%. With the exception of a Hungarian laundry company, the main 2005 acquisitions were in the adhesives sector, including companies in both India and China.