Reckitt Benckiser Announces Major Overhaul to Boost Growth Potential
In the world of gardening, the concept of “shrink to grow” is well-known – the idea that heavy pruning can encourage growth. In the business world, this concept is referred to as “shrink to grow” and is often used by management consultants and company executives. Simply put, it suggests that by shedding underperforming operations, a business can stimulate growth from a new base.
The latest company to put this theory into practice is Reckitt Benckiser, the household goods giant that owns popular consumer health and hygiene brands such as Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, and Durex. On Wednesday, the company announced a major overhaul, which involves divesting its home care brands, including Air Wick, Calgon, and Cillit Bang. These brands, along with the polish brand Mr Sheen, which was not mentioned in the stock exchange announcement, collectively generated £1.9bn in sales.
Reckitt Benckiser’s relatively new CEO, Kris Licht, described these brands as “iconic” but deemed them non-core to the company’s operations. In addition to the home care brands, the company also announced plans to offload its infant nutrition business, Mead Johnson, which it acquired for $16.6bn in 2017. This acquisition has been considered one of the most disastrous in UK corporate history.
To streamline operations and remove duplication of roles, Reckitt Benckiser will be restructuring its business by merging its hygiene division with its health division. This will create a “uniquely attractive consumer health and hygiene business,” according to Mr. Licht. The company will also be reorganized into three separate geographic regions – North America, Europe, and Emerging Markets.
While this plan is undoubtedly a radical move, Mr. Licht is confident that it will lead to a stronger and more focused company. He believes that by retaining its strongest and best-selling brands, such as Strepsils and Gaviscon, Reckitt Benckiser will have the opportunity to invest more in these brands and expand them to other markets globally.
Similar strategies have been successfully implemented by other companies in the fast-moving consumer goods (FMCG) space, such as Diageo and Unilever. However, there are risks involved in such a major overhaul. For instance, the demerger of Cadbury Schweppes’ drinks division in 2008 made the company a takeover target, and it was eventually acquired by Kraft Foods for £11.5bn.
Despite the potential risks, Reckitt Benckiser’s stock market valuation of £31bn after the initial positive share price reaction, makes it a significant player in the market. Concerns have also been raised about the company’s reliance on over-the-counter (OTC) products, which can be affected by the strength of cold and flu seasons. However, Mr. Licht argues that the strength of these brands will ensure continued consumer loyalty.
One potential hurdle for Reckitt Benckiser is the disposition of its remaining Mead Johnson business, as the company is currently facing litigation in the US over one of its products. Meanwhile, the company has also faced challenges in the short term, with a tornado damaging one of its Mead Johnson warehouses and lower-than-expected sales for the quarter.
Ultimately, the company’s focus is on the long-term success of its business. Reckitt Benckiser, which has a history dating back to 1840, is making bold changes to its operations in hopes of creating a more streamlined and profitable company. Only time will tell if this strategy will pay off, but for now, the company remains optimistic about its future prospects.
