"Our focus is the key to our success"
He flies more than 300,000 miles every year and he flies commercial. So what does Bart Becht, the 51-year-old CEO of the UK-based household cleaner giant Reckitt Benckiser have to show for his hectic globetrotting? Plenty, actually. Since he took over as the CEO in 1999 following the merger of Reckitt & Colman and Benckiser, Becht, a Dutch national, has grown the company at double the industry rate and has nearly quadrupled earnings to £768 million, and pushed market cap to £21 billion. Last year, Reckitt acquired Boots Healthcare for £1.9 billion, thus gaining a foothold in healthcare products as well. Recently in India to take stock of the local operations, Becht met with BT’s R. Sridharan and Pallavi Srivastava, to talk about his plans for the unlisted subsidiary in the country. Excerpts:
Reckitt has been on a good run since you took over in 1999. Looking back, what do you think are the right moves the company has made in an industry that’s not so glamorous?
Strategy-wise, we have a very clear focus—first, we are trying to drive above industry average growth and secondly, we have tried to convert it into high profitables and strong cash conversions and the way we do it is we build over time a portfolio of leading positions in high-growth categories. To give you an example, we are #1 in automatic dishwashing detergent, we are #1 in fabric cleaning products, and we are #1 in depilatories. So what we are looking for is very strong leadership positions in high-growth categories to grow our portfolio. Margin expansion is very much driven by shifting the mix in our portfolio to higher-margin products, driving cost out of the business and then we try to convert that into cash.
It is probably a very clever company that has turned these non-sexy product categories into really strong brands. How much credit goes to your big advertising budgets?
Media certainly helps, but fundamentally you have to have greatproducts. With Harpic we have made massive success in this country for a very simple reason that we have a better product than what the others have. There is no level in communication or media support that is going to help you if your product is not good.
If you look at Reckitt’s portfolio and then look at the budget of a typical household, it’s a small part of it that you address. The Boots buy was obviously intended to change that. Are there any more acquisitions that you would be looking at globally and more specifically in India?
Our acquisition strategy is really focussed on three things—one is we are still looking for acquisitions in some parts of the world but that’s focussed predominantly on East Asia, particularly in countries like China and Japan, where we still need some critical mass. Secondly, we are looking for acquisitions in categories that we are already in or new categories in health and personal care, not in households because in households we think we have all the interesting categories already. In (healthcare and personal care) categories, we typically look for multinational brands, so we are not looking at local brands in one category. Our categories in FMCG industry are very much marked by global competition these days, and so we need to buy a minimum multinational business with a strong brand which is present in a number of countries.
Finally, if we could do another Reckitt Benckiser that will be fantastic, but that happens once every 20 years. Local acquisitions for India only are very unlikely. But international acquisitions where we also have a leg in India would interest us.
Is there going to be more push behind the Boots brands like Clearsil and Strepsils in India now?
The big difference between India compared to the rest of the world is that the transition took much longer here because we did not get all the franchises here immediately; there was a special legal construction here which meant a delay of 6-12 months for us to get the business and operations. So, will we look for revitalising Clearsil and Strepsils in particular going forward? I am sure we will, since they are part of our 18 power brands.
What’s happening to older brands like Brasso, Cherry, and Robin Blue? Are they being phased out?
What we are doing is disproportionately investing in our 18 power brands, but that does not mean we are getting out of the other brands.
But you have in the past cited shoe polish as a segment where natural obsolescence occurs …
It’s very simple. Why do we focus on 18 power brands and not on the other brands? For a very simple reason—growth is much higher in the 18 power brands because they are in high-growth categories where we have strong positions—it’s no more complicated than that. Why are we focussing on Vanish, Dettol, Veet, Harpic in India and not to the same extent on other brands in the portfolio? Because we can get disproportionate high growth in Veets and Harpics of the world. It’s not because we don’t like the other brands, but we are not going to invest as much in those brands as compared to the bigger growth opportunities. So it will be completely wrong to say we are getting out of the categories—we are not, we are just not investing.
Just to put it in perspective, on a global basis, we invest close to 13 per cent of our sales in media. Check the industry standard, and it’s somewhere between 6-7 per cent. So in my power brands, I invest more, while in my non-power brands, I invest as much as the industry average. That’s the big difference.
Why is Reckitt still largely a Dettol company in India?
Dettol is a fantastic franchise, there is no question about that but increasingly, we are putting new legs under the table. Other than Dettol, Mortein is a big brand, we have created Harpic, which has been a huge success. We have launched Veet (hair remover) and it is rapidly becoming the #1 brand in India in its segment. Vanish is creating a category essentially in the fabric treatment product, so we are creating new brands which are very sizeable categories in more established countries.
Among the products launched in India, which has the potential to become the next Dettol?
It’s a good question. I think there is more than one Dettol. We have substantial business opportunities on franchises—Vanish is a classic example. Vanish has the potential in my mind to become as large as Dettol. There are other franchises but it will take longer.
Reckitt has several food brands. Any plans of bringing them to India?
Food is a special business within our company. It is not the plan of our regular organisation to launch food products (in India). Food is not the focus of the company strategically going forward. For a very simple reason: We have enough opportunity in the 18 power brands that we want to commercialise and globalise. Also, we fundamentally believe that household and health & personal care are somewhat a better business to be in.
Instead of getting into more businesses, you are narrowing down your share of the wallet and getting deeper into the segments you already are in. Isn’t that a tricky thing to do?
We don’t have all the 18 power brands in India. We just have half the brands in India. Globally also we continue to focus on the 18 brands. Just to put things in perspective, seven years ago (the revenue share of power brands) was in the low-40s and today it is over 60 per cent. So we are concentrating more and more on a set number of brands. We are not expanding our categories and I believe that’s the key reason for our success. Rather than trying to get into more and more categories, (the idea) is to be really good in what we provide the consumers within a few categories.
Is that the reason why you are limiting yourself to launching not more than a couple of brands a year like you did last year, when Veet and Finish were launched?
We will have a limited number of launches. When you see one launch per year, that’s already a lot (laughs). Establishing a brand is a rather labour-intensive process. And on top of it, we try to make all of them a success.
While Reckitt is trying to concentrate on a certain number of brands and categories, its competitors are moving into its territory. Hindustan Unilever has made Lifebuoy an aspirational product, while your Dettol handwash is still focussed on the utility/benefit part of it. Is that a comfortable situation for you to be in?
If you are saying they are aspiring to be Dettol, I would agree with that (laughs). That’s the kind of aspiration they will have. I am very comfortable with our position. When you are successful, that attracts competition. That is also one of the reasons why we need to have a very tight focus on the 18 brands in the categories where we have been very successful is extremely important. For a very simple reason: we need tight focus in terms of making sure that we deliver on what the brand stands for. Here we still have quite a bit of work to do on Strepsils and Clearsils of the world which are quite successful franchises in some countries and I will say Boots did a so-so job with those franchises and there is a lot of upside potential by simply revitalising them and doing a decent job with them.
Is India as important to Reckitt as it is to Unilever?
In terms of turnover, not yet, but we are working on it (laughs). HUL is massively important to Unilever but we have a lot of work to make it as big as that. In terms of growth, it is extremely important. In terms of our developing markets (which is all the business outside Europe), it’s now approaching 20 per cent of roughly £5 billion turnover. Within the developing markets, India has recently (18 months ago) become the clear #1 country.
Everybody keeps talking about this massive market in India at the bottom of the pyramid. Is that something Reckitt is looking at?
The very bottom of the pyramid is not our focus area. As most of our portfolio is focussed on someone with higher disposable per capita income. What will happen over time as disposable per capita income rises in India, is that there will be more and more consumers interested in our products because they can afford them. We do not fundamentally alter the product inside for a very simple reason—the margin market consumer and an established market consumer don’t want different products. They want the same product, same top quality performance. It’s just that in a margin market, they cannot afford as much money for it as they can do in an established market. So you need to find ways to make it more affordable, which is typically the sizing and the pricing, or alternatively you take the packaging out to make the cost cheaper so you can charge slightly less for it.
In one of the interviews you have mentioned that almost 40 per cent of your revenues come from products launched over the last three years? Is that something Reckitt can maintain in the years ahead?
I think so. First of all, we have maintained that over the last seven years. Secondly, we have a very clear pipeline measurement process that determines innovation. A lot of people think innovation is all about being lucky. Innovation is not about being lucky, it is about a wellplanned measured process to make sure that the innovation you are going to launch will actually have a very high chance of delivering the business success that you want it to deliver. To maintain roughly 40 per cent of revenues on innovation based on our current pipeline, we definitely can sustain that.
The local FMCG market went through a pretty rough patch. How has it been with Reckitt in India?
In India, it is growing well ahead of even our developed markets and we have been growing in the low teens for the last 4-5 years, and India has been growing ahead of that. So I will say the management team has done a phenomenal job for the last five years.
What sort of vision do you have for Reckitt in India by 2010 or 2015?
The key thing that we will like India to be is a strong leader in all our power brands, and behind that creating much much larger business. We do not have aspirations to become the largest FMCG player in India, we simply want to focus on the things that we do well and to drive penetration among Indian consumers. There are tons of opportunities left simply to launch new brands.
Finally, is it true that you help clean up at home?
(Laughs) This is where I always get into trouble. I do not clean everything at home. What I do do is that before a lot of our products go into the market, I try them. I am not the only one who does it. Our executive team does that, too. We typically like to make up our own mind before we launch them in the market. We are very picky and we try to test the little details and that’s why I have all the new products in my house to compare them with the old products.
