by Greg Thain
Relationships with Professionals
A unique feature of oral health is its health professionals, whom we visit on a regular basis in the normal course of caring for our teeth and gums. Bit in between such visits, we ourselves make our own purchasing decisions. A similar set of conditions applies when taking pets to vets Colgate’s absolute belief in the power of professional recommendations in driving new product and establishing long-term loyalty has reaped enormous dividends and been backed by considerable resources. The result: Colgate and Hill’s are far and away the brands most often recommended by dental and veterinary professionals.
In oral care, Colgate has implemented a 10-point plan to encourage this close relationship, offering guidelines on professional sales, sampling of new products, obtaining dental seals of approvals, having a high visibility at dental conferences, and establishing the annual Colgate Oral Health Month, an education programme which in 2012 provided the opportunity for dental teams to meet, discuss and review how they deliver evidence-based care, treatment and prevention messages to their patients. Hill’s Pet Nutrition programme has similarly close ties with the veterinary community.
The relationships are not all one way. Colgate salespeople visit dentists and vets on a regular Basis. Tours are arranged around the company’s respective Global Technology Centres for both groups. Insight and information are also in dialogue. Professional input is sought extensively in product and advertising development. In return, it is not unusual for the company to launch new products through dental and veterinary offices; Colgate Sensitive Pro-Relief toothpaste was first launched as a polishing paste in 2009 via meeting of the International Association for Dental Research. The consumer launch followed later in the year, a launch template that was rolled out in 45 countries. Colgate also courts professionals in emerging markets. 77% of dental professionals in Brazil, 81% in India and 85% in China recommend Colgate. Colgate is now the toothpaste most recommended by dentists in 37 countries, a depth of relationship exceptionally hard for a competitor to loosen.
Cost Control.
This might seem an odd choice as virtually every packaged goods company goes through reorganisations, restructurings, downsizing, SKU rationalisations, outsourcings and the like. But most do it in response to some real or perceived crisis. With Colgate, cost reduction is, and has been for many years, simply business as usual. The company has learned how to amalgamate cost-cutting with driving a business, moving far beyond slash and burn approaches and using creativity to find cheaper, better ways to do things.
These steady, on-going funding-the-growth initiatives have usually generated between $300 and $700 million in savings each year, a process aided by the company’s early and company-comprehensive embrace of SAP operating systems. add sweeping changes over manufacturing, logistics and sourcing strategies, while keeping operational sales and marketing structures largely constant, and you generate a steady stream of savings without diverting or disrupting sales and marketing. That Colgate-Palmolive has been able to grow its margin in recent years despite a cost price inflation that has severely affected all packaged goods producers has obviated the need for distracting changes of direction. Colgate-Palmolive is better poised than many to benefit when the recovery comes.
Summary
From that first day in 1928, Colgate-Palmolive has always been the underdog compared P&G and Unilever, at least in terms of size. To have survived and prospered in the face of such competition is testament to both sustained brand strength and sustained management skills. Apart from the one short and aberrational period in its life, and compared to P&G and Unilever, Colgate has remained more tightly focused in terms product categories and more expansive and imaginative in terms of geographical location. In doing so, it has established commanding positions that are the envy of the packaged goods world and without losing too many shirts in the process. Over the past twenty-five years, Colgate-Palmolive’s gross margin has grown from the mid 30’s to the high 50’s. Trading consumers up to premium products, divesting low margin businesses, acquiring high margin ones, developing strong brands that can support premium prices, and always keeping the tightest of grips on costs; those have been its highly successful tricks of the trade.
Given the strength of many of Colgate’s global market share positions, it may well now be immune from at least a P&G ambush, for anti-trust reasons at the very least. The company is surely the envy of, if not the western world, then certainly P&G and Unilever. Whether the company can retain this independence in an era when size, brand strength and emerging market exposure are the criteria by which all are judged remains to be seen. Once again, it will almost certainly be the emerging markets that eventually make the difference.
Danone
Where Did They Come From?
In 1905, Daniel Carasso was born in Thessaloníki, Greece, into a Spanish-Jewish family expelled from Spain by the Spanish Inquisition. By 1916, four hundred years later, Isaac Carasso, Daniel’s father, decided it was probably safe enough to come back: the family returned to Spain to live there permanently, in Barcelona. In the aftermath of the First World War, however, the city was not a pretty sight. Isaac was appalled by the plight of large numbers of the city’s children, suffering and dying from cholera and other intestinal disorders. He determined to do something about it, however little. As we shall see, a humanitarian determination has persisted in Danone to this day: it might well have been the making of the company.
Friends who were doctors had already told Isaac about the beneficial effects of eating yoghurt, a product then virtually unknown outside of the Middle East and Balkans, where it had been consumed for centuries. He had also heard of a parallel development: the then director of the Pasteur Institute in Paris, Ilya Metchnikoff, winner of the 1908 Nobel Prize in medicine for his work on the immune system, was also researching yoghurt. Having analysed countless yoghurts, he had managed to isolate the specific bacteria then use them to ferment yoghourt. Ilya too, interested in how yoghurt achieved its beneficial effects on the digestive system, arranged delivery of the cultures from Paris and began producing his own yoghurt in a small Barcelona shop. Searching for a name for his yoghurt, he plumped for Danone, an affectionate version of his little son’s name. It meant ‘Big Daniel’.
Danone yoghurt left Isaac with two problems. First, no one in Barcelona had ever heard of it and, second, even if they had, they were deeply disinclined to adapt their eating habits to include yoghurt. It was Isaac’s medical connections that came to the rescue. He toured the surgeries of his medical chums, pleading with them to prescribe a dose of yoghurt for any digestive problems they encountered, while he got the product listed in nearby pharmacies. Business, unsurprisingly, was initially very slow, but Isaac persevered and was finally rewarded when local food stores that carried dairy products began asking him for supplies in response to requests from customers who had presumably enjoyed their prescriptions. The product began to move, despite distribution problems: with no refrigerated transport, the yoghurt had to be delivered to shops almost as soon as it was produced, which limited its reach.
In 1923, Isaac sent Daniel to business school in Marseille, France. In something of a full circle, he then went on to study bacteriology to better understand fermentation, ending up at the Pasteur Institute, the source of his father’s original cultures. In 1929, Daniel combined his bacteriological and business training to set up Danone in France as a separate company to his father’s original in Spain. With his greater commercial acumen and a passion for marketing from his Marseilles business courses, it was obvious to Daniel from the beginning that there was no real future for yoghurt sold as a hand-delivered medicine in pharmacies. But as an appetising and health-giving treat mass production, mass distribution and mass selling techniques made it a very different matter. Daniel believed that yoghurt would have a very wide appeal indeed.
Yoghurt itself was as unknown in 1929 Paris as it had been in 1919 Barcelona, so Daniel’s first priority was to develop some
advertising, for which he leaned on a friend in the city’s biggest advertising agency. The advertising highlighted the beneficial effects of Danone yoghurt, but combined this promise with professional packaging and design, plus distribution across as many food stores as Daniel could persuade to take it. It was a mass-market product waiting to happen.
How Did It Evolve?
The company had been building quite nicely for Daniel until the German invasion of France dislocated first business and then Daniel. His Jewish background convinced him he would be a lot safer moving to America, which he did in 1941, leaving the running of Danone France and Danone Spain to two trusted long-time managers. A year later, in partnership with a Spanish father and son, he purchased a small factory in New York City and began producing again, this time under the name Dannon Milk Products, which Daniel felt Americans would find easier to pronounce.
Given the almost complete unfamiliarity with the product, business once again began slowly. The 200-jars-a-day output was restricted to migrant Turks, Arabs and Greeks who remembered yoghurt from their homelands, plus a handful of health fanatics. Sales as low as $100 a week still made Dannon New York’s biggest yoghurt company. In fact, big was very small indeed and the terrible sales turned the product into a national joke. After the war ended, Daniel returned to Paris.
In America, however, it wasn’t until 1950 that Dannon finally hit on the idea that would break yoghurt out of its US niche of immigrants and health faddists: put a layer of sweet strawberry conserve in the bottom of the pot and radically change the advertising. ‘Doctors recommend it’ changed overnight to ‘A wonderful snack … A delicious dessert’. By 1956, Juan Metzger, the junior Spanish partner, knew that they had finally broken through. Bob Hope made a yoghurt joke and nobody laughed.
By 1959, Dannon had annual sales in the United States of $3 million a year and was producing three-quarters of the country’s supply of yoghurt, but the company had slipped off Daniel’s radar; he was putting all his energies into the French businesses and, to a lesser extent, the Spanish. So when Beatrice Foods turned up with an offer to buy Dannon, the three partners agreed to sell, with Juan Metzger staying on to run Beatrice’s new subsidiary. Daniel had taken his eye off the Dannon America ball because Danone France, once up and running again after the war, had been going from strength to strength. But he had learned from the American experience, introducing first fruit-flavoured and then low-fat yoghurts, both of which did wonders for consumer appeal. At least as important was the increasing sophistication of the French retail trade, in which American supermarket-style formats with large chiller displays began to appear to keep pace with French refrigerator sales, which rose from7% of households in 1954 to 47% a decade later. This retail-to-home chilled infrastructure greatly increased the marketability of Danone yoghurts, before the war an essentially ‘consume immediately’ item.
In the late 1950s, Danone began building more factories to service the quickly rising demand, locating them around the country to get the best match between milk collection and finished product. However, the rapidly increasing sophistication of the French retail trade was a double-edged sword. Supermarkets had come quite late to the country, only appearing in the late 1950s, but the spread and then evolution of the format was very rapid, with the first Carrefour hypermarket opening in 1963. These large customers baulked at dealing with a plethora of local or regional dairy suppliers and were constantly encouraging Danone to get into other categories, such as fromage frais. More worrying to Daniel was the certainty that the same customers were also encouraging other dairy companies to get into yoghurt. The balance of bargaining power was quickly ebbing away from specialist dairy producers to the rapidly growing retailers.
The logical solution to this dilemma was consolidation of the dairy products industry, a process in which Daniel was keen to be predator not prey. So in 1967, Danone merged with the Gervais cheese company. Almost immediately, the newly merged company realised it had barely kept pace despite combining its resources; it could just as easily be held to ransom by the big retailers. Size and diversification were the answers. Gervais-Danone moved into pasta and ready-to-serve meals. Even so, the company was not really up to speed. The forthcoming enlargement of the European Common Market to include the United Kingdom., Ireland and Denmark meant Gervais-Danone needed to be bigger yet to compete effectively. The solution came, not as might have been expected from a competitor, but from one of its suppliers.
BSN was a supplier of glass bottles to Gervais-Danone. BSN itself was the result of a 1966 merger between France’s largest manufacturer of flat glass, Glaces de Boussois, and a leading maker of bottles, Souchon-Neuvesel, an interesting company that in 1914 had the inspired idea of buying a 25% stake in the Evian water company. Evian was key buyer of bottles and then became one of France’s top baby food companies (more glass bottles). Even though the bottle business was booming - the shift away from large, returnable bottles to small throwaway ones and huge sales growth in water and beer had seen to that - BSN was and Gervais-Danone were facing the same problems, as Common Market expansion big fish in small ponds into small fish in very big ones. Two revolutions sweeping through the glass industry would also sideline BSN’s size if not addressed: the switch to throwaway was opening up the market to competitors in cheaper materials such as plastic; in the plate glass business, Pilkington’s invention of the float-glass process was making everything else obsolete almost overnight. BSN had done its merger. But like Danone, it still needed size and diversification.
The most logical solution was more consolidation in the packaging industry, so in 1968 BSN launched a takeover bid for one of France’s oldest companies, Compagnie de Saint-Gobain, a huge conglomerate with over 150 subsidiaries, largely in the industrial glass and fibreglass markets. Fortunately for BSN, the bid failed, which reminded the BSN Chairman, Antoine Riboud, of a U.S. visit he had made to Illinois Owens, the world’s largest glass packaging manufacturer. Riboud remembered that the company strategy had been to diversify from glass into other packaging such as cardboard, metal and plastics. But with glass, sand, the principal raw material, was inexpensive and available in effectively infinite quantities, while the value added by turning it into glass bottles was very substantial. Plastic bottles’ principal raw ingredient was petrochemicals, whose price was prone to wild fluctuation and in any event demanded structure and expertise BSN didn’t possess. Riboud felt that this sort of diversification was the wrong strategy for BSN
But BSN’s stake in Evian got Antoine thinking; there was much more money to be made by filling your own containers than making empty ones for someone else to fill. So, when the opportunity arose in 1970, BSN took over full control of Evian and bought Kronenbourg and the Société Européenne des Brasseries. Overnight, BSN became the national market leader in the water, beer and baby food categories, all three of which were big buyers of glass bottles: from BSN.
To run its new foods company, BSN brought in Francis Gautier, a packaged goods specialist and previously CEO of Colgate-Palmolive France. Meanwhile, it continued to expand its glass business, buying companies in West Germany, Austria and Belgium. It now enjoyed an almost 50% share of the European flat glass market. But its continuing interest in the glass market, BSN had become a quite different company; it was now a vertically integrated food and beverage company that simply made its own containers – whilst selling them to others, of course.
The problem BSN faced was that there were few container-filling food companies worth buying. The French packaged food industry had not evolved in line with French retailing. It was highly fragmented, essentially made up of thousands of small to medium-sized family-run concerns notable for their long-term lack of innovation and capital. Gervais-Danone was one rare exception. By 1972, it was France’s largest food business, turning over two billion francs in the nation’s chiller cabinets and grocery aisles, significant exports within the Common Market. Gervais-Danone ticked most of the boxes on BSN’s checklist:
&
nbsp; · BSN’s own food business was too small to compete in the Europe-wide market. Organic growth would be slow or non-existent, so acquisition was the only viable route
· Gervais-Danone was a substantial buyer of glass bottles
· Danone yoghurts and the Gervais cheeses were market leaders
· The company had an international presence
· It was big enough to fulfil BSN’s food expansion ambitions in one transaction, obviating the need for a plethora of small purchases
It was a marriage made in some sort of corporate Heaven. In 1973, the two companies merged into BSN-Gervais Danone. Food accounted for 52% of the new company’s sales.
The logic of BSN’s move was vindicated almost immediately. The 1973 oil crisis, with its surging energy costs and the industrial contraction that followed created tremendous difficulties in its plate and bottled glass businesses driving, the whole company into the red in 1975 for the first and only time in its history. It was only the revenues from the food business that bought the time and provided the resources to restructure its two glass businesses. Both moved into profit by 1979, but not before closing all the existing glass factories and replacing them with five new float-glass plants operating on a license from Pilkington.
The business may have once more been on an even keel, but it was clear that thanks to the licensed Pilkington technology, its processes had diverged so dramatically that there were now no synergies left with the rest of the business. The plate glass business, now modernised, profitable and thus saleable, was disposed of in two tranches, first the businesses outside France, and two years later the remaining French assets. The company was now wholly focused on food. Its glass bottle business essentially became a vertically integrated add-on.
