FMCG
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All regions and product sectors contributed to the growth. Laundry and Home Care returned to positive organic growth at more than 3%, driven by Eastern Europe and Russia in particular, where Henkel was a strong number two, and in other key emerging and developing markets such as India, China, Turkey and Mexico. Henkel gained share in a sluggish European market. The Dial acquisition meant that the company generated more Laundry and Home Care sales in the US than in any other country. Laundry growth tended to be promotionally driven, while Home Care sales were less price-sensitive and driven more by innovation. Within Laundry and Home Care, marketing was conducted on a mostly global basis with distribution managed regionally. Within Europe, grocery chains and drug stores were key distribution channels, whereas outside Europe and North America the company relied mostly on wholesalers and distributors.
Cosmetics and toiletries had a more sluggish year, generating organic growth of just over 1%, almost entirely down to expanding distribution in Eastern Europe. New products such as Poly Color Revital Farbcreme, Taft LYCRA and Fa Yoghurt shower gel all got off to good starts. Henkel’s hair salon business, currently number three in the world, was seen as a significant growth opportunity. Within this category, marketing strategies were planned and implemented globally, with distribution handled at a national level through specialist drug stores, multiple grocers and department stores. The salon business was served by a dedicated sales force supported by training and seminars at the 43 Schwarzkopf Academies around the world.
The consumer and craftsmen adhesives business grew organically by 5%, again largely due to big increases in Eastern Europe, a success the company planned to extend to Asia, Latin America and the Middle East led by new lines such as Pritt Easy Start adhesive tape. Distribution for the consumer side was focused on supermarkets, DIY stores and specialist retailers with the Tradesmen operating through specialist retailers. Henkel Technologies relied on direct customer relationships.
Henkel set itself two future goals: to increase the share of business from emerging markets to 30% by 2008 and to increase the share of business from innovation in any three-year period from 25% up to 30%. To help this latter goal, Henkel declared 2006 to be its ‘Year of Innovation’, expecting all employees to chip in with ideas. In Laundry and Home Care, multifunctional, interdisciplinary, international teams – InnoPower Teams – had been formed for each product sector charged with creating tomorrow’s innovations. Meanwhile, next week’s innovations were coming from the Central Research Group in areas such as superior bleaching capability and nature-imitating nanotechnological actives for toothpastes to repair sensitive teeth.
2006
The Year of Innovation - 67,000 ideas submitted, more than one for every employee and 20% next-stage approved – was such as success that the scheme was extended to a three-year programme and a Henkel Innovation Trophy was instigated for an open innovation programme. Innovation was also at the heart of a much-improved sales performance. Although reported sales only increased by 6.4% – half the 2005 level – in 2006 there was a neutral effect from acquisitions and disposals, meaning that organic growth had risen to a very healthy 6%, assisted by tailwinds from stronger economies and the ability to push through price increases. There were double-digit sales increases in the targeted markets of Eastern Europe, the Middle East, Africa, Asia-Pacific and Latin America. Within the product sectors, growth was due to the combination of price increases on existing lines and innovations such as Dial for Men, the Pritt Pen Roller and Somat 7, the world’s first dishwasher detergent with seven functions,.
Significant events in the year were the acquisition from Gillette of the Right Guard, Soft & Dry and Dry Idea brands, the acquisition of Tunisia’s leading hair care company, the expansion of the Shanghai research facility to cover all four product groups and the transition of Henkel’s cellular biology research company to work on skin research with the brief of developing an alternative to animal testing.
2007
While sales only advanced by 2.6% to just over €13 billion, underlying sales almost kept pace with the previous year at over 5.8%, where more than 4% was due to volume gains thanks to a dramatic increase of innovation throughout all the product ranges. The most significant change was the reformulation of Persil with a unique active stain remover to mark its centenary, new packaging for the liquid version and new design graphics. The new Persil was part of a ‘Best Ever’ re-launch of all Henkel’s premium detergents in Europe that led to a significant gain in market share, both from competitors and from private label.
Sales in North America were stagnant, as gains in cosmetics and toiletries from the successful integration of Right Guard were wiped out by the dramatic decline in the US automobile industry, which hit sales in Adhesives Technologies hard. The targeted growth regions of Eastern Europe, Africa, the Middle East, Latin America and Asia (except Japan) collectively posted an organic sales increase of over 15%. By now Henkel had 52 production sites around the world, the largest still in its Düsseldorf home. For large-volume products such as detergents, Henkel’s policy was to operate with production sites as close to the markets as possible to minimise transportation costs and the associated environmental impact. With more compact products, such as glue, the strategy was to produce at central, highly automated plants on a regional if not global basis.
The increased emphasis on R&D was visibly bearing fruit, albeit at the level of expenditure – 2.7% of sales – as had been the case for the past several years. The corporate research laboratories in Düsseldorf, Darmstadt and Lizuka, Japan were beavering away in the development of more optimised detergent enzymes for manufactured through a fermentation ‘white biotechnology’ process. At the operational end, the company’s Research/Technology Invention Awards went to projects including a new enzyme for liquid detergents that performed better in cold washes than anything else on the market and active ingredients that combated the hair ageing process. In addition to the reformulated Persil, other innovations launched in the year included Purex Natural Elements and the new Fa Natural & Pure body wash, both made from natural ingredients. Henkel’s future goal was to become the clear innovation leader for each category in which it competed.
2008
In the year the economic crisis really took hold, a sales increase of 8% to over €14 billion looked amazing at first glance. But a second glance revealed that virtually all of the increase came in the Adhesives Technologies, following the acquisition of National Starch’s Adhesives and Electronic Materials businesses for €3.7 billion, increasing the size of Henkel’s division by around one-third. A third glance redressed the balance, however.
While the top-line sales of both laundry and home care and cosmetics/detergents barely moved, in underlying sales terms they were a much more impressive at over 3.8% and 4.7% respectively, and gaining market share in both categories, whilst Adhesive Technologies now shouldering the full impact of the US automotive’s near collapse and losing 3% of its volume. Both laundry and home care and Adhesive Technologies had introduced significant price increases in the second half-year in response to surging raw material costs, while cosmetics and toiletries had ridden the storm, relying more on innovation-driven growth. The price increases, together with the worsening economic conditions, produced a slowdown of the company’s volume performance, up at the half-year by over 3%, but with volume declines in all three sectors in the second half. Emerging markets – those ever-trusty performers - again grew by double digits, increasing the share of company sales from 26% in 2004to 37%. Henkel now enjoyed number-one positions in over 100 country product categories.
Partly in response to the economic slowdown, the year also saw the development of a new strategy, which highlighted three strategic priorities:
· Achieve full business potential
· Focus more on customers
· Strengthen the global team
· In practical terms, the key elements of the strategy were as follows:
· Achieve Full Busin
ess Potential
· Optimise the portfolio
· Increase profitability in the mass categories of heavy-duty laundry and hand dishwashing products while driving growth in the profitable speciality categories
· In cosmetics/toiletries, strengthen innovation leadership and expand the Schwarzkopf brand
· Concentrate on top brands
· Increase sales of the top three brands (Schwarzkopf, Persil and Loctite which account for 25% of sales) twice as fast as company average
· Innovation
· Only launch new products if they increase the average gross margin of the product sector concerned and make a positive contribution to sustainable development
· Operational Excellence
· A reduction in the number of production sites in mature markets
· Concentrate on strategic suppliers and on procurement from low-wage countries
Focus More on Customers
· Generate organic growth with key accounts 1.5 times the figure for total Henkel
· Strengthen Global Team
· No specific targets set
As the scale of the unfolding economic crisis became increasingly apparent, an increased focus on the cost base had already begun in February 2008 via Henkel’s Global Excellence restructuring programme, on which it spent €500 million in 2008 alone. It had already dissolved the central research division, whose various staff and functions were allocated to one of the three operating business sectors to reduce innovation time-to-market. Research also had to incorporate 500 R&D staff from National Starch and bring get its new, 2007-opened Shanghai facility up to speed. The product innovation venet of the year had been the use the Purex Natural Elements success to introduce a new brand, Terra Activ, with offerings in five product segments.
2009
As expected given 2008’s second half downturn, the first half of 2009 was tough. Organic sales were down over 6% against a strong period in the previous year. In the second half-year, Henkel’s organic sales almost matched the slowdown level of 2008, pushing total performance for the year down by 3.5%. Overall top-line sales for the year hit just over €13.5 billion, a decline of 3.9% when currency movements and acquisitions/disposals were factored in. The culprit once again was the industrial side of Adhesive Technologies, where widespread and wide-ranging decline in industrial production reduced demand for adhesives and speciality products, and led to a decline in organic sales of over 10%. In contrast, and all things considered, the consumer side was doing very well, growing organic sales in laundry and home care by 2.9%. Cosmetics/toiletries were doing even better, growing by 3.5%. Both sectors achieved record European market shares.
As per the new strategy, growth was largely being achieved in two different ways: by price in detergents to increase margins and by volume in cosmetics/toiletries. In the regions, performance followed the relative weighting of the Adhesives Technologies sector: North American sales decreased organically by 8.6%, Europe/Africa/Middle East were down by 1.9%, Latin America grew by 5%, while Asia-Pacific was anomalous in declining by 5.8%. Gains in cosmetics/detergents were more than wiped out by the company’s decision to quit Chinese laundry and home care operations in China, where both P&G and Unilever were already firmly entrenched along and several rapidly growing local players had begun to establish themselves. Henkel compensated for this strategic retreat in South Korea, where it moved into laundry and home care on the back of its acquired position as market leader in the household insecticides category.
Henkel was gaining market share in its consumer categories primarily because of the very strong innovation programme, much accelerated in recent years: sales from new products in laundry and home care and cosmetics/toiletries launched in the previous three years had now reached over 40%. The Western European big news in the year was the launch of ArcticPower Persil, a detergent that required only half the usual dosage and cleaned at full power in water at only 15 degrees Celsius. As a follow-up came the re-launch of Somat 7 as Somat 9. Two new functions had been added: an odour neutraliser and an extra-dry function. In the US, Purex Complete 3-in-1 laundry sheets were a combined detergent/fabric softener with anti-static functionality. Dial Anti-Ox body, with cranberries and antioxidant pearls, was the most successful launch in its category, whilst Right Guard Fast Break was Henkel’s extension of its newly-acquired brand. In another first, the Schwarzkopf Essential Color was Henkel’s first permanent colourant without ammonia. And as with most of its competitors, Henkel was enthusiastically embracing open innovation by launching a number of special projects with Japan’s top universities.
2010
As global trading conditions improved, Henkel bounced back in spectacular style, growing top-line sales by 11% to over €15 billion, underpinned by a 7% organic growth without currency effects and acquisitions/disposals. All three sectors grew, albeit at differing levels: laundry and home care by 1.5% in a shrinking market, cosmetics/toiletries by 4.8%; and Adhesive Technologies by nearly 12% and all three improved their market share. Company sales had again grown by double digits in the targeted emerging markets growth region, more than 19% for the top line and over 12% organically: the region now accounting for 41% of sales, targeted to rise to 45% by 2012. The overall company growth was in fact more than totally due to a volume growth of 8.5%: net prices had declined by 1.5%. Henkel had found, as had many other companies, that price increases taken in the depth of a recession were warmly embraced by consumers.
Within the product sectors, price deflation had been strongest in the laundry and home care category, where much of the 2009 prices had to be rolled back. But an average price drop of 4.2%, had beneficial effects on volume, which increased by nearly 6%, and produced Henkel’s largest revenue rise in the Western European region since 2007. Eastern Europe did well thanks to the launch of Persil Gold Plus Cold Active and Africa/Middle East posted a double-digit increase, partly to the expansion of sales in Saudi Arabia. The one disappointment was North America, where tough market and pricing conditions led to significant sales decline. The same pricing/volume and regional sales patterns also applied to the cosmetics/toiletries sector, where average prices declined by 0.9% as volumes rose by nearly 6%, with North America the only region to post a volume decline, although the market share improved. Adhesive Technologies had kept its prices were static and volume increased by nearly 12%, much helped along both led by industrial recoveries and by the launch in the consumer sector of Loctite Power Easy, an odourless, solvent-free instant adhesive that avoided the perennial hospital emergency room filler of instantly glued body parts. And by the end of the year, the integration of the National Starch businesses had also been completed.
The focus on top brands was clearly paying off. The top-ten brands in Laundry and Home Care now accounted for 81% of sector sales while the top-ten in cosmetics/toiletries accounted for 89%, led by Schwarzkopf, the company’s largest and fastest-growing brand at €1.8 billion, up from €500 million in 1995.
2011
The change to a more sedate top-line increase of over 3.4% was due more to currency movements than anything else, as underlying organic growth had declined only slightly to a still impressive plus 5.9%. This increase was split almost evenly between volume and price as market conditions eased enough for selective price increases to be pushed through both in laundry and home care, where the 3% growth was split evenly between the two drivers, and particularly in Adhesive Technologies, where nearly two-thirds of the 8.3% organic growth was down to pricing. All cosmetics/toiletries 5.3% growth was volume, reflecting the greater momentum Henkel had enjoyed in this category for some years. Once again, much of the growth came from the emerging markets, up by the usual double digits and mainly thanks to Adhesive Technologies and cosmetics/toiletries. Underlining the company’s increasing interest in this region, the construction of Henkel’s largest adhesives factory had also begun in Shanghai. Company top ten brands now made up a good 42% of sales which, given these heavily branded and highly re
cognizable products’ better margins, had powered a double-digit increase in company earnings.
In the laundry and home care sector, 41% of sales once again came from innovations or product extensions launched in the previous three years: Persil Black, for example, a detergent especially for black and dark clothes launched in Central Europe, and Somat 9, which had been morphed into Somat 10 thanks to a faster-dissolving ‘immediate-active formula’. The results were a strong volume gain in Western Europe, while in Eastern Europe, particularly Russia and Turkey, double digit growth was also accompanied by improved market share. Even the difficult US business rebounded, growing sales and share slightly in a still declining market. Asian organic sales increased only slightly, but they had been hampered by Henkel’s exit from the Philippines’ market late in the previous year, although the launch of Persil in South Korea undoubtedly more than mediated the loss. Latin America continued to grow strongly. Persil was launched in Mexico. Mega-Caps – water-soluble capsules of concentrated laundry liquid - was newly launched in Western Europe, even as the US got its first taste of Purex crystals.
Cosmetics/toiletries was now up to a 43% innovation rate, impressive by any standards. It was the key reason for the consistent, year-on-year improvements in market share in all the main product categories: hair cosmetics, hair colorants, body care and hair salons, once again with the strongest performance in the emerging markets. Adhesive Technologies’ more sedate innovation rate of 30% could be put down to the longer lead times involved in developing its industrial client base’s customer-specific solutions.