Reckitt CEO on shrinking FMCG portfolio

For decades, the big CPG companies that make everything from toothpaste to deodorant and condoms have built empires with disparate product lines as a way to compete with rival conglomerates. But these organizations are now narrowing their focus by shedding mature, low-margin businesses.

“Brands are our lifeblood,” Licht, a Dane who took over as CEO last year, said recently. wealth at Reckitt’s headquarters in Slough, a hamlet near London’s Heathrow Airport. “What is a power brand? It’s when you have a very big brand that enjoys a very high level of trust.”

Such brands offer higher profit margins at a time when some categories have become so crowded that companies have lost much of their pricing power. But a powerhouse brand is also one that has plenty of runway left and can grow into new markets. This saves CPG companies the expense of acquiring a brand or building one from scratch.

In the first half of 2024, Reckitt’s like-for-like sales rose just 0.8%, adding urgency to the need to focus on faster-growing brands. But the company’s renewed focus on its best-performing products is also a response to activist investors pressuring its peers to scale back their offerings. Eminence Capital took a small stake in Reckitt last May, seeing potential in higher margins but stopping short of pushing for a management shakeup. These investors are likely guided by the success of more focused portfolio companies in different sectors, such as L’Oréal in beauty or Danone in food.

“I don’t think we’ve always been clear enough about what it takes for something to belong or not belong,” Licht says of the company’s offerings. “And I think being clear and being disciplined is really important because that’s how we should allocate capital and how to maximize value creation for the company.”

Removing weak marks

Reckitt’s powerhouse brands include Mucinex cold remedy, Durex condoms, Dettol and Lysol. Those star players are up about 7% per year. Last week, Bloomberg reported that Reckitt is looking to offload home care brands such as Airwick air fresheners and Cillit Bang cleaners in a sale Bloomberg estimates could fetch nearly $7 billion.

The company is also looking to divest Mead Johnson, the infant formula business it bought for $17 billion in 2017 and for which it has already taken a $5 billion write-down.

Licht emphasized to wealth that brands like Mead have the potential to thrive, but under different owners willing to spend money to revitalize them. He added that it was a good deal despite the lower global birth rate. Reckitt does not want to invest in the R&D needed to boost the brand, largely because Mead Johnson’s products are so different from the rest of Reckitt’s portfolio.

“This doesn’t mean they can’t grow in the future,” says Licht. “There is an opportunity to do and innovate a lot in this space.”

Collect more Power Tokens

The CPG industry seems caught in a cycle of buybacks, followed by losing brands amid too much bloat — and then all over again.

The sector is currently in a “thinner is better” phase. Over the past year, Unilever, under pressure from investors, sold Dollar Shave Club, maker of its Elida Beauty Q-tips brand, and is looking to sell its ice cream division that includes Ben & Jerry’s.

Licht joined Reckitt in 2019 as chief transformation officer after stints at PepsiCo and McKinsey(/hotlink. His mandate at Reckitt was to help turn around a struggling company. Now as CEO, he says getting more mileage out of Reckitt’s existing brands is key to faster, more profitable growth. He points to Lysol indoor air sanitizer, which launched last year and is repurposing an existing brand, as an example of getting more money. for research and development than if it had started from scratch.

Licht’s resume makes him prime CEO material. Its university (hotlink) McKinsey and PepsiCo are known as academy companies for all the training they provide to their high-potential executives; are among the largest producers of executives who become CEOs of Fortune 500 companies.

And now that Licht is at the helm, he wants Reckitt to become more of an academy company. “It was a deliberate exercise, a significant investment honed over many years,” he said of PepsiCo’s leadership in cultivating top executive talent.

“We’ve been on a journey to strengthen our internal talent development capabilities, but I don’t think we’ve yet reached the levels of excellence that PepsiCo has. We should aspire to get there.”

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