beyondbrics

Tired of Brics? Looking for a new label for the emerging markets? How about Lapac and Rumea, the latest creations of consumer goods producer Reckitt Benckiser?

RB announced plans on Wednesday to reorganise its global operations to put more emphasis on EMs. Out goes the three-way division into Europe, North America and Australia, and developing markets. In come Ena (Europe and North America), Lapac (Latin America and Asia-Pacific) and Rumea  (Russia, the Middle East and Africa).  Will the new names catch on? We don’t think so.  But the message is clear – EMs matter.

RB revealed its reorganisation with its annual results for 2011, which showed a 9 per cent increase in adjusted net profits to £1,818m on total net revenue growth of 13 per cent to £9,485m. The final dividend was lifted 8 per cent to 70p (bringing the total 2011 payout increase to 9 per cent to 125p) – and  RB stock up 3.4 per cent to 3,498p.

Speaking to journalists, Rakesh Kapoor, the newish chief executive, promised to reveal full details of later on Wednesday of the new strategy, which as well as the geographical reorganisation involves a reorganisation of product lines into six categories – health, hygiene, home, portfolio brands – which are all “core” – and food and RB Pharmaceuticals – which are non-core.

Kapoor said the geographical reorganisation was driven by a focus on consumers. “The whole question of who we should manage this world isn’t decided by geographical boundaries or where oceans lie. We decided based on consumers.”

North American and European consumers’ habits were increasingly similar so it was logical to put together these two regions, said Kapoor.  The decision would bring opportunities to save costs – but he declined to specify where job cuts might fall.

As for developed markets, the group saw the world in terms of “consumer clusters” – with an “Arab cluster” of the Middle East, north Africa and Turkey; and a sub-Saharan Africa cluster, sitting alongside the four major clusters centred on the Brics – Brazil, Russia, India and China, said Kapoor.

These six clusters will be organised into the two geographical divisions – Lapac and Rumea, which currently account for 42 per cent of revenues. Kapoor said the target was to hit 50 per cent by 2016.

Kapoor rebuffed a suggestion that RB was slow in focusing on EMs, saying “we have a tremendous track record of growing in developing markets”.

The proportion of revenues coming from EMs would grow because “the centre of gravity both from the demographic and the economic point of view is moving that way”.

Separately Kapoor said in a statement:

We are creating two new Area organisations in emerging markets, instead of one. Additionally, we will merge the European and North American area organisations to form one Area. This will enable us to increase the speed, quality and consistency of our in-market execution and to drive cost savings.

 

Here is the group’s 2011 performance split on existing lines:

Source: RB

The numbers don’t tally with Kapoor’s 42-58 per cent split for revenues between EMs and developed markets because of differences in grouping countries. One reason, perhaps why RB has failed to get as much credit as it thinks it deserves for its EM operations, when compared with Unilever, for example, or Procter & Gamble.

The reorganisation will certainly allow RB to present its EM numbers more effectively. Whether it helps the underlying EM businesses to do better remains to be seen. As with all strategies, implementation is key.

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