CONSUMER CARE

A Hard Fight for Henkel

kasper2
Fighting hard for shelf space.
  • Why it matters

    Why it matters

    To counter problems in the United States, Henkel managers successfully campaigned with big retailers to devote more shelf space to new brands from Germany.

  • Facts

    Facts

    • The Henkel Group sells laundry, cosmetic and adhesive products and competes with Procter & Gamble and Unilever.
    • In 2014, North American sales shrank about 3 percent to €2.9 billion, adjusted for currency effects and acquisitions.
    • After launching its U.S. products offensive, Henkel boosted sales in North America through the first nine months of 2015 by 30 percent to €2.8 billion.
  • Audio

    Audio

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For 200 days a year, Kasper Rorsted usually travels on business somewhere in Henkel’s consumer goods empire.

This year, though, the head of the Düsseldorf-based giant did not figure on spending more than two months in the United States.

It didn’t quite work out how he planned.

Through 2015, the 53-year-old Dane crisscrossed the United States, fighting for shelf space and battling a fierce pricing war.

He flew repeatedly from Henkel’s North American headquarters in Connecticut to its detergents and cosmetics offices in Scottsdale, Arizona, to its U.S. hair products base in the Los Angeles area to bring new shampoos and detergents to American shoppers.

In between, Mr. Rorsted tried to keep investors in New York and Boston happy and met with big retail executives such as Walmart’s chief executive, Doug McMillon, in Bentonville, Arkansas.

“Since spring 2014, there was almost always a board member in the United States. For us it was clear: the United States is where our highest revenue is, so we have to be successful there.”

Kasper Rorsted,, Henkel Group chief executive

The DAX-listed conglomerate sells consumer and industrial goods in three areas: detergents, cosmetic and adhesives. Its cornerstone brands — such as Persil laundry detergent, Pril dishwashing liquid, Pritt adhesives and Schwarzkopf hair care products — are global brands.

But troubles in the U.S. market have been so critical, Mr. Rorsted said, that top Henkel officials were constantly dispatched to deal with challenges there.

“Since spring 2014, there was almost always a board member in the United States,” he said in an interview with the German business weekly WirtschaftsWoche. “For us it was clear: the United States is where our highest revenue is, so we have to succeed there.”

In 2014, North American sales shrank about 3 percent to €2.9 billion, adjusted for currency effects and acquisitions. Operating results fell about 15 percent. Henkel introduced innovative products to its largest single market, but was hampered by questionable management decisions amid a fierce price war fought in coupons with competitor Procter & Gamble.

The losses in the U.S. rankled especially because of long-term goals Mr. Rorsted had set for 2016. By the end of next year, Henkel Group shareholders will measure how well the chief executive fulfilled his plan. Will he increase the group’s sales to €20 billion – half from emerging markets? And will he raise profit per share on average each year by about 10 percent?

At the end of 2015, Henkel might have €18 billion in sales — so without further acquisitions, the €20 billion mark will be barely reachable.

Since Mr. Rorsted took over in 2008, earnings per share have risen an average of 12 percent per year. But sales have not grown as quickly.

 

kasper
Ready for takeoff in emerging markets. Source: Chris Ratcliffe/Bloomberg

 

After the third quarter, Henkel had to lower its sales forecast for 2015 but at the same time raised its earnings-per-share growth estimate. For the whole year, Henkel will only grow about 3 percent, largely because of weakness in the Chinese economy. Up until now, Henkel had dared to predict a plus of up to 5 percent.

“We are very confident that we will reach our most important goal of average 10 percent profit growth each year – if there is no dramatic currency turbulence or crisis in 2016,” said Mr. Rorsted.

Mr. Rorsted spelled out how he plans to put Henkel back on the track in North America and China. He also talked about his hopes for the “One Global Supply Chain” project, called OneGSC for short, in optimizing operations across the group.

In the future, purchasing, production and transportation for the detergent, cosmetic and adhesive divisions will be controlled worldwide under one SAP software platform. The lead for the project, which Henkel has already invested hundreds of millions of euros on, will be taken over by a new subsidiary with some 180 employees in Amsterdam.

The program should bring savings in procurement and faster delivery to consumers, said Mr. Rorsted. According to the plan, warehouse stock would be reduced and Henkel would be able to a react more quickly to changes in demand around the world.

“Without such a global overview, you cannot control a company successfully in the long term,” said Mr. Rorsted.

He also said he wants to open a branch of OneGSC in Singapore, to react better to possible problems due to time differences.

The IT platform, however, will not reach its complete impact until 2018 at the earliest.

Henkel couldn’t wait that long in dealing with the U.S. market, where it has introduced Persil laundry detergent and Schwarzkopf hair products — two brands new to the country. “We needed a larger product offering in North America,” Mr. Rorsted said.

Two board members, Hans van Bylen of the cosmetics division and Bruno Piacenza of detergents, spent months in talks with managers at Walmart, the world’s largest retailer and for years Henkel’s biggest buyer.

Parallel to those talks, Mr. Rorsted replaced almost all of U.S. management. That included the two highest leadership teams — from the president of North American operations to the head of U.S. consumer business. According to Mr. Rorsted’s guidelines, management in the United States now consists primarily of Americans.

 

152 Henkel-WTB resume 2014

 

By the end of 2014, Henkel managers had convinced Walmart to put Persil and Schwarzkopf products on its shelves. Henkel offered the retail giant its Persil Pro Clean brand, developed exclusively for the U.S. market. In return Walmart made ten percent of its shelf space available.

The big loser was U.S. consumer goods giant Procter & Gamble, whose premium laundry detergent Tide has dominated the U.S laundry detergent market for decades.

P&G responded with lower prices and other deals. Henkel countered with free-trial packages and a digital ad campaign in cooperation with Walmart on Facebook.

Then last summer, Persil received a dose of good news from Consumer Reports magazine, which chose the German brand as its top tested detergent.

Now Henkel is also going into national marketing with other big retailers. In addition to 4,300 Walmart stores, Persil is now also available in Kroger, Meijer, K-Mart, CVS and Rite Aid stores.

“By the end of the year, we will have a market coverage of more than 50 percent in the United States,” Mr. Rorsted said.

Meantime, Schwarzkopf products also received a U.S. boost. The hair care brand is Henkel’s biggest money maker but had only been sold in hair salons. Now it is sold exclusively at Walmart.

As a result, Henkel is gaining sales in the United States, but not yet profits. Introducing the new brands and advertising them cost a lot of money. That will affect earnings before interest and taxes, Mr. Rorsted said. Industry experts expect efforts in the U.S. market, including the price war with P&G, will weigh on the profit margin at least until the end of 2016.

Henkel’s China business is a whole different question and Mr. Rorsted clearly cannot exert as big an influence there as he has in the United States.

“The country is undergoing radical change, away from industrial manufacturing and toward services and business,” said Mr. Rorsted. “Our industrial adhesive business there is slowing down, while the cosmetics business is still growing in the double digits.”

He expects that adhesive products stock will be decreased by mid 2016 due to low demand. “Then we expect a normalization – perhaps to a lower level, but still above the worldwide economic growth,” said Henkel’s chief.

For now he sees no reason to change Henkel’s course in China.

“We are committed to long-term investments, such as building a new headquarters and research and development center,” Mr. Rorsted said. “But naturally we will adapt to our variable costs and respective market developments for the short term.”

Mr. Rorsted began cutting 1,200 jobs in the adhesive sector last summer, and that should be complete by April 2016.

In the third quarter, Henkel fared better with the cooling Chinese economy than analysts expected. Mr. Rorsted raised the profit goal for 2015 and the stock market responded with Henkel’s biggest share price jump in five years.

Mr. Rorsted’s contract runs through 2017, and he apparently will fulfill it. But whether he will begin work on a new four-year strategy is unclear.

But where next for the dynamic Mr. Rorsted? He’s been mentioned in the context of several CEO posts, most recently as successor to Herbert Hainer at Adidas. His travel habits would barely change if he took the job at the German sporting goods maker. Like at Henkel, North America is Adidas’ most important foreign market.

 

This article originally appeared in German business weekly WirtschaftsWoche. To contact the author: mario.brueck@wiwo.de.

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