What's Next for Reckitt Benckiser?

LONDON -- Reckitt Benckiser (LSE: RB.L  ) is a company I have long admired. It has a stable of great brands such as Vanish, Cillit Bang, Gaviscon, and a plethora of others.

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Reckitts is often compared to fellow consumer goods giant Unilever (LSE: ULVR.L  ) . Between the two of them, they sell some of the world's most famous brands. But Reckitt Benckiser is quite a different beast.

A culture of innovation
Unlike Unilever, which has a long and illustrious history, Reckitts is a young company. It was formed in 1999 by the merger of British company Reckitt Colman and the Dutch Benckiser NV.

The merged business was rapidly transformed by the brilliant CEO of the new firm, Bart Becht. Under his stewardship the company was one of the best performers in the FTSE 100, increasing in value some five times.

What impresses me about Reckitts is its culture of innovation. For me, the firm is the most innovative and creative of the fast-moving consumer goods companies. This is the key reason why it has grown faster than businesses like Unilever and Procter & Gamble.

The firm is a brilliant innovator, and an unrivalled marketer, and it ties the two together through a focus on consumer needs. The research and development process is both creative and relevant, and, crucially, there are no sacred cows.

First Powerbrands...
It is this "can do" attitude that has taken brands which looked tired and out of date and reinvigorated them. The company is constantly producing new variants and expanding product niches. The success of this process is clear: 35% of net revenue comes from products launched in the last three years.

In a world where the consumer is getting ever fussier and the competition between brands is getting ever fiercer, this ability to reinvent is becoming vital. What's more, the business focuses most of its attention on 19 "Powerbrands," which make up around two-thirds of net revenue. This gives the company unrivaled focus.

...and then Powermarkets
OK, so the company has done well up to now. But how can Reckitt Benckiser continue to outperform? Well, at the moment the company is going great guns in the developed markets of Europe and North America, but it has far less of a presence in emerging markets.

The numbers tell the story. Just 24% of Reckitt's turnover is from emerging markets, as opposed to 54% of Unilever's turnover. The next challenge for Reckitt Benckiser is clear: It must build a bridgehead in emerging markets and use this for the next stage of its expansion.

Perhaps it is more than symbolic that the business' new chief executive is an Indian. Rakesh Kapoor has created a whole new strategy to face this new challenge. He has identified 16 "Powermarkets" -- mostly emerging markets -- where the company will focus most of its investment.

A demanding goal
Kapoor has set an ambitious target: By 2016 he wants emerging markets to make up 50% of net revenue.

That is a demanding goal. Unilever's presence in countries such as India and Brazil has been built up steadily over many decades. Through this time, the company has developed a detailed understanding of the culture and needs of local consumers. Can Reckitts really match Unilever in just a few short years?

Well, we shall see. Clearly, the success or failure of this initiative will determine whether the firm's shares keep on rising. It's a tough ask, but if I had told you in 1999 that Reckitts' share price would be five times greater in little over a decade, you would have laughed me out of court. This company sets itself hard targets, but it tends to meet them.

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Prabhat does not hold shares in any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Procter & Gamble and Unilever. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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