INSIGHT: Global giants decide to call time on brands

There’s nothing like the back of a recession to clear out the cobwebs and focus the corporate mind. It’s no wonder, then, that an increasing number of global giants are looking to shed underperforming, often disparate business lines and focus on what they do best.

Procter & Gamble is the latest company to sell off its weakest link, offloading Pringles to Diamond Foods in April. Earlier last year, the same consumer product giant sold off its prescription-drug business for US$4 billion. Meanwhile, Sara Lee has explored a sale of its struggling North American bakery business, just as it sold off its household and body care business for $2 billion two years ago so it could focus on its food and beverage business.

Nirvik Singh, chairman and CEO of Grey Group Asia-Pacific, believes companies look at their portfolios every five to 10 years and reassess if the brands fit strategically with the main focus of its business. “These are merely periodic reviews,” he argues.

However, Ildiko Szalai, senior company analyst at Euromonitor International believes there is a very definite trend. “Strategies were put in place before the global economic downturn, and the unexpected depth of the recession has tested the resilience of the newly reorientated and leaner organisations.”

He points to Cadbury, which discontinued 10 per cent of its under-performing products to improve the company’s hard-pressed margins. “Heinz also announced plans to reduce its number of SKUs by a further 15 to 20 per cent; for each new product launched, the company removes two products from circulation,” Szalai points out.

The strategy behind these disposals is to help restructure the companies around their strongest business lines. The problem, of course, is that to sell one must also have a buyer. Take Motorola. It finally managed to sell off its networking equipment business to Nokia Siemens. But it took more than three years after embarking on a restructuring effort. Diamond and Pringles took over a year to seal the deal, too. Singh believes in the case of P&G, the company has been exiting the business for some time to concentrate, he thinks, on its high margin business. The fact that it took some time is just “a function of the acquisition — the buyers and seller want the best price.”

Scale is also a big reason behind these sales and acquisitions. The Pringles business will be combined with Diamond’s Pop Secret popcorns, Kettle crisps and Emerald nuts brands. Diamond, with its better supply chain that stretches across the globe, will be one way for the Pringles brand to expand.

Craig Briggs, MD for Asia at Brandimage points to GlaxoSmithKline (GSK) as a similar example.

“With GSK’s Lucozade it may also be a question of scale, not just that Lucozade is a little bit on the periphery of its brand circle of pharma/health. You also see that GSK is looking to divest a popular local brand, Dequadin. These brands lack a global scale and GSK may not be willing to make the necessary investments. You don’t see them divesting Panadol, which would be far more central to their brand constellation.”

Vladimir Djurovic, Labbrand MD, adds that clarity to the consumer is an important consideration if the sub-brands are associated with the mother brand.

“In some local markets like China, big groups are strategically acquiring local brands, as in L’Oréal with Mininurse or YueSai,” he says.

Lee Kien Choy, global brands director Southeast Asia for Euro RSCG says companies buy brands where they see high potential returns, such as P&G buying SKII — which is now one of the top-selling skincare brands in Asia. “And didn’t P&G start off with laundry detergent and shampoos?”

This article was originally published in the June issue of Campaign Asia-Pacific.