British packaged goods manufacturer Reckitt is slimming down its array of products and focusing on what CEO Kris Licht calls “power brands,” in the latest example of a trend taking over the consumer packaged goods industry.
For decades, large CPG companies that make everything from toothpaste to deodorant and condoms built empires with disparate product ranges 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, recently told Fortune 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 large brand that enjoys very high levels of trust.”
Such brands offer higher profit margins at a time when some categories have become so crowded that companies have lost a lot of their pricing power. But a power brand is also one that still has a lot of runway left, and can grow in new markets. That spares CPG companies the expense of acquiring a brand, or building one from scratch.
In the first half of 2024, Reckitt’s comparable 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 slim down their offerings. Eminence Capital took a small stake in Reckitt last May, seeing the 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, like L’Oréal in beauty or Danone in food.
“I don’t think we were always clear enough about what exactly it takes for something to belong or not belong,” Licht says about 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 we maximize the value creation for the company.“
Culling the weak brands
Reckitt’s power brands include Mucinex cold remedy, Durex condoms, Dettol and Lysol. Those star players have been growing about 7% per year. Last week, Bloomberg reported that Reckitt is looking to offload homecare brands such as Airwick air fresheners and Cillit Bang cleaners, in a sale Bloomberg estimates could yield almost $7 billion.
The company is also looking to shed 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 stressed to Fortune that brands like Mead have the potential to thrive, but under different owners willing to spend money to revitalize them. He added it’s a good business despite lower global birth rates. Reckitt doesn’t want to invest in the R&D needed to boost the brand, in large part because Mead Johnson’s products are so different from the rest of the Reckitt portfolio.
“This doesn’t mean they can’t grow in the future,” says Licht. “There’s an opportunity to make and innovate a lot in this space.”
Squeezing more out of ‘power brands’
The CPG industry seems trapped in a cycle of buying sprees followed by the shedding of brands amid too much bloat—and then starting all over again.
Currently, the sector is in a “slimmer is better” phase. In the last year, Unilever, under pressure from investors, has sold off Dollar Shave Club, the maker of its Q-tips brand Elida Beauty, 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 remake a company that had become unwieldy. Now as CEO, he says getting more mileage out of Reckitt’s existing brands is key to faster, more profitable growth. He points to the Lysol indoor air sanitizer, which launched last year and repurposes an existing brand, as an example of getting more bang for its R&D buck than if it were starting from square one. </p> <p>Licht’s resume makes him prime CEO material. His alma maters [hotlink]McKinsey and PepsiCo are known as academy companies for all the training they give their high-potential C-suiters; they’re among the biggest producers of executives who go on to be CEOs at Fortune 500 companies.
And now that Licht is at the helm, he wants Reckitt to become more of an academy company itself. “It was a deliberate exercise, a significant investment honed over many years,” he said of PepsiCo’s leadership in nurturing top executive talent.
“We have been on a journey to build our internal talent development capabilities, but I don’t think we have yet attained the levels of excellence PepsiCo has. We should aspire to get there.”
