Companies that promise to grow profits by more than 10 pct each year worry me, because, as Phillip Coggan has pointed out (to me at least in the FT some years ago) if economies are growing in low single-digits, it is indeed a confident (perhaps foolish) CEO who declares s/he and his/her firm are going to be so way above the average. It may be a simple understanding how to satisfy investors’ behavioural instincts i.e. to promise regular above average gains, and then smooth the results until circumstances insist on a regression to the mean, when all the bad news gets bound up in a one-off profits shock. (Remember it is the frequency not the scale of losses/ gains that disappoints/makes us happy.) Perhaps Unilever’s announcement that it will fail to reach its double-digit earnings target reflects the culmination of such a strategy. I supsect that what has happened with Unilever since 2000, when their path to growth strategy was formalised, was the strategy was created on the basis of what result they wanted to achieve (ie the growth target) rather than evolving a company that was capable of sustained above-average performance. You could argue that setting a high target focuses staff minds, but it can also create a moral hazard by distort redruitment and promotion dynamics and the flow of information when things start going wrong. In any event, the fast moving consumer goods business does not get any less competitive, so suggesting you are going to carve out excess profits may also be a greater invitation to competitors to attack. Unilever’s problems can probably only get worse as the food companies start to come under attack in the same way as big tobacco. Banning smoking in public places is an interesting case study in how quickly public tolerance for a particular vice can reverse. When Mike Bloomberg (more on him later) banned smoking in public places in New York, there was some outrage and ridicule, but now recently Ireland banned it in pubs and there is talk of similar bans in the UK. With two thirds of UK citizens either overweight or obese, it does not take a conspiracy theorist to determine that the profitability of the food companies correlates with the calorie consumption of the population. The companies are under pressure for their use of salt and sugar, both appetite stimulants. Obsesity will increasingly be seen as an issue impacting the public purse through spending on health services and long-term disability allowances. It will only be natural for the government to look to increase regulation and tax on the source of the problem (the foods.) The public pressure on the food companies is already noticeable, and they are trying very hard to slow the progress to defend profitability. You will only need a few studies to show the real quasi-addictive impact of sugar and salt and some connection back to the food technicians’ implicit understanding of this (particularly in relation to children) to have enough public outcry to turn the food companies into the bete noires the tobacco companies have become. Less sugar and salt will ultimately mean less calories consumed. Hiking prices does not seem to be possible.

Unilever retiring co-chairman and strategist Niall Fitzgerald attracts interest because he was heralded as the safe pair of hands to save Reuters. He replaces chairman Christopher Hogg, who presided over the appointment of troubled CEO Tom Glocer (with unprecedented remuneration package), and a collapse in share price from more than £16 to less than £1. (Hogg is also Chairman at GSK, source of similar shareholder consternation in relation to CEO pay.) Fitzgerald is touted as a man who clearly understands marketing, something which definitely needs improving at Reuters. However, it may be wise to remember the cautionary words of his antecedent at Unilever Lord Leverhulme who was famously quoted saying “I know that half of my advertising budget is wasted. The problem is that I don’t know which half.” For myself, I am not sure if there are that many similarities between FMCG and financial information. Having looked at it the other way academically, the marketing concepts of the FMCG world felt alien coming from the financial information world. That said, by far the most successful of the data vendor and news services in recent years has been Bloomberg, whose marketing has probably outstripped the technical excellence of its products. Bloomberg was very focussed on the user/consumer of the information rather than the buyer (IT manager), and made sure his name was everywhere. It was also successful enough to get him elected mayor of New York. Reuters took for granted both the end user and the buyer. The Reuters brand has deep roots so there is quite a bit to play with there. Interestingly, Glocer when he announced his strategy after appointment, also promised double-digit earnings growth, a promise that appeared (sensibly) to have been removed last time I looked.

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