Old Europe

Date: 2015-10-07; view: 508.

In Europe, the merger of P&G and Gillette could trigger a series of takeovers or brand sales among rivals. Europe's consumer-goods firms are already struggling with the strength of the euro and rising commodity prices. As in America, there is also increasing competition from supermarkets' own brands, which are taking more shelf space. Suddenly, the two biggest European players, Unilever and L'Orйal, are looking less like giants.

Unilever, an Anglo-Dutch company, is Europe's biggest producer of consumer goods. It has been struggling to get into better shape for several years. In February 2000 it announced its “Path to Growth”, an efficiency drive that has saved about ?4 billion ($5.2 billion) in costs. It also reduced its portfolio of brands from 1,600 to around 400. But it has failed to meet targets for sales and profits. The company's sales declined by 3.8% and its net profits were down 16% last year, according to estimates by Merrill Lynch, an investment bank. Last September, the company issued its first-ever profit warning. It will unveil its latest strategy on February 10th.

Some of Unilever's brands are known around the world. They range from Dove skin products to Surf washing powder to Hellmann's mayonnaise—the world's top-seller. It is also a leader in personal care. Unilever's Axe range of deodorants (sold as Lynx in Britain, Ireland and Australia) is reckoned to be the world's most popular grooming product. It was launched in America only in 2003.

With the addition of Gillette, P&G will almost be on a par with Unilever in many areas outside Europe and America

P&G is already Unilever's biggest rival in health and personal care, which represents almost half of Unilever's business. Gillette competes with Unilever as a producer of toothpaste, deodorant and cologne. As a combined force, they stand a better chance of attacking Unilever's strengths. Emerging and developing markets, such as India where Unilever has a strong, local operation called Hindustan Lever, have traditionally been the company's forte. But P&G has been catching up. With the addition of Gillette, it will almost be on a par with Unilever in many areas outside Europe and America.

Brazil could be an early test of the contest to come. Unilever controls a quarter of the Brazilian market for toothpaste, and P&G's product is hardly known. But Gillette has about a third of the market for toothbrushes. The merged firm can combine its effort, perhaps to launch a joint brand of toothpaste in the Brazilian market, says Lauren Lieberman, an analyst at CSFB, an investment bank.

For L'Orйal, which was founded in 1907 by a French chemist who invented a new way to colour hair, the merger could be good news—at least while P&G is distracted by making the deal work. L'Orйal has faced fierce pressure from P&G in its core hair-care market.

History suggests that rivals will try to adjust to the new competitive landscape, perhaps quickly. Unilever's acquisition of Bestfoods in 2000 triggered a wave of consolidation. Kraft, an American food company, bought Nabisco, the maker of Oreo cookies and Ritz crackers, and Pepsi bought Quaker Oats. In 2001, Nestlй paid $10.3 billion for Ralston Purina, an American pet-food company.

Even before the latest merger there was plenty of gossip about possible deals. Reckitt Benckiser, a British household-products company, was recently courted by Colgate-Palmolive, an American maker of toothpaste. P&G has also been seen as a potential buyer of Beiersdorf, a German skin-care company, and Henkel, a German maker of laundry detergent. Henkel says it does not feel especially threatened by the P&G merger as its products barely overlap with those of Gillette. Beiersdorf, on the other hand, sells lots of men's grooming products similar to those made by Gillette. But it insists it can do well on its own.