Letter from Paris: More From The 2006 World Food Business CIES Summit
By Kevin Coupe, [email protected]
”The key is to be a learning business.”
Eight words, uttered by Procter & Gamble CEO A.G. Lafley in the middle of his presentation yesterday morning to the CIES World Food Business Summit here at the Carrousel du Louvre. But eight words that struck us as not just amply illustrating the intent of this annual summit of retailers and suppliers from around the world, but of the approach that both segments of the food industry need to take in order to remain relevant to consumers and maintain sustainable growth for the long term.
Earlier in the day, two chief executives – one from a retailer that looked into the abyss of public scandal and bankruptcy, the other from a globally respected manufacturer that seemed to have lost its way – focused on what they had learned from those experiences and how they were applying those learnings to the leadership and management of their companies.
The question, of course, is whether they have learned enough and if they are applying those lessons in a way that will matter.
Anders Moberg, the CEO of Ahold, conceded that his company had been in a very big mess, and said that in the years leading up to the financial scandal in which it was revealed that the books were being manipulated in order to hype the stock price, “We were a financially driven company, and we had forgotten about the customer for a while.” Since taking over the company in 2003, Moberg said, he has been focused on shrinking the company “to repair the balance sheet” and “talking about the future to improve morale.” He said that his broad goal has been to create “a much more integrated company” with “more synergies,” and he suggested that the previous management had, by allowing its various retail entities to operate largely independently, created a structure that was “difficult to control.”
Moberg said that he’d replaced roughly half the people in upper management since arriving at Ahold. “A lot of people have left the company, because they didn’t fit in with the new way of working. They had a different mind-set, because they were only focused on [financial] growth.” The actual work of day-to-day retailing, he said, “is less glamorous.”
“Some of our companies have been very successful in the past,” Moberg said, “but now they have to repeat it. Every day, we have to earn the trust of our customers.” He also dismissed rumors that the company might be for sale. “There always are rumors out there,” he said, “and that’s part of the business. I don’t listen to rumors and I don’t run the company short term.” He joked that his lack of fluency in Dutch actually made it easier to avoid reading the local papers and seeing all the rumors.
However, Moberg didn’t deny that the company might once against hit the acquisition trail. “Every company has to have an ambition for growth,” he said. “I think there will be further consolidation in the business, and we would like to be part of it.” (A statement, of course, that could have two meanings … and a number of people with whom we spoke after the session expressed real skepticism that Ahold would exist in its current state five years from now.)
Also speaking to the CIES attendees was E. Neville Isdell, chairman/CEO of the Coca-Cola Co., who addressed the kinds of transformations he is nurturing at the troubled soft drink company. Noting that he last spoke at CIES two years ago, just after coming out of retirement to lead the company, Isdell said, “No organization as large as The Coca-Cola Co. changes overnight, and our transformation is by no means complete. I can tell you this, however: This is a different company than it was when I spoke to you last. Because of the transition we’ve made since then, we are extremely well-positioned for sustainable growth … to continue to evolve and change… and to continue to capture the opportunities in our industry.”
However, Isdell challenged those who believe that the non-alcoholic carbonated beverage business is one that cannot be a significant growth engine for the company. “People like sweetness, like bubbles, and we make no apologies for that,” he said at one point.
And, Isdell said, “We will capture the full potential of trademark Coca-Cola and accelerate growth of core brands in each market through immediate consumption opportunities to improve margin, consumer recruitment, and revenue.
“From day one of my tenure as chairman, the peanut gallery has said that the Coca-Cola Co. cannot succeed solely as a non-alcoholic ready-to-drink company. As we expand our beverage portfolio, we will show that we will, and we can.
“First, however, we must demonstrate that we can grow carbonated soft drinks. We are the Coca-Cola Co. We have to grow carbonated soft drinks first. If we can’t, why would anyone believe we could grow anything else? Even more to the point, there are still enormous opportunities in carbonated soft drinks—and not just in fast-growing markets like Brazil, Russia, Indian and China, but everywhere.”
Isdell conceded that the world has changed. “We’re no longer competing in just the beverage and food industries. Indeed, in the emerging retail environment, the Coca-Cola system is competing with every consumer product goods company that sells to our customers.”
Isdell stressed that his main job has been to enable his people, and that the rejuvenation of Coke has largely been through the efforts of his employees and management team. “I’ve always believed that the people in the business know better than anyone what is wrong with the business.” Coke’s new approach was constructed “by people in the business. It was not written by consultants and was not an edict from management.”
While Isdell was passionate that his company is being transformed into a company more in touch with consumers, better able to communicate its mission to shoppers, partners and employees, and increasingly focused on identifying and exploiting new beverage platforms in categories such as health and wellness, he left no doubt that he is placing his bets, essentially, on an old company slogan: “Coke is it.” Isdell seems to be gambling that unlike Pepsi – which has spread its bets across a number of food and beverage categories – Coke can “double the value of brand Coke” by 2015 and make that the engine that drives the company into the future.
And Isdell did not refer to The Wall Street Journal story yesterday that read:
“It might not be wise to pin hopes for a recovery in carbonated soft-drink sales on teens. Health concerns and parental restrictions are steering teenagers to other beverages, according to a survey conducted by Morgan Stanley analyst Bill Pecoriello. His research shows the image of colas, and even diet colas, continues to deteriorate rapidly.”
The third presentation of the day that focused on corporate transformations was by Unilever’s group CEO Patrick Cescau, who had the advantage of not being from a company under fire–he noted that Unilever is a company that has gone through a number of transformations over the years, and that this is just the normal course of growing the business. “Transformation is a way of life,” he said.
One of Cescau’s central goals, he said, in a “globalizing world of intense competition,” is to “turn managers into chief customer officers, working with customers on revitalizing our brands.” And part of this has been an inevitable slimming down of the company – divesting the frozen-food business, for example, “so that more weight can be put behind fewer priorities.”
In doing so, he said, “It is vital for a leader in a transformation to be crystal clear about what needs to change, but also about what not to change. While businesses may be transforming, values remain the same.”
The presentation by Lafley – while nominally on a different subject, a comparison of growing through innovation and acquisition – actually touched on many of the same themes by stressing the importance of being a “learning company.”
Lafley said that both kinds of growth have been important to P&G, but he said that innovation – guided, focused innovation that can be measured and translated into commercial success – clearly is the key to the company’s success in the past, present and future. But the modern age brings with it new challenges, he said: “The best new invention that will transform our business is happening today in an Indian garage, and I need to know about it.”
Which pushes “being a learning business” to entirely new frontiers. Random notes from the CIES Summit …
• CIES announced the election of Roger Corbett, CEO of Woolworths Australia, as chairman of the organization. He succeeds Claude Hauser, chairman of Migros, in the role, and will serve for a two-year term.
• Franck Riboud, chairman/CEO of The Danone Group, seemed to be pointing toward a kind of branding and consumer revolution when he said: “I am convinced that in a few years we will no longer talk about brands. We will talk about health benefits.”
• Serge Papin, CEO of the Systeme U cooperative in France, said that his organization’s success has stemmed from the fact that it believes that “the people pushing the trolleys have to be more important than the trolleys they are pushing.”
• It seemed to be something of an inside joke among the French presenters at the summit that France’s president, Jacques Chirac, apparently has been castigating his citizens for speaking English at events like these. (Then again, maybe it isn’t an inside joke. Maybe we’re just on the outside looking in.)
Yesterday, there were two presentations where the speakers joked about the president’s edict. One of them went on to speak in French, and the other, in an act of good-natured defiance, delivered his speech in excellent English.
But in the interest of his continued safety, we’ll never tell which one spoke English and which spoke French.
• CIES is one of the few organizations where standard attire during conferences is a jacket and tie, probably because of its more formal European roots. But this year, for the first time, there was a smattering of guys without ties, wearing open-collared shirts under suits and sports jackets. Even a few speakers – gasp! – showed up on stage without ties.
Is this the beginning of a major shift in CIES tradition? Hard to say … and we don’t care that much, as long as they never change the tradition of the final black tie dinner that closes the summit each year. It always takes place someplace magical (and L’Oreal, the sponsor, doesn’t tell you where until you get on the bus to go there), and is one of the coolest events we attend each year. We wouldn’t want it to change one bit.
Report: Department Stores Losing Their Edge With Luxury Shoppers
Stevens, Pa., Although Federated Department Stores continues to transition the May Department Store chain into the Macy’s brand, shoppers are turning away from traditional department stores in droves, according to the Luxury Report 2006 from Unity Marketing. Total retail sales in traditional department stores have dropped 13% in the last five years, from $96.3 billion in 2000 to $84.1 billion in 2005. Wal-Mart and other discount stores have siphoned off sales from lower-income customers, while the luxury shoppers, long the most loyal customers of department stores, are turning to other shopping destinations.
The report also revealed that Bloomingdale’s and Neiman Marcus ranked as luxury shoppers’ favorite department stores. Macy’s ranked as the No. 1 department store shopping destination, used by the largest percentage of luxury shoppers in 2005 (23%), followed by Nordstrom with 18% of luxury shoppers, then Dillard’s with 12%. Bloomingdale’s and Neiman Marcus, however, ranked 49% more popular than the average department store for luxury shoppers, and Nordstrom as 40% more popular. Even though the largest percentage of luxury consumers shopped at Macy’s, the retailer also has the largest number of stores nationwide.
Federated’s Sale of Lord & Taylor Approaches
New York City, Federated Department Stores Inc. is close to signing a deal to sell its Lord & Taylor chain to private-equity player Apollo Real Estate Advisors and shopping center developer NRDC Real Estate Advisors for approximately $1.2 billion, according to a report by The Associated Press. The Wall Street Journal reported that the deal could be announced as early as this week, though it still requires a final nod from Federated.
Federated, which purchased Lord & Taylor when it acquired May Department Stores Co. last year, announced this past January that it was putting Lord & Taylor up for sale, opting instead to focus all expansion plans on the larger Macy’s and Bloomingdale’s chains. At the time, Federated said it would sell the 55-store Lord & Taylor chain as a whole operation.