'Poverty returning to Europe'

Major Corporations Are Adjusting For The 'Pauperization Of Europe'

Wolf Richter

Testosterone Pit,

30 August, 2012

It started on Monday. “Poverty is returning to Europe,” said Jan Zijderveld, head of Unilever’s European operations, in an interview.

The British–Dutch consumer products company, third largest in the world, was adjusting its commercial strategy to this new reality, he said, by redeploying to Europe what worked in poor countries of the developing world.

Now the stars of the industry are affirming it. “The logic of pauperization,” L’Oréal CEO Jean-Paul Agon called it on Wednesday.

“If Spaniards are down to spending on average €17 per shopping trip, I can’t sell him detergent for half of his budget,” Zijderveld explained. “In Indonesia we sell individual packages of shampoo for 2 to 3 cents and still earn a fair amount.”

That this strategy was widespread in Asia I found out in Vietnam in 1996. I cut my finger at a table at a café in Hué as we were getting up. So, walking down the dirt street, I licked my finger to keep the blood from dripping on my clothes. The girl I was with, shocked by my barbaric behavior, took me to a street stall and bought me one singled Band-Aid, which cost as close to nothing as you could get. [My overland solo adventure from the Mekong Delta across Asia and Europe is the topic of a forthcoming book. The first in the series, Big Like: Cascade into an Odyssey—a “funny as hell non-fiction book about wanderlust and traveling abroad,” a reader tweeted—is available on Amazon.]

By looking at Europe, particularly Southern Europe, as a market with the characteristics of developing countries, Unilever has transitioned from seeing the debt crisis as a temporary event to seeing it as a trend to which it had to adjust its strategies. So now in Spain, it sells its “Surf” detergent in packages that are good for five loads. In Greece, it sells mashed potatoes and mayonnaise in small packages. And in Great Britain (!), it’s implementing the same strategy. Because people are running out of money. And it’s been successful. Since they started this in 2011, sales have stopped falling; and in the first half of the year, they edged up 1.1%. But higher input prices have exerted pressures on margins and profits.

“I agree, there is a movement of very sharp pauperization in Southern Europe,” Michel-Edouard Leclerc said on Wednesday—they’re now all coming out. He’s the CEO of E.Leclerc, the number one retailer in France with a market share of 18% and 556 semi-independent hypermarkets, supermarkets, and specialty stores. It also has numerous stores in Italy, Spain, Portugal, and other countries. And the company is adjusting to the new reality. In Italy, for example, where the stores used to sell yogurt only in multi-packs, they’ve started to sell them as single items.

Jean-Paul Agon, CEO of L’Oréal, the world’s largest cosmetics and beauty products company, countered with a mixed message. No, the company wouldn’t adjust its products around the growing poverty in Europe, he said.

The race to the lowest price was “not our strategy.” Unlike the others, his company wouldn’t follow “the logic of pauperization and commoditization of products.” Rather he wanted to build on “innovation and added value,” which would allow the company to raise prices over time, “but reasonably.”

Which makes sense in light of L’Oréal’s earnings announcement Wednesday morning, a debacle which caused its stock to plummet 4.4%, the second worst performer of the CAC40—due to disappointing margins! Instead of smaller packages, it had tried heavy discounting, Agon admitted, “to adjust our strategy to the environment”—namely the pauperization of Europe. Even L’Oréal.

Meanwhile, a hullabaloo flared up in Germany over squashing democratic discussions on whether or not taxpayers should endlessly pay to keep Greece in the Eurozone. Read.... Gagging The “Hardliners” As The Economy Tanks And Future Exports Drop Into The Red Zone.

In Europe, governments and banks are like “a couple of drunks standing on the street corner holding each other up,” said Doug Casey, chairman of Casey Research. It’s “highly regulated, highly taxed, and much more socially unstable,” and it’s going to be “the epicenter of the coming storm.” For the amazing interview, read.... Doug Casey Predicts Day Of Economic Reckoning Is Near.