Recession Offers Opportunity For Firms Open To Shrewd Risks

Recessions bring slumping revenues and workforce lay-offs, but also provide growth opportunities for firms willing to "take a bit of risk," according to an executive for a leading European pharmacy and retail chain.

Shrewd businesses will plan proactively for recovery rather than simply withstand a recession, says Sarv Khunkhuna, head of business development for healthcare and pharmacy for U.K.-based Boots.

"The recession is not always about losing. It is also a good opportunity to take stock of your business, realize where you want to take it and take appropriate action for future growth," he said at Nicholas Hall's Insight European OTC Conference April 16 in Istanbul, Turkey.

To reposition for future growth during a recession, firms must first evaluate how the recession affected their balance sheets and then "plan for recovery," Khunkhuna said.

Firms with weak balance sheets should reduce their working capital, prune underproductive businesses and reposition resources to areas that drive sales "really hard," he explained. "Cash is king in a recession."

Prestige Brands Holdings is considering this route. It announced last November it may divest its entire personal care segment to better focus on OTC products. The Irvington, N.Y., firm's revenue at the time of the announcement was down 2 percent to $84.2 million, compared to the same time the previous year, while OTC revenue in the period was up 2.1 percent to $51.4 million (¹ (Also see "Prestige CEO Tightens Focus On OTCs, Considers Divesting Personal Care" - Pink Sheet, 9 Nov, 2009.)).

Church & Dwight also divested several OTC brands last June in keeping with its strategy of acquiring bolt-ons and discarding underperforming assets (² 'The Tan Sheet' June 22, 2009).

Firms With More Capital Have More Opportunities

A strong balance sheet allows significantly more opportunities than a weak balance because it provides capital needed to invest in business and employees.

One place that cash-strong companies should invest is in "weaker competitors" struggling to stay afloat due to the poor economy, Khunkhuna said. Recessions provide "a great opportunity to go bottom fishing" and acquire assets in areas where a firm may have little or no presence.

Church & Dwight is among the cash-flush firms actively seeking acquisitions and is banking on a dearth of bidders to negotiate low prices for firms that bottom out in the recession (³ (Also see "Experts Predict Buyer's Market For Consumer Brands In 2010" - Pink Sheet, 9 Nov, 2009.)).

Firms also should "fill any market gaps that arise," as competitors go out of business, Khunkhuna said. He explained that as competitors go under or as products are pulled from the market, voids form in the marketplace where ambitious firms can expand and gain market share.

For example, when an FDA advisory committee warned consumers not to give young children multiple popular OTC cough and cold drugs, companies offering saline nasal rinse solutions and other drug-free cold-relief products quickly accelerated their advertising (⁴ (Also see "GSK Launches Breathe Right Kids, Cites Scrutiny Of Pediatric Cold Products" - Pink Sheet, 13 Oct, 2008.)).

Once firms capture additional market share they should focus on maintaining customers as a recession plays out and the economy recovers. One way to do this is by offering different products in the same category at different price points.

Consumers loyal to a brand can trade up to a firm's higher-priced items as more money becomes available and "the good times" return, Khunkhuna said.

Colgate-Palmolive offers a variety of oral care products at different price points to capture different consumer segments. Most recently it launched Colgate Triple Action toothpaste at a price "attractive" to the U.S. Hispanic market (⁵ (Also see "Colgate's 2010 Product Pipeline Targets Niches In Oral Care, Deodorants" - Pink Sheet, 1 Feb, 2010.)). It also offers more expensive toothpastes that consumers can buy once they are committed to the brand and have more money.

Maintaining loyal suppliers is just as important. Firms should develop long-term relationships with suppliers, if possible, said Khunkhuna, who recommended retailers consider marketing contracts of at least three years with suppliers.

Hand in hand with strong supplier relationships are strong ties with retailers.

"Make sure you are covered where you need to be in the multi-channels," Khunkhuna said. He emphasized, "Internet retailing is very, very important."

Hire And Invest In People Throughout Recession

Finally, economic slumps provide fertile ground for recruiting highly qualified talent, Khunkhuna said.

"Many people during a recession get laid off through no fault of their own, so there are some brilliant people out of a job in a recession."

For example, Johnson & Johnson announced in 2009 it would cut 6 percent to 7 percent of its global workforce - including some from the consumer products segment - in an effort to save $1.4 billion to $1.7 billion in pre-tax costs.

The firm said it would reinvest the savings in core businesses, including the mouthwash Listerine , allergy-relief medication Zyrtec and skin care lines Aveeno and Neutrogena (⁶ 'The Tan Sheet' Nov. 9, 2009).

The multi-level marketer Mannatech also cut roughly 15 percent of its U.S. workforce to reduce expenses and "reposition the company for improved profitability" (⁷ 'The Tan Sheet' July 14, 2009).

Firms also should continue to invest in the people they already have.

"One of the first things to go in any business during a hard time is training and development of your people," Khunkhuna said, but added that "all you are doing by doing that is creating a problem for the future."

"Believe in your people and continue to invest in them. The companies that continue to invest in their people will emerge the strongest and fittest. Those that don't will find in a year or two their people will be poorer in customer service," and sales will falter as a result.

- Elizabeth Crawford ( ⁸ [email protected] )