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Reckitt Taps Online-Savvy CEO as Cheap Pills Threaten Growth

Narasimhan served as chief commercial officer at PepsiCo and was directly responsible for online sales platforms.

Reckitt Taps Online-Savvy CEO as Cheap Pills Threaten Growth
Laxman Narasimhan. (Photographer: Guillermo Gutierrez/Bloomberg)

(Bloomberg) -- Reckitt Benckiser Group Plc’s Nurofen painkiller costs 2.20 pounds ($2.80) for a pack of 16 pills. U.K. grocer J Sainsbury Plc sells a private-label alternative for a third of the price.

That’s the challenge facing Reckitt’s incoming chief executive officer, Laxman Narasimhan. As consumers increasingly seek out cheaper version of commoditized consumer goods like ibuprofen, job No. 1 will be to fix the company’s consumer health business, which went from a strength to an area of investor concern under current CEO Rakesh Kapoor.

Reckitt Taps Online-Savvy CEO as Cheap Pills Threaten Growth

Representing about two-thirds of group sales, the division that also includes Durex condoms and Strepsils throat lozenges consistently outpaced industry growth rates until a failed product release in the Scholl foot-care line three years ago. It was also blindsided by production glitches and slowing sales of infant-nutrition products after acquiring Enfamil maker Mead Johnson.

The setbacks tarnished Kapoor’s pitch that rising incomes and increasing health-care standards in the developing world would accelerate sales of premium over-the-counter medicines. By turning to Narasimhan, a PepsiCo Inc. veteran, the company hopes to reconcile Kapoor’s vision with the reality that fickle shoppers are overwhelmingly turning away from big brands to cheaper alternatives.

Reckitt shares, which had lost about one-fifth of their value since 2017 before Wednesday, were up 2.9% in afternoon trading in London.

Price Squeeze

Packaged-goods companies ranging from Nestle SA to Procter & Gamble Co. -- in businesses spanning food and personal care -- have been wrestling with the problem. With volume growth hard to come by, they’ve also struggled to lift prices. Instead, they’ve had to turn to acquisitions of faster-growing niche labels, such as Unilever’s deal this week for cosmetics brand Tatcha.

Narasimhan, 52, is awake to the problem -- over two decades at McKinsey & Co., he co-led the firm’s global consumer insights practice and spearheaded research on the emerging-market digital consumer.

“You’re looking at an outstanding global executive with strategic skills who builds very strong teams and understands the sector well,” said Brian Cornell, CEO of retailer Target Corp., who worked alongside Narasimhan at PepsiCo. “He has broad experience in the North American market and did a sensational job of retooling businesses in the Mexican market.”

Narasimhan applied the lessons learned to a seven-year career at PepsiCo, where he was responsible for online sales platforms in his most recent role as chief commercial officer. Reckitt Benckiser will seek to tap that digital acumen to improve its own capabilities as the consumer-goods industry wrestles with the shift to e-commerce.

What Bloomberg Intelligence Says:

“Focused marketing gave Reckitt Benckiser growth highs during Bart Becht’s tenure, so a new CEO in Laxman Narasimhan, global chief commercial officer at PepsiCo, provides an exciting fit to rekindle sales expansion.”
Deborah Aitken, BI consumer products analyst
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Reckitt’s choice of an outsider, rather than an executive from within its own ranks, shows that the company is seeking new approaches after the 60-year-old Kapoor’s eight-year tenure.

“We view Reckitt’s appointment of its first outsider CEO as both a radical step and a positive surprise,” Morgan Stanley analysts led by Richard Taylor wrote in a note to investors. Narasimhan’s “strategic and leadership background make him a strong fit for the company” and should bring a fresh perspective to the business.

Divisional Split

The company said it’s looking to Narasimhan to deliver improved performance in the health business, which it has separated from the division selling home-care products like Air Wick fresheners. The move has been seen as a possible prelude to a more formal split.

“In the near term, focus will be on the turnaround of the currently underperforming health division,” as well as the restructuring, Deutsche Bank analyst Eva Quiroga-Thiele said in a note.

To contact the reporter on this story: Thomas Buckley in London at tbuckley25@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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