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Not Every Parting is Sweet Sorrow

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The current economic uncertainty has compelled companies to look at their brand and product portfolio very closely. Brand and business acquisitions that seemed like a good idea years ago may now be considered the impediment to cut off. The rationalisation is not limited to acquired brands and businesses, with homegrown brands and products on the chopping block, even those supposedly loved by the consumers. The downfall of the Dollar Shave Club highlights this current move. The brand was once one of the examples of Direct To Consumer (DTC)’s attractiveness. This subscription business once boasted of having 3.2 million subscribers in 2016. Dollar Shave Club was purchased by Unilever for $1 billion. Flash forward to October 2023, when Unilever offloaded the business to Nexus Capital Management for an undisclosed amount. Other companies are also cleaning up their business warehouse: L’Oreal offloaded Sanoflore; Unilever also sold off parts of its beauty portfolio that includes brands like Caress, TIGI, St Ives, and Q-Tips. Earlier this year, Mondelēz also sold off their gum business in the U.S., Canada, and Europe to Perfetti Van Melle.

The reason for the clean-up is sensible. Companies need to operate profitably and efficiently – through prudent management of their portfolio of businesses and brands: protecting the core business and core products that deliver the biggest share of brand buyers and sales – and rationalising the laggards and the under-performers. The divestiture allows companies to re-invest and channel the resources to more productive parts of the business.

At least, that is the intention.

Let’s look at the risks – deletions and divestitures could also mean the loss of access to valuable store presence and shelf space that can be claimed by the competitors. Discontinuations and sell-offs also risk the company’s access to the category or market. An example of this is Kraft’s attempt to re-enter the peanut butter market in Australia after the business was sold to Bega. There is also the danger of blaming a business or a product failure where there was no sufficient support for it to grow to its full potential from the onset.

Furthermore, a research in 1987 by Professor George Avlonitis across 156 product deletions in the UK found that none of the product discontinuations actually led to a successful outcome on the business measurements used as the rationale. In 2015, P&G offloaded 100 brands to simplify its business along with other cost-cutting measures. The move had little impact to lift P&G’s business performance and share prices.

Nevertheless, there are many examples that also showcase business success through wise deletions and divestitures. The differences are likely due to the wise and disciplined re-allocations of resources and funds: any re-investment strategies that would help growing the business’ physical availability and mental availability across the wide category buyers are likely to be beneficial. These strategies and activities for brand and category growth are continuously being researched at the Ehrenberg-Bass Institute.

When these resources and funds end up being channeled to fund things that are unproductive and against the Laws of Growth – initiatives like loyalty scheme, narrowly targeted advertising, major rebranding (including unnecessary brand refresh), or churning out endless (and mindless) innovations. There may be nothing sweet about the company parting with a business or a brand from its portfolio, when it ends up losing more.

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