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The “Pauperization of Europe”

testosteronepit's picture





 

Wolf Richter   www.testosteronepit.com

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 yoghurt only in multipacks, 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.

 


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Thu, 08/30/2012 - 06:13 | Link to Comment Ghordius
Ghordius's picture

oh, I agree. I have a god-son in Sicily that is the perfect example for this. my standing was wastly improved by the provision of an i-phone and i-pad before all his friends had a chance to buy one - and me expecting that he wanted a car! nope, his scooter is all he needs/wants, together with clothes that cost five times more than what I usally wear. and don't get me started on the spending habits of his girlfriends.

and of course the chance that he will move out of his parent's home is quite slim even after marriage, but this is anyway part of the local lifestyle, isn't it?

Thu, 08/30/2012 - 03:56 | Link to Comment Peter Pan
Peter Pan's picture

Ghordius, i have seen the scenes you describe, but somehow doubt that fridges will disappear, although I fully expect the replaements to become smaller.

As for the more frequent trips to the shops, this might occur where shops are within walking distance. Here in the west, it is almost nauseating to see bored housewives with two items in their shopping bag engaging in retail therapy topped off with a cup of coffee before they drive off in four wheel vehicles that I thought were meant for builders.

Thu, 08/30/2012 - 05:39 | Link to Comment Ghordius
Ghordius's picture

+1 LOL, yes, I've seen them, small, petite ladies in cars that not too long ago would have been military vehicles.

which by the way always reminds me of my best friend with his vintage WWII (Willies?-) Jeep parking next to his wife's humungus Porsche SUV. Then, it looks like a toy (that of course it is, in it's own way).

Thu, 08/30/2012 - 11:14 | Link to Comment GeezerGeek
GeezerGeek's picture

The widespread acceptance of the SUV (Stupid Ugly Venicle is my interpretation) and pickup truck (particularly those with extended cabs for expanded seating) as family vehicles only started after the government made the family station wagon of the 1950s and 1960s an unreasonable vehicle to produce. Back then these behemoths (4000-5000 lbs was typical) were often derisively called 'mommy-mobiles, but they were great for hauling the family around to picnics, on vacations, or to a baseball game. Once the higher gas mileage requirements were applied, station wagons were basically eradicated by government edict. The trend to SUVs and minivans was a reaction, in part, to the need of many families to have a family transportation device that provided both safety and size.

 

Thu, 08/30/2012 - 12:50 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

+1 Family cars got bigger when insurance companies essentially mandated that child seats must be used.  Not complaining, or criticizing, just saying.

In the old days me and my brothers would rattle around the back seat and/or cargo area.  For ball games the whole team fit on top of each other.  It was a game to play.  Not so anymore.  If you have three kids less than a certain size or age, and you do not live close to any markets or services, you need a car with two rows of rear seating at the least.  If you pile kids in, or have a toddler on your lap in the backseat, you will be punished severely.

This also has a way, believe or not, of slowing population growth in car-addled areas, which is all of US Suburbia, while not affecting population growth in the few urban areas where owning a car is a luxury.

Thu, 08/30/2012 - 04:33 | Link to Comment andrewp111
andrewp111's picture

The grid electricity needed to power the fridges will become less reliable, they way it is in India and Pakistan.

Thu, 08/30/2012 - 04:35 | Link to Comment andrewp111
andrewp111's picture

I guess when you try to edit a post too quickly it can get doubled.

Thu, 08/30/2012 - 01:18 | Link to Comment super elite
super elite's picture

I recall seeing that sort of thing in Asia as well. Instead of buying 4 rolls of toilet paper for $1.60 at the supermarket, people buy a single roll at a nearby stall for $0.50 because that's all they can afford at the moment. The nearby vendor will actually buy the toilet paper at the supermarket and generate $0.40 in profits for every 4 rolls sold. It's a great model that could help lower the US unemployment rate as well.

Thu, 08/30/2012 - 16:32 | Link to Comment RKDS
RKDS's picture

Doubtful, because the supermarket executives will raise their price by 40 cents once they figure out what the stall vendor is doing.  Then, when the stall vendor cannot provide this parting out service and nobody buys any toilet paper at all, they will cry to mommy government for bailouts and certainty.

Thu, 08/30/2012 - 04:09 | Link to Comment Ar-Pharazôn
Ar-Pharazôn's picture

in this case i m all in for "tree leaves" :)

Thu, 08/30/2012 - 06:33 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

My plan is to use less TP by eating less.

Thu, 08/30/2012 - 12:42 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

What a coincidence, that's TPTB's plan for you, too.

Thu, 08/30/2012 - 01:12 | Link to Comment Joe A
Joe A's picture

If you would add all these individualized packages together to reach the jumbo size package that one would normally buy, these added packages would probably be more expensive than the jumbo size one. They get more money in the end, except at a later date. Of course, needs to be corrected for inflation and such but that is probably included in the 'business model'. I am sure that many people in the marketing, sale, PR, production and stock departments in these companies are very excited about this 'paradigm shift', not to mention the board room. For ordinary people it is a 'paradigm shock'.

Thu, 08/30/2012 - 10:21 | Link to Comment Omen IV
Omen IV's picture

small sized individualized packages are a response to interim cash flow issue of the consumers - they will yield larger margins but ultimately lower volume as the consumer cuts back - next stage is always - private label market share growth-which carries significantly lower margins - chemical components essentially the same as Branded products - ultimately the discretionary income spiral down will completely change marketing for these companies like Unilever to keep up their margins and profitability temporarily - they will have to control distribution  systems to a higher degree to keep private label to a minimum but small players will fill in and negate that strategy over time to a large degree- it willl be across the board - Brands vs Consumer Reports Generic-

the whole thesis of the republicans to starve the beast is headed for huge categories of products and services that will be decimated - these people believe the bottom line after tax income is the sole determinate of their vote are crazy - without the top line - sales - there is no bottom line - small business will be hit first - service businesses and then product based business at the local level for distribution then large companies with Branded products -

these western democracies were complex systems of cash flow being traded for goods and services as discretionary income grew and more and more employment created because of it- stability creates that condition - the reverse - will mean the white collar will lose the most - as the spiral continues down to essentials plus a number

without a focus on sales for a national policy directive which means a reversal of the current WTO and GATT to only those countries participating with a comparative wage band - the system in europe and usa are doomed very shortly

 

Thu, 08/30/2012 - 02:39 | Link to Comment NorthPole
NorthPole's picture

Yes, except for the fact that when you buy large packages of stuff, you always end up throwing half of it away.

 

I, for one, would like to be able to buy a single band-aid.

Thu, 08/30/2012 - 11:25 | Link to Comment GeezerGeek
GeezerGeek's picture

I end up throwing all my toilet paper away (flushing it, actually). But only after I use it.I buy in bulk, and it has an indefinite shelf life.

Buying a single unit of a small item may be feasible if one walks or bikes to the store to purchase it. If one drives a gasoline-powered vehicle, the cost of the fuel can easily overwhelm the cost saving for the item purchased. I wonder how many consumers ever think about prorating the cost of gasoline to the cost of other goods purchased. I suppose that anyone reduced to buying a single band-aid should probably not be driving a car, anyway.

Thu, 08/30/2012 - 12:32 | Link to Comment Umh
Umh's picture

If all your closets are full of stuff purchased in bulk you will need a bigger house.

Thu, 08/30/2012 - 11:05 | Link to Comment SPADOC4
SPADOC4's picture

You can buy lots of stuff like that in the Philippines.

You can buy one cigarette and even borrow a light from vendors.

It's the wave of the future.

Thu, 08/30/2012 - 03:31 | Link to Comment Joe A
Joe A's picture

True and later people would buy another large package of stuff so they can later throw half away again.

In developing countries it is common to buy single items. Band aid, cigarettes, chewing gums, etc. I loved it.

Thu, 08/30/2012 - 00:05 | Link to Comment monad
monad's picture

 

 

We boggies are a hairy folk 

Who like to eat until we choke. 

Loving all like friend and brother, 

And hardly ever eat each other.

 

Ever hungry, ever thirsting, 

Never stop till belly's bursting. 

Chewing chop and pork and muttons, 

A merry race of boring gluttons.

 

Gobble, goggle, gobble, gobble, 

Gobble, gobble, gobble, gobble.

 

Boggies gather round the table, 

Eat as much as you are able. 

Gorge yourselves from moon till noon 

(Don't forget your plate and spoon).

 

Anything edible, we've got dibs on, 

And hope we all die with our bibs on. 

Ever gay, we'll never grow up, 

Come! And sing and play and throw up!

 

Gobble, gobble, gobble, gobble, 

Gobble, gobble, gobble, gobble!

- Bored of the Rings by Harvard Lampoon

 

Thu, 08/30/2012 - 00:44 | Link to Comment Andre
Andre's picture

YES!

+100,000!

Thu, 08/30/2012 - 00:56 | Link to Comment monad
monad's picture

National Lampoon Deteriorata 1972

Thu, 08/30/2012 - 12:33 | Link to Comment Gene Parmesan
Gene Parmesan's picture

No Brawndo (or electrolytes), no care.

Wed, 08/29/2012 - 23:10 | Link to Comment Arthur
Arthur's picture

Love UL.  Up 85%+ since April 09, just wish I bought more.

Thu, 08/30/2012 - 01:12 | Link to Comment BigDuke6
BigDuke6's picture

Do they sell mines and RPG's too?

Wed, 08/29/2012 - 22:54 | Link to Comment SafelyGraze
SafelyGraze's picture

just got back from meeting with tptb

asked them "what happens when everybody's a pauper? you can't take anything else from them - then what?"

they laffed and said "they die"

so I followed with "and then what? there are no more people? just you? what then?"

the laffed again and said, "we reproduce"

glad to get all that sorted out.

Thu, 08/30/2012 - 15:35 | Link to Comment Doubleguns
Doubleguns's picture

"we reproduce"

 

Was that when they bent you over?

Wed, 08/29/2012 - 22:46 | Link to Comment Henry Hub
Henry Hub's picture

***it sells its “Surf” detergent in packages that are good for five loads***

Maybe they should change the name to "Serf" detergent.

Wed, 08/29/2012 - 23:28 | Link to Comment Freddie
Freddie's picture

Hope & Change - Euro style.

Well the Europeans love(d) Mugabe and they also love our muslim Mugabe.

Thu, 08/30/2012 - 11:08 | Link to Comment Imminent Crucible
Imminent Crucible's picture

I really don't think our Mugabe is Muslim. As far as I can tell, he's a devout worshiper---of himself.

Anyway, our Mugabe is probably on the way out, to be replaced by Rombama, or Obamney, or whatever his name is.  It's our Gideon Gono that's got me worried.

Thu, 08/30/2012 - 02:36 | Link to Comment NorthPole
NorthPole's picture

I am by no means an Obummer's fan, but your tired Muslim remarks are getting, well... Tired.

Thu, 08/30/2012 - 14:06 | Link to Comment akak
akak's picture

Freddie simply needs to watch more television.

Much more television.

Then he will come around, and feel better about himself and the world.

Thu, 08/30/2012 - 08:54 | Link to Comment Race Car Driver
Race Car Driver's picture

Does your pussy hurt, too?

Wed, 08/29/2012 - 22:42 | Link to Comment Zero Govt
Zero Govt's picture

wonderful news Unilever is able to adjust its over-priced Euro products down to 3rd world price levels and remain highly profitable

we can only hope that as every monopolists protection racket, Govt, crumbles free market competition will replace big companies who monopolise the shelves of big retailers and both these diseased dinosaurs are replaced by smaller better business 

roll on free markets, free from Govt corruption

Thu, 08/30/2012 - 19:13 | Link to Comment mkkby
mkkby's picture

Not at all.  They're selling single use packages of tooth paste, soap, etc.  Low prices but much higher markups.  They are maintaining their dominance that way.  Really taking advantage of the poor and keeping them down.

Wed, 08/29/2012 - 23:59 | Link to Comment hannah
hannah's picture

i used to save money in thailand by reusing other peoples condoms when i was at the whorehouse. just picked up free used condoms off the floor...there was always a little plastic bin next to the squat toliet with tp in it....kinda used but what the hey this is the new world order...!!!!!

the problem is that i didnt pay the same in taxes for over priced first world product and no way our gov is going to cut spending. prices cant go down or the system collapses.

 

*  

"Growth momentum may be used on the opinion of the European leaders not only from the industry. Trade also have to catch up. "In an Apple store everyone thinks: Wow, what an experience in some supermarkets in Europe, but you think: half empty shelves, boxes on the floor, not a sales person for miles around - how terrible is that then?" Presentation, such as service would be better. "Why can not we foods like Apple Sell devices? "Said Zijderveld." Why are there no genius consultant for chicken? "

 

what a conept...sell chicken like apple sells devices......iChicken2.0....funny how the 1% can not percieve the idea that the world doesnt have credit and cant afford bloated prices. slick marketing wont work when you dont have any money or credit.

Thu, 08/30/2012 - 00:02 | Link to Comment monad
monad's picture

Thats why the French invented the bideau, pasteurization (of the reusable condom), the guillotine and democracy, in that order.

 

Thu, 08/30/2012 - 00:06 | Link to Comment hannah
hannah's picture

#4 was the royale with cheese i believe....

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