Decorative Paints strategy
Having improved considerably since 2012, we continued to make progress in 2015. Both our return on sales of 8.6 percent and return on investment of 11.7 percent were in line with our expected outcomes (7.5 percent and 12 percent respectively). As a result, we are much closer to our vision of becoming the leading global decorative paints company in size and performance.
This improvement in performance was mainly achieved by addressing the two key market challenges of fixing Europe while growing profitably outside of Europe. Within Europe, we reduced operating costs, while outside of Europe we grew volumes, adjusted pricing where appropriate and controlled costs. As our performance level is now substantially higher than it was in 2012, we have updated our strategy to better reflect our current strategic challenges. The updated strategy is based on winning locally, supported by select initiatives to leverage our scale.
We have a unique portfolio of businesses in that we are one of only three very large players in decorative paints and the only one that serves a geographically diverse portfolio of countries with a substantial proportion of our business outside of mature markets. Our portfolio, therefore, has the potential for higher growth levels, while allowing for diversification of individual country risk. It also means we have to compete successfully and win in markets that are very different in terms of value chain, competitive environment and customer and consumer behavior.
In order to win in each of these local markets, we will continue to develop relevant and specific local plans. Of particular importance to our overall success at Business Area level are the local plans.
Listed below is a snapshot from four countries:
- The UK is one of the largest markets in Europe and we are the market leader. Growing at a modest rate, the region is benefiting from sustained economic recovery and improved consumer confidence. Our focus in the UK is on increasing the overall market size by improving the painting experience. One way we are achieving this is through the launch of the Dulux Amazing Paint service. We are also continuing our strong focus on innovation, introducing new products with clear customer benefits in terms of energy savings and well-being
- China is a large market where the growth rate has been very high in the recent past. It is now moderating to a level only slightly above mature country levels. We have a strong number two position in China and are growing our business in traditional trade through strong Dulux brand color leadership and our highly successful Easy Paint Service
- Brazil is a major market – roughly the same size as the UK – where we have joint leadership. Although the market has been shrinking due to local macro-economic conditions, most analysts are predicting a return to growth. If this occurs, the likelihood is for above GDP growth due to market recovery. We will continue to build and leverage our very strong brand awareness, built in part through activities such as the largest ever “Let’s Colour” event, which was staged in Rio de Janeiro’s famous Santa Marta favela as part of the city’s 450th anniversary celebrations
- Indonesia is the largest market in South East Asia and the growth potential is good. We are the market leader and have been significantly improving our market share over the last few years. However, the level of competition has been increasing, so we will continue to focus on reinforcing our strong position
Leveraging our scale
We are one of only three large players within decorative paints globally. Our size provides us with a considerable strategic advantage. It allows us to make the kind of investments in brands, innovation and sustainability that smaller players would find difficult to emulate. We carefully select initiatives where scale advantage exists and focus our efforts on activities that support our approach of winning locally. We have defined eight areas where leveraging our scale makes sense. Examples are:
Our global innovation agenda is focused on addressing key end-user, consumer and/or customer needs, including mass market growth, increased need for well-being, regulatory compliance, differentiation in large-scale outlets, energy efficient solutions and differentiation in color. These needs translate into an innovation agenda which has a very strong sustainability orientation.
Many examples of successful product innovations consistent with this agenda are already on the market. For example, in China we recently launched a solvent-free concrete floor paint with excellent wear, impact and chemical resistance properties. This is an important part of our country strategy to improve our position in the projects market, while also being highly sustainable. We have already enjoyed success with this product, which was selected for the prestigious Vanke Daming Palace project in Xi’an.
With investments across multiple digital platforms, the star performer in our global digital agenda is our award-winning Visualizer app. First launched in June 2014, it has been downloaded more than eight million times to date, in over 40 markets. Towards the end of 2015, we launched version 2.0, which includes additional features such as the ability to use the Visualizer on exterior walls. It also has enhanced photo functionality (allowing users to share ideas on social media), scrapbook registration and improved color visualization.
We have considerable experience of successfully selling to professional painters around the world. Given their importance to our business, we make it a top priority to better understand painters while also providing support and inspiration. A good example of this commitment can be seen in Brazil, where enhancing our relationship with professional painters forms a key part of our plan to win locally. Our painter program includes producing so-called “hero” products, which have strong attributes relevant to painters. Two such products are:
- Coral Rende Muito – a value-for-money proposition which leads the standard walls segment in Brazil
- Coral Acrílico Total – a premium walls proposition delivering superior opacity, resistance and washability when compared with other Brazilian premium wall paints
To support conversion to these products, we provide significant training and support, while e-enabled loyalty programs reinforce the relationship – our “Clube de Cor” program has 45,000 active members and is the largest in Brazil. We also place particular emphasis on making an emotional connection with painters and building pride and a sense of purpose.
Our Integrated Supply Chain agenda has been linked to our strategic agenda for some time. Having completed a major footprint rationalization, our focus is now shifting towards operational excellence based on the company-wide AkzoNobel Leading Performance System (ALPS).
We continue to drive the “flourish” brand. At the same time, we are continuing to build and strengthen our regional professional brands, while also ensuring full alignment across brands, businesses and initiatives. For example, all of our “Let’s Colour” activities are fully aligned with, and supportive of, the company’s Human Cities initiative. We are also fully in line with, and actively promote, the Planet Possible sustainability agenda.
We are recognized around the world for our commitment to sustainability, which is a key driver in all our plans to win locally as part of the overall AkzoNobel Planet Possible agenda. This recognition is based on a very strong product portfolio from a sustainability perspective. In China, for example, PCHouse (the number one vertical website) has indicated that our “non-additive” products are ranked by Chinese consumers as the most preferred paint products. However, this recognition also goes beyond products. In the UK this year, we were awarded the Carbon Trust Triple Standard, becoming one of the first companies to be recertified for all three Carbon Trust Standards for reductions in greenhouse gas emissions, waste and water usage.
We continue to reduce the environmental impact of our own operations and products and are increasingly working with our suppliers to do the same. We are focusing in particular on reducing our carbon footprint (including VOCs), identifying opportunities to promote waterborne paints where possible, and offering products with additional sustainability benefits.
This is a key profitability measure and is calculated as operating income as a percentage of revenue.
This is a key profitability measure and is calculated as operating income as a percentage of average invested capital.
Mature markets are comprised of Western Europe, the US, Canada, Japan and Oceania.
AkzoNobel Leading Performance System.
The carbon footprint of a product or organization is the total amount of greenhouse gas (GHG) emissions caused during a defined period, or across the total or part of a product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.
Volatile organic compounds.