3 February 2005 Edition
Company juggernaut on the roll
Warning — a 'juggernaut' is on the roll. No, it's not just hype but the actual word used by the new owners of Procter & Gamble and Gillette to describe their global business plan. The two giant international companies are to merge into one of the world's largest consumer product companies.
The merger is just one of the examples this week of the power that private firms have over not just consumer spending but government policies and the simple day to day activity of how we live.
In Ireland, recent examples of this trend have been shown in the fallout over the Greencore beet processing plant closure in Carlow and the inability of either government or communication regulators to tackle the perceived profiteering of Vodafone and O2 in the Irish phone markets.
BILLION DOLLAR BABIES
The newly-merged company will have control of 21 brands that each generate annual sales of over $1 billion. Some of the billion dollar brands include the Gillette Mach 3, Duracell, Pringles, Oral B, Crest, Oil of Olay, Right Guard, Head and Shoulders, Pantene and Pampers.
The brands' owners will also spend over $10 billion on advertising over the next year trying to convince you to buy their products. 6,000 workers will lose their jobs out of a combined work force of 140,000 workers.
TAKING ON WALMART AND TESCO
The revenues earned annually by the enlarged Procter & Gamble are not far off the annual spend of the Irish Government, but for the new consumer giant there is a fear that they are not big enough take on the might of Walmart, Aldi and Tesco.
It seems that dealing with governments and consumer demands is only one of the problems facing your modern transnational giant; there are other more powerful companies lurking out there.
So where does that leave the consumer? It seems that they are at the lowest rung of a long ladder. Take the example of the simmering dispute that has developed in Ireland between Tesco and Musgraves, who own Supervalu, Centra and Spar brands, over who has the cheapest grocery prices.
The firms are at war over publicity that would show one company more expensive than another, but this is about consumer perceptions, not really about consumer interests.
BELOW COST SELLING
It falls to the Government to protect the consumers' interests and this week the Dublin Government's consumer policy group is to recommend the lifting of the ban on below cost selling of groceries. The ban was introduced in 1987 to stop the larger retailers and their suppliers from undercutting smaller rivals and driving them out of business.
The lifting of the ban will make Tesco, Aldi and others happy, but is it better in the long run. The Groceries Order is a very important lever for the government in dealing with the retail sector. Why are they giving up one of the few tools of persuasion they have left in the face of the growing power of multinationals, who have more economic clout than a small government like the Irish one?
A more pertinent example of the powerlessness of government has been shown in the handwringing by ministers Mary Coughlan and Tom Parlon over the decision by Greencore to close its Carlow sugar beet processing plant with the loss of 320 jobs. Thousands of Greencore workers, beet farmers and their families took to the streets of Carlow to protest last week.
The Government, though, is still a shareholder in Greencore, the company it privatised but now finds itself powerless to control, even when national interests are at stake. Now the government has to get legal advice to find out who owns Ireland's EU sugar quota. It is currently allocated to Greencore, who are profiting from it. This shows the power of corporations in everyday life, where the assets of sovereign governments fall easily into their hands and their control and out of the hands of the ordinary people.
RAY BURKE'S SHELL CONNECTION
It is a further irony and another example of this process that today Shell will announce record profits of approximately $18 billion. It still has to convince shareholders that it has bounced back from the disclosure of massively overestimated oil and gas reserves.
A help in that direction will be the still untapped gas reserves in Ireland's Corrib fields off the Mayo coast. Shell hold the rights through the acquisition of Enterprise Oil, who got them for virtually nothing courtesy of former and now jailed Fianna Fáil TD Ray Burke, during one of his ministerial stints.
The ability of business to profit from Government policies does not end there. Figures published last week show that in 2004, Vodafone and O2 consolidated their control of the Irish mobile phone market and the substantial profits that flow from it.
02 added 91,000 consumers in the last three months of 2004, compared to 39,000 new customers for Vodafone. The figures now mean that 02 has 1.516 million subscribers, compared to 1.93 million for Vodafone.
It must have been happy news to the two phone giants, as Ireland is one of their most lucrative markets. The average 02 customer spends €564 every year, generating a total annual revenue of €855 million.
Vodafone customers spend €602 each year, an annual total revenue of over €1.1 billion. What is interesting about how the two companies operate is that it shows how businesses make up the rules as they go along.
In the case of the consumer product sector that Procter & Gamble operate in, bulk buying and selling generates huge discounts, but this is not the case in the mobile phone market.
NO PHONE DISCOUNTS
Irish people use their mobile phones more than any of their European counterparts, yet receive only piecemeal discounting from Vodafone or O2, even though both companies have a huge control over the handset market, as it is through their shop network that phones are bought.
It is only in recent months that 02 and Vodafone have moved to stop billing customers unfairly for roaming calls received and have moved to establish all-Ireland tariffs for cross border mobile users.
COMREG, the Irish communications regulator, is actively trying to force O2 and Vodafone to open up their mobile networks to competitors. However, in both cases these companies operate under a franchise given to them from the Government, who never built in any profit clawback clauses nor, it seems, enough protection for the customer.
It seems that once again the company is king!