The “Pauperization of Europe”

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.

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  7 comments for “The “Pauperization of Europe”

  1. achat or says:

    I'm still in shock when I here that Europe is experiencing economic downfall, but come to think of it who does not experience this kind of thing? If your search on the net, you will see that its not only Europe who is experiencing this kind of situation. There are a lot more countries struggling, so I think like the others, Europe will survive this one.

  2. Juno says:

    "highly regulated, highly taxed…" and a continuing real income divide. The accumulation and concentration of wealth in a shrinking percentile is the obverse of your valid Post that confirms pauperisation.

    This is an ugly and unwanted hollowing out of the goal of adequacy, enough to eat, access to health, education and self-realisation.

    People do not choose or aim to be poor, pauperisation is a terrible slide that neither economic nor political practice have changed.

  3. SteveK9 says:

    With technology at the level it is today, this is all self-inflicted. A failure of leadership and the fact that many people enjoy kicking others.

  4. Wolf Richter says:

    Greek observer – I've stated many times that most of the bailout money won't go to the Greek people themselves but to bondholders, now mostly the ECB and national central banks.

    I've written numerous posts that criticize all taxpayer-funded bailouts of investors in failed, over-indebted institutions or countries. Default is the better option. Investors should take losses, not taxpayers.

    We Americans got shafted worse than anyone during our bailout mania and continue to get shafted via financial repression – a common meme in my posts. We never had an opportunity to say no to the Fed's action or to TRAP – and Wall Street is clamoring for more Fed action, regardless of how destructive it is for the real economy – another common meme in my posts.

    Germans now actually have an opportunity to say no. An election is coming up in 2013, and they can make it part of the political debate, and vote on it (if their politicians dare to represent the no-bailout view, which didn't happen in the US where both Obama and McCain as candidates supported TARP, and neither said a word about the much larger actions the Fed was undertaking).

    Concerning your last line: central banks are pernicious corrupt institutions – another common meme in my posts. Browse around a little on my blog … you'll find them.

  5. Wolf Richter says:

    Johnny – by all means send me the email. I was in college in the seventies, in TX, and worked as a security guard at night. I got a COLA just about every month, and for a while it felt good getting more money, until I tried to spend it…. Inflation is insidious. And to quote my hero, Paul Volcker, there is no such thing as good inflation.

  6. I can't help but agree with you…to a certain extent. Back in the late 90s I would say to people "what are we going to when the bean counters look at the numbers and loudly exclaim "My God, we should make EVERYTHING in China because it's cheaper!"

    The problem with that then becomes who would the Chinese then sell their stuff to? I would tell my friends who were fretting over all the jobs going to China that not ALL jobs could be going to China or India for that matter. If that happened then all trade would stop.

    It was obvious that a new equilibrium would have to be reached. But I would never have foreseen what has been done to us. But in some ways we have done this to ourselves. Intel's CEO said it wasn't high USA wages that was preventing him from building more chip facilities in the USA. It was government regulation.

    From what I can tell, it's not cheap foreign labor that we should fear that will keep people unemployed. I think it is the use of more automation. Articles I've read state that as more companies "re-shore" to here, the number of jobs aren't returning due to the use of more automation. Maybe this is a straw dog. Maybe more automation increases jobs. I haven't seen any statistics on this. At the most, it means that new manufacturing will help, but not completely alleviate the low employment situation.

  7. Tigger says:

    So when is Unilever going to stop selling us billions of tons of palm oil, palm fat, sodium palmate, stearate, "vegetable oil, fat and suet" etc every year and destroying rainforest, creating CO2, pauperizing indigenous people. making species extinct etc etc etc?

    Or maybe the pauperization of the EU will mean Unilever ripping up billion of acres of vines, orange groves, almond trees, olive groves etc and replacing them with palm oil plantations.

    Not in their own back yard? I wouldn't be so sure. Unilever are a planetary disgrace who have no right to comment on anything.

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