The ART Of Business

The Challenge to Efficiency and Scale

For years, it’s been preached from the highest heights that customers have more choices at their disposal than any time in human history.

We’ve been told that greater efficiencies and scale, along with the world-at-your-fingertips via the Web are all unleashing the “Long Tail” of more options and choices.

But saying so doesn’t make it true.

Consider what Barry Lynn points out in his compelling book Cornered:

Since its 2005 takeover of Gillette, P & G now has U.S. market share in the following categories:

• About 60 percent of laundry detergent
• More than 75 percent of men’s razors
• Nearly 60 percent of dishwasher detergent
• More than 50 percent of feminine pads
• About 50 percent of toothbrushes
• Nearly 50 percent of batteries
• Nearly 45 percent of paper towels
• Nearly 40 percent of toothpaste
• Nearly 40 percent of OTC heartburn medicines
• Nearly 40 percent of diapers
• About 33 percent of shampoo, coffee, and toilet paper

To further limit choice, think about who is P&G’s biggest customer: Wal-Mart. The retailer is America’s biggest seller of books, soda pop, CD’s, DVD’s, guns, tires, clothing and almost any mass-market consumer good you can imagine.

Even in “specialized” areas like eyeglasses, take a look at Luxottica. Until the early 1990’s, buying a pair of glasses was often done at a local “mom and pop” store. Then Luxottica entered the U.S. with the 1995 purchase of LensCrafters.

Again, Barry Lynn:

“In 1999, the Italian firm began to expand in earnest, buying the Ray-Ban brand from Bausch & Lomb. In 2001, Luxottica bought the Sunglass Hut chain of nineteen hundred stores. Then three years later it delivered its knockout blow, seizing control of Cole National, which owned Pearle Vision, as well as the optical departments at Dears, Target, and JC Penney… In June 2007, the company picked up Oakley and three more retailers including Bright Eyes and Sunglass Icon, the main competitor of Sunglass Hut.”

Such consolidation was a mainstay of global capitalism from the late ‘70’s until recently.

Mergers and acquisitions were- except in the most extreme circumstances- greenlighted by governments without question.

Entire industries were altered by the ability of bigger players to swallow-up the smaller ones. Think airlines, telecommunications, food, finance, IT, health care.

In the post-financial crisis era, however, support for less-regulation has wavered, and calls for more government action have risen.

Efficiency and scale are no longer the highest aspirations of many.

Thus, it’s not surprising that here in the U.S. the Department of Justice continues to expand its anti-trust authority.

The current challenge to the merger of AmBev and Groupo Modelo – two beer giants– is only the latest in a series of moves by the DOJ to slowdown or stop industry consolidations.

As the global economy continues to deal with the hangover from the Great Recession, we should expect the pendulum to keep swinging away from less-regulated markets; and more towards government-shaped ones.

The evolution of capitalism continues.

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