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What’s Next For Reckitt Benckiser Group?

Reckitt Benckiser (LSE: RB) has been a consumer-goods success story over the past decade. Its share price has been steadily increasing, at a pace some way ahead of its rivals Unilever and Procter & Gamble.

What has been the secret of its success? Well, I think it can be boiled down to one concept: innovation.

When Reckitt & Colman and Benckiser came together at the turn of the century, it was the opportunity for the newly formed company to reinvent itself.

A uniquely creative company

Unilever and Procter & Gamble have been around for a century or more, but this history can be, if anything, burdensome. That is why, periodically, these companies have had bursts of creative destruction — usually to reinvent themselves as leaner, more agile and more innovative operations.

But Reckitt Benckiser, as such a new company, took the opportunity to invent itself as uniquely innovative and creative right from the merger.

Much of this comes down to a far-sighted chief executive, Bart Becht. He gave the company a unique focus on research. What’s more, the aim of this innovation was not to make slight, incremental improvements, as has been the way in the past, but to make step-change improvements.

By making creative leaps, the company was able to beat long-established competitors in many markets. It was also able to acquire companies, and really add value to their brands.

The innovative in the mundane

The group has added extraordinary innovation to the most mundane of products. Take the example of Harpic. Reckitt’s scientists realised that the main issue for toilet cleaners was not actually bacteria, but limescale. So they produced a product that rapidly removes limescale, and its sales have rocketed.

Then there is Vanish.

Now, normal washing powder has a certain amount of stain-removal ability. But add too much stain-remover chemical and you risk damaging your clothes. So why not create a stand-alone stain-remover product that you can add to your wash? With Vanish, Reckitt Benckiser virtually created this category.

So Reckitt has been growing well, but what about future expansion? My view is that this company still has prospects to grow, but not at the pace of earlier years.

The company’s main flaw, as I see it, is that it has weak sales in emerging markets, where companies such as Procter & Gamble and particularly Unilever dominate.

But even here Reckitt Benckiser has the potential to turn this weakness to a future strength. By investing in its emerging-markets presence, it can rapidly grow sales in the developing world. I see this as the next stage in Reckitt’s growth.

Still, as the share price has already increased considerably over the past year, I think this is one for the watch list, rather than an instant buy.

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> Prabhat owns shares in none of the companies mentioned in this article. The Motley Fool has recommended shares in Unilever.