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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.

Meanwhile, a hullabaloo flared up in Germany over squashing democratic discussions on whether or not taxpayers should endlessly pay to keep Greece in the Eurozone. Read.... Gagging The “Hardliners” As The Economy Tanks And Future Exports Drop Into The Red Zone.

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Reader Comments (14)

Very, very sad. I love Europe. But...I don't think we're far behind.
August 29, 2012 | Unregistered Commenterjohnnygeneric
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.
August 29, 2012 | Unregistered Commenterachat or
johnny - I think we're already on the way. I didn't want to mention this in my post because it's a different topic, but at Safeway, OJ cartons that used to be 1/2 gallon (64 ounces) have been cut to 59 ounces during the financial crisis. Look exactly the same. Most people never realized it. That kind of thing happens all the time. Or quality goes down....
August 30, 2012 | Registered CommenterWolf Richter
"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.
August 31, 2012 | Unregistered CommenterJuno
What I always do now, unfailingly, is to check the €/kg or €/Litre price of anyhting I buy at the supermarket. It's the only way to check if you're being swindled by the packaging!
August 31, 2012 | Unregistered CommenterRMagnifico
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.
August 31, 2012 | Unregistered CommenterSteveK9
Herr Richter,

A "cascade into an Odyssey"??!! This title must break at least 2-3 rules of good writing.

I have noticed that you keep repeating the same meme in your posts: the poor German taxpayers who are not consulted over having to bail out the "others." Can't you see the correlations between that and the other phenomena you describe? You're not much help, if you can't. Sorry if I can't muster a lot of sympathy for those poor taxpayers when German banks are borrowing at sub-zero percent and lending to Greece at 6%.
September 5, 2012 | Unregistered CommenterGreek Observer
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.
September 6, 2012 | Registered CommenterWolf Richter

I should send you an email I sent to my kids to clue them in on how inflation works. I lived through the inflation of the 70s here. My introduction was while working at an appliance store for the summer and part of my job was loading the Coke vending machine and sorting through the empty glass bottles. The 12 ounce glass coke bottles mysteriously wouldn't fit in the wooden crates (subdivided by stiff wooden slats)...but yet some did. WTF?

Turned out the new bottles were 10 fluid ounces and slightly thinner.

I watched Krispy Kreme donuts that I would buy at 8 cents a donut rise dramatically in price due to the price of sugar just going bonkers (Yeah. I'm from the south where we had KKDs all over the place back then).

Penny gumballs disappeared.

I was a teenager at the time who finally had some spending money and I watched prices rise every month. Since I lived off of fast food at the time (and yet surprisingly remained thin as a rail!) I would track the prices. It was crazy insane. And that was mild inflation. That wasn't even the hard stuff. I remember we would all complain that companies were raising their prices because they could and mask it as inflation. Maybe that was true. Thank God I lived at home and mooched off my parents while I was in college.
September 6, 2012 | Unregistered Commenterjohnnygeneric
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.
September 8, 2012 | Registered CommenterWolf Richter
This former Perotista understands the downward spiral of Western economies, because I paid attention when multi national corporations began pitting us against each other in world commerce.

Sir James Goldsmith wrote a brilliant editorial back in the mid 80's - outlining exactly how America would be destroyed by 'world trade'.

Our standard of living would plunge as we competed with people working for pennies a day - until a balance of poverty was reached. Middle Class Americans had no chance of survival when pitted against East Indians and Chinese workers.

So now we all look at each other and ask, "What happened?"

The idea that multi national corporations decide economic policy for every Western Government is economic suicide. There are no AMERICAN corporations - these are multi national monsters - who prey on world populations.

Why are they still operating?

Voting Obomney won't help you.... or me. We have all been betrayed by a political system offered up to the highest bidder.

So when do we start dragging guillotines through the streets of DC and New York?
September 30, 2012 | Unregistered Commentercward
I can't help but agree with 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.
September 30, 2012 | Unregistered Commenterjohnnygeneric
"So when do we start dragging guillotines through the streets of DC and New York?"
That would be terrorism, I can almost already hear the humming sounds of wardrones drifting into the cities..
Remember, killing humans is only allright if you do it by slowly depriving them of their needs and find ways to blame it all om the same people.
Being unemployed, poor, ill, depressed, etc. is a choice blabla....
October 2, 2012 | Unregistered Commenterrijkswaanvijand
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.
October 9, 2012 | Unregistered CommenterTigger

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