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Brambles CEO shares his thoughts

Mr Tom Gorman, CEO of pooling solutions and record management company Brambles (ASX: BXB), recently provided an insightful interview with the team at Business Spectator.

One of the most interesting questions was asked by interviewer Robert Gottliebsen regarding the recent failure of competitor iGPS, the plastic pallet company that tried to take on Brambles’ wooden pallet  in the USA. In response to the question of where iGPS went wrong Mr Gorman replied, “the business model didn’t work. They came to market with a much more expensive asset than we provide to the market and it didn’t really offer anything additional to the consumer, and that was proven by the fact that they got no pricing premium.” Gorman’s answer really highlights what is so attractive about Brambles business model and the reason it enjoys a moat around its business.

Gorman still sees plenty of growth potential in the USA and provides a blunt assessment of issues that he has had to address. Gorman believes Brambles became a victim of its own success in the late 1990s and 2000s and began focussing on itself rather than on its customers. That customers were unhappy with the service Brambles was providing is what gave iGPS the opportunity to enter the market and grab market share. Brambles has since recovered many of its lost customers and improved “what was broken” about the business in the USA.

Oddly, the USA business lags other regions in terms of product offering. A diversification strategy in the USA more in line with other regions – such as display platforms and reusable plastic containers – is expected to drive growth into financial year 2014.

On the issue of lost and stolen pallets, as Gorman put it, “these things do not walk home!” There is no simple solution but Brambles certainly appears to have learnt from its earlier mistake when it discovered there were literally millions of pallets unaccounted for.

Given Brambles operates in over 55 markets, the company is somewhat of a barometer for the global economy. Gorman’s view of the outlook for regional economies is that the USA had improved its fiscal position and housing dynamics but high unemployment was creating a drag on consumption, which is what Brambles is leveraged towards. In Europe, Gorman still sees plenty of headwinds however Brambles’ move into the regions of Turkey, Poland, the Baltics and the Balkans are proving to be high growth areas. His outlook for Australia is “muted” with consumer demand below his expectations — a view that would appear to be in line with major Australian retailers such as Myer (ASX: MYR) and Harvey Norman (ASX: HVN).

Foolish takeaway

Brambles is certainly not the first company to lose focus on its customers as it grows and it surely won’t be the last. The strength of its moat and business model which allowed it to see off competitor iGPS is a reminder to investors of the benefit of owning outstanding companies.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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