TheGlobal 50 shows generally sluggish top-line revenue growth and a small contraction in margins, while smaller local players are achieving growth by outmanoeuvring them through greater engagement at a local level, and less bureaucracy. What can global fmcg companies do/what is Unilever doing to compete?
Although the economy shows some signs of recovery, we live in an uncertain, unpredictable time. Organisations everywhere need to become more agile and resilient in order to cope with the changing demands of our increasingly unpredictable world.
Organisational agility does not need to diminish with size. You could argue that bigger companies have more opportunities to take intelligent risk and fail cheap. Unilever, being in 190 countries, has developed an organisational model that requires closeness and relevance at local level yet leverages global scale where it makes sense. The challenge will always be to fight the complexities that creep into organisations and focus truly on the added value work. Many efforts are under way to achieve this, from driving clear accountability and responsibility, to reducing layers and increasing spans to simplifying processes where we can.
Resilience is equally important in this environment and that requires both personal as well as organisational resilience. At Unilever we have developed a strong purpose driven model, the Unilever Sustainable Living Plan, which requires decoupling of growth from environmental impact and increasing positive social impact. It aligns people, increases engagement and helps to lead through influence rather than control with devolved decision making across the organisation. You can however not be sustainable if there is no personal sustainability. Hence enormous focus on personal wellness and mental health programs at the same time.
We look at our business results over the longer term, away from quarterly short-termism and are blessed with over 30% growth over the last six years alone and share growth in the majority of our businesses. Increasingly we can proof that a responsible, purpose driven business model , is also a profitable business model.
Given the transformation at Heinz and 3G’s purchase of Kraft – is shedding non-core businesses, cutting costs and focussing on margin a long-term growth strategy? And are we likely to see more global publicly listed fmcg companies being gobbled up by giant private equity funds?
There will continue to be consolidation in the industry and 3G has certainly brought a new dimension of competition especially for now to Food that many will be actively assessing. Lots of emphasis indeed on taking non value added costs out and that affects us all. However it is also good to remember that you cannot save your way to prosperity and growth will continue to be a key component of value creation. The jury on this is still out.
Consolidation is also happening in other parts of the market. Unilever recently acquired Ren, Kate Somerville, Dermalogica and DR Murad. All wonderful brands that make us a major player in premium prestige on top of a strong Personal Care business which has growth over 50% over the past 6 years alone.
Economic growth has slowed in a number of emerging markets, exacerbated by currency volatility. Has this caused a rethink in terms of strategies in developing markets?
In 30 years’ time over 80% of the world population will live outside of Europe or the U.S. We have 60% of our business now in these faster growing markets (developing markets is the wrong word) up from 45% six years ago and that despite acquisitions of the Alberto Culver and Sara Lee brands in Europe and the U.S. Whilst growth might have slowed, it still is well ahead of the developed markets and will continue to be so. Key is that these markets will continue to make the structural reforms needed, more so now when foreign direct investment is slowing down.
How concerned are you about currency volatility? Does it have a material impact on the health of your business or does it simply mask underlying performance?
We need to take a longer term view towards currency volatility. And over time a lot will average out. Being a global company once more provides a natural hedge as well. In local markets, pricing is a function of many variables and over time currency fluctuations will be reflected as well. We however don’t run the business based on currency movements only.
A key global theme has been the fragmentation of consumer tastes – both regionally and within categories – how can global fmcg players tackle this without ceding too much strategic control to individual business units or regions? Is there any operation you have seen – either within Unilever or at another company – that is inspiring?
Whilst the world has become more interdependent driven by technology, financial world and global trade, we see at the same time an increasing need for national identity. Our business model tries to leverage the best of both, recognising that this will always require some trade-offs and resulting friction. As the world evolves, organisational models will have to evolve further.
The UK is undergoing significant structural change as a result of the emergence of a new breed of discounters and the growth of online. As a result, suppliers have been dragged into a real dogfight among the major multiples. How does the situation in the UK differ from the Rest of the World for companies like Unilever?
There are indeed many disrupters like discounters or e-commerce, and in a mature market like the UK which on top has built too much brick and mortar capacity over the years there will be winners and losers. We see it being played out before our eyes. What is clear is that short term focus on shareholder return is not going to lead to the right long term success. Some retailers have experienced that the hard way. It needs a longer term approach where the basic principles of focus on multiple stakeholders, a consumer driven model and strong purpose will help guide. We have been blessed by solid growth, also in the UK, over this period. Yes more innovation, yes taking non value added costs out but above all staying ruthlessly focussed on satisfying the needs of the citizens in a responsible, sustainable and increasingly a more inclusive way.
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