Can Unilever avoid P&G-style turmoil?

Unilever executives reflecting on the company’s reorganisation, announced last week, will be praying that it is executed less brutally – and more effectively – than the recent restructure at its rival Procter & Gamble.

Some observers have drawn parallels between the two recovery plans, which is worrying for Unilever insiders.

P&G’s 2005 initiative – which aimed to double sales to $70bn (&£46.6bn) by 2005 – led to widespread confusion among employees. Executives were moved around Europe into new roles and encouraged to rush products to market.

It has produced such turmoil at the company that its architect Durk Jager was moved out of the chief executive’s seat two months ago, and was replaced by Alan Lafley.

The announcement of Unilever’s top-management shake-up, which falls short of the speculated full de-merger, was made last week in a second-quarter report showing a 14 per cent fall in profits.

The restructure splits Unilever into two global divisions – one for foods and the other for home and personal care – to help refocus on its core brands.

The move follows Unilever’s long-awaited acquisition spree, which included Bestfoods, Ben & Jerry’s Home-made and SlimFast Foods.

Unilever’s worldwide foods business will be run by finance director Patrick Cescau, and the health and personal care division will be headed by Keki Dadiseth, formerly at Hindustan Lever. Alexander Kemner, current foods category director, plans to retire next year.

Where the global divisions will be based has yet to be announced. Unilever insiders believe that since BestFoods is based in the US, the food division’s top-level structure could operate from the US. Within the UK, brand names Van den Bergh and Birds Eye Wall’s would continue to exist.

Martin Christopher, professor of marketing and logistics at Cranfield School of Business Management, says: “Unilever seems to be going through a change from local to regional to global, which may be inevitable, but in terms of supply-chain management it could be horrific.

“This is the same mistake P&G made when it tried restructuring in a similar fashion. In fact, Unilever should have been careful of moving too fast and too quickly like P&G.”

But he adds that the hasty reorganisation could be good news for the company’s shareholders. It comes at a time when Unilever shares have under-performed on the FTSE All-Share index by 35 per cent over the past year and its peer UK food groups by 18 per cent.

An industry source says: “The move to split the businesses into two is sensible for Unilever and similar to what P&G did by separating its foods and household-cleaning and laundry products.

“But it also needs to be remembered that the two are not identical. Unlike P&G, foods are one of Unilever’s key operations.

“Within its core brands, Unilever by the nature of its structure will be even-handed in divesting food or household products. It is a good strategy, both for the company and its shareholders.”

Analysts claim that Unilever’s realignment is aimed at appeasing restive shareholders.

But the company claims this view is “simplistic”. A spokesman says: “We are focusing on brands right now. The reorganisation is about putting the top management structure into place and aligning better to enable us to achieve our plans and goals. This certainly would improve matters for shareholders in the long run.”

Simon Knox, professor of brand marketing at Cranfield School of Business Management and a former Unilever marketer who worked on the detergents and foods sides of the business, says this move is simply “making something happen in the market”.

Knox says: “Nothing earth-shattering is happening with the announcement of two separate divisions, because food and home and personal care products have been different businesses all this time.

“It is simply a formalisation of an apparent structure that always existed. I don’t think that the company will eventually split up, because there are stronger margins in personal care products than in foods.”

The Unilever spokesman says: “The restructure puts into place our various strategies and plans to make the company move forward.

“We have been reorganising our businesses since 1996 and this announcement follows that. This is an evolutionary change and not a revolutionary change.”

The company, which manufactures the Persil laundry range, Dove soap and Magnum ice cream, says that the realignment is part of its earlier plan to divest 1,200 of its 1,600 brands and concentrate on its 400 main brands.

Meanwhile, BestFoods – the US owner of food brands such as Hellmann’s Mayonnaise, Knorr soups and Marmite – is being integrated with Unilever’s new foods division, within which an ice cream and frozen foods unit has been set up.

One industry observer says: “For some time, the only food business that Unilever was recognised for in the US was its Lipton tea brand. Now, the acquisition of more food brands makes the creation of a foods division a logical progression.”

It will be some time before the full extent of the reorganisation becomes apparent, and it runs in tandem with a plan to cut ten per cent of the workforce, or about 30,000 jobs. Unilever joint chairmen Niall FitzGerald and Antony Burgmans will attempt to avoid some of the mistakes made by P&G in implementing its new structure.v