Unilever has admitted that it needs to up its game when it comes to product innovation after making sweeping changes to the structure of its European Foods Research & Development division.
The consumer goods giant is creating six food innovation “centres of excellence” across Europe with an office in each of its 21 operating regions to develop “market leading” product launches (MW last week). The restructure is part of its One Unilever programme introduced by chief executive Patrick Cescau and will be implemented over the coming two years leading to 240 job losses.
A Unilever spokesman says the new centres will mean “game changing innovations” and adds: “We’ve had some great product innovations that have had a big impact on consumers, such as Flora Pro-Active and Knorr Vie Shots, but these are not frequent enough and the ones that have come along have not set themselves apart.”
The company recently launched its first major new brand in 12 years, the soya-based AdeZ range of fruit drinks, in an attempt to tap into the booming health drinks sector but it traditionally focuses on extending its core brands incrementally.
In Europe, recent launches have been concentrated in the health food segment with the introduction of the Flora Omega 3 probiotic mini drink, a category that has experienced massive growth in recent years, driven largely by Japan’s Yakult brand, alongside Knorr Vie Shots – a range of fruit and vegetable drinks fortified with vitamins.
Panmure Gordon analyst Graham Jones views the latest restructure as a continuation of its “strategy of refocusing and organising the business in a more logical way”. Jones says that while the company has had some success in developing new products, particularly on the personal goods side with its Dove range of deodorants, it has failed to “maintain a constant flow of innovation across its brands”.
Unilever has long been criticised for its sluggish rate of innovation compared with rivals like Reckitt Benckiser and its supposed over-reliance on increasing advertising spend to boost sales. Following the lacklustre performance of its European home and personal care business, which lost market share during the course of 2005 – particularly in the UK, it seems the challenges around innovation extend well beyond the consumer giant’s food unit.
One city source suggests there are further structural changes to come, with Unilever preparing to combine its two separate research arms and install a new head of research to oversee the operation while slashing the number of projects by two-thirds. The source says the changes are being driven by an acknowledgement that its efforts around innovation to date have been “too fragmented”, compounded by weak leadership and a short-term focus.
However the Unilever spokesman says it plans to “shift some resources” across the research and development arm of its UK home and personal care business to focus on its “highest growth categories” but will continue to run the two sides of the business as separate entities.
While third-quarter results showed promise, analysts remain cautious about the sustainability of future growth, due largely to the difficulties in gauging the success rate of innovation. The restructure is viewed as a step in the right direction for Unilever but, as margin pressures continue to weigh heavily on the business, the move is far from the solution to all of its problems.