Unilever defends zero-based budgeting as emerging markets provide cheer for Q1

Unilever says zero-based budgeting will help it to achieve up to 10 years of growth as the FMCG giant toasted positive sales in emerging markets during its first quarter.

unilever

For the three months to the end of March, Unilever saw sales fall 2% to €12.5bn (£9.94bn) as ‘unfavourable currency movements’ – in particular, a weaker Euro – hit overall sales by 7.1%. In comparison, the FMCG giant saw sales increase 12.3% to €12.8bn (£10.2bn) for Q1 2015.

It was emerging markets that created headline growth, with sales growing 8.3%. In comparison, sales in developed markets grew by just 0.3%.

Unilever’s CEO Paul Polman said the FMCG giant was “maintaining momentum despite a tougher external environment.”

Defending zero-based marketing

Speaking on an investor results call this morning (14 April), Unilever’s chief financial officer Graeme Pitkethly defended its recent adoption of the controversial zero-based budgeting, in which marketing teams justify spending on all new brand activity rather than budgets being based on the previous year’s spend.

Pitkethly said the zero-based budgeting approach had been welcomed by the business as it was highly “data driven” and all about “eliminating waste”.

He told investors: “It will give us greater visibility to what is being spent and by whom. We have found business leaders for 18 company segments, who will then agree savings with budget holders.

“We’ll start with our 22 largest markets, then move on with next 60 countries after July for the remainder of the year. This is not for the short term, but looks into the next five to 10 years of growth.”

READ NOW: Mark Ritson: Why Unilever is right to adopt zero-based budgeting

Adopting a ‘functional model’

During the call, Unilver also announced wider organisational changes. It said it is adopting a new “functional model” internally in a bid to keep up with technological changes, make the organisation more agile and become more consumer-centric. While Pitkethly was vague about how exactly it will be implemented, he said the new model together with its zero based budgeting will provide Unilever with €1bn in savings by 2018.

He added it is still in the “design phase” of the new model but that it plans to implement it globally in the second half of this year.

“The world is changing rapidly and more global in many ways. Yet consumers are identifying with local cultures and there are more local competitors. So we’re now taking the next steps to evolve our organisation,” he explained.

“While we’ll keep our eight clusters of countries, the new model will make us faster, more consumer centric and will help us speed up the adoption of new ideas and technologies.”

Graeme Pitkethly, chief financial officer, Unilever

The new functional model will introduce clearer accountability and faster decision-making but at a lower cost, according to Pitkethly. It will “run parallel” to the zero-based budgeting strategy.

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