Unilever has pledged to ramp up marketing investment behind its brands to maintain market share in the face of rising inflation.
In its third quarter 2022 results, the owner of Hellmann’s, Ben & Jerry’s and Dove, said it expects to “increase spending in brand and marketing” through to the end of the year as it has done in the first half.
CEO Alan Jope told investors on a call today (27 October) Unilever has been “gaining share”, claiming 80% of its brands are either holding or gaining “brand power”.
“We have been gaining market share and that’s a consequence of our brand health, the investments we’ve made, not just in advertising, but in product quality,” he said.
Unilever saw turnover hit €15.8bn (£13.7bn) in the third quarter. Underlying sales growth accelerated to 10.6%, driven by price at 12.5%, with volumes declining 1.6%.
“Taking price increases is not easy and we’re very mindful of the pressure that this puts on consumers,” admitted Jope.
However, he repeated his previous assertion that price increases are necessary to allow the business to invest behind its brands and deliver products which set the company apart.
“We’re investing more in product quality and brand support to ensure that they offer superior performance and value,” Jope added.
In its European markets, Unilever is starting to see changing consumer behaviour in reaction to the inflationary environment, said chief financial officer Graeme Pitkethly.
Our business groups are taking decisions more quickly and driving sharper strategic action.
Alan Jope, Unilever
“They’re having to make trade-offs to respond to higher costs of groceries and utilities, and they’re deploying a range of coping strategies for that,” he said. “For example, we saw private label penetration grow in some categories, such as in-home ice cream and household care.”
Pitkethly also noted ecommerce growth is slowing as consumers return to in-store shopping.
As the business seeks to increase price in reaction to the current economic environment, Unilever expects to see market share for its brands drop, albeit temporarily.
“We have previously flagged that by taking the lead on price we would expect to see a short-term drop in share and we may see business winning dip below 50% in the coming months, but that will be temporary,” predicted Jope.
Reflecting on the Unilever results, GlobalData sector head of health and beauty, Sofie Willmott, warns the price increase strategy could have an impact going forward.
“Although prices are rising across many product areas and shoppers are highly aware of this, there will be a limit to how far consumers can stretch, so Unilever must be cautious about further increasing product prices that have already risen steeply, as this strategy is unlikely to continue to be successful next year,” she states.
A restructured business
This is the first time Unilever has reported quarterly results “through the lens” of its five new business groups. The company reorganised its structure into these groups – beauty and wellbeing, personal care, nutrition, home care and ice cream – in July.
“Our business groups are taking decisions more quickly and driving sharper strategic action,” claimed Jope during the call.
In the third quarter, growth was particularly pronounced in the home care and ice cream groups. In home care, underlying sales increased 13.6% over the period, driving €3.2bn (£2.8bn) in turnover.
Unilever’s ice cream segment grew 13.2% during the third quarter, with turnover of €2.4bn (£2.1bn). Jope said volume in ice cream was driven by the group’s out-of-home business, which was backed by “a great marketing and innovation agenda”, as well as a particularly hot summer in Europe.
The company’s nutrition division saw underlying sales growth of 11.8%, achieving turnover of €3.3bn (£2.9bn).
Meanwhile, growth in beauty and wellbeing, and personal care were weaker. Underlying sales rose 6.7% in the beauty and wellbeing division, delivering third quarter turnover of €3.3bn (£2.9bn), while sales in the personal care sector increased 8.9% to achieve turnover of €3.6bn (£3.1bn).
Jope pointed out the business is still seeing growth in its beauty and wellbeing division, highlighting the prestige category as one experiencing double-digit growth ahead of industry averages. Noting that in the past there have been higher pressures on beauty care related commodities, he added the business is expecting a “shift”, with lessening pressures in this area and greater pressures on agriculture.
Last month, Alan Jope announced he would be retiring from Unilever at the end of 2023. On the call today, he signalled he did not wish to go into detail about his departure.
“For now, it’s business as usual and my team and I are truly focused on the task at hand running this great company,” he said.
Under his leadership, Unilever has faced criticism for its purpose-led growth agenda. At the beginning of this year one of Unilever’s major investors, founder of Fundsmith Equity Fund Terry Smith, publicly slammed the company’s focus on purpose as “ludicrous”, partly blaming it for the firm’s underwhelming performance in 2021.
“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot,” Smith wrote.
However, today Unilever highlighted Hellmann’s as a “standout” performer. Jope said its ‘Make Taste, Not Waste’ campaign “continues to drive outstanding growth”. This campaign is centred around the mayonnaise brand’s purpose of reducing food waste.