Unilever’s new CEO has indicated he will be pushing product superiority up the agenda, as the company reports modest margin growth for the first half of its financial year.
Speaking to investors for the first time since taking over from Alan Jope at the beginning of the month, Hein Schumacher outlined his enthusiasm for dynamism within FMCG and at Unilever.
And while he said he has “been impressed by a lot” of what he’s seen in his first few weeks at the company, he believes “there is a real opportunity to step up our performance and competitiveness and drive significant value creation ahead”, particularly around product superiority.
“I want to see more of our products performing better than the competition,” he told investors on a call today (25 July). “Our brands should be winning superiority tests week in, week out, and when they are not, we should be taking decisive action.”
He added that in FMCG consumers have the “final say”, meaning it’s essential to assure products outperform the competition. Less than half of Unilever’s business (41%) is winning share on a rolling 12-month basis, according to its latest results.
I want to see more of our products performing better than the competition.
Hein Schumacher, Unilever
Under the leadership of Unilever’s previous CEO, the company had come under fire from investors over its focus on brand purpose, with allegations it was putting purpose over product.
Today, Schumacher indicated product was going to be a priority for him during his time leading the consumer goods giant. Last month, Unilever’s top marketer Conny Braams, who herself will be departing the company in August, stated that having ‘right product at right price’ should come before purpose at the business.
Investing in brands
Alongside product superiority, Schumacher outlined a keen focus on the innovation pipeline and sustainability.
He also shared his intention to continue to lean into Unilever’s new business structure, which was enacted last year. This structure divides the company into five category-orientated business groups, such as ice cream, nutrition and personal care.
Schumacher said he wants to continue to build on this structure and strengthen a “performance culture” at Unilever.
Chief financial officer Graeme Pitkethly claimed the new business structure has delivered “bigger and bolder investment decisions”. He gave the example of Unilever’s personal care business sponsoring the FIFA World Cup. This deal has commenced with the current Women’s World Cup and will run until 2027.
“It would have been very difficult for a global investment of this scale to be made under the complexity of the old organisation,” Pitkethly said.
The company invested an extra €400m (£344m) behind its marketing in the first half of 2023, with the majority of that investment made behind consumer-facing media. Unilever had committed to continuing to step up its marketing spend in 2023, after it invested an additional €500m (£430m) last year. It spent around $7.5bn (£5.4bn) on marketing in 2022.
Gross margin expansion is a priority for the business, Pitkethly added, but at the same time, the company remains committed to stepping up investment behind its brands as it enters a new era of leadership.
Today, the company, which owns brands such as Hellmann’s, Persil and Dove, reported a profit of €5.2bn (£4.5bn) for the six months to the end of June, this represents a 3.3% increase on the same period last year.
Its gross margin is also showing signs of improvement, growing 30 basis points year over year to 0.3%. However, this still remains 270 basis points below 2019 levels. The improvement, although modest, reflects a strong focus on pricing and savings, Pitkethly told investors.
The company’s turnover increased 2.7% to €30.4bn (£26.2bn).
The 9.1% underlying sales growth reported by Unilever was driven by this pricing action. The company saw a 0.2% sales decline in the half year, offset by a 9.4% price increase.
In particular, Europe saw a sharp drop in volume sales, which declined by 9.7%. A 15.5% price increase helped sales remain in growth of 4.3%.
The results are deemed “solid but uninspiring” by Wealth Club manager of the quality shares portfolio Charli Huggins.
“The question is – should Unilever be doing better? The answer is almost certainly yes. Margins remain well below pre-pandemic levels and below the bonnet of that robust underlying sales growth there are problems,” Huggins says, highlighting Europe as a particular sore spot.