Unilever is planning to “invest heavily” in brand and marketing spend in the second half of the year as it looks to come out of the coronavirus crisis strongly and weather the expected economic recession globally.
The FMCG giant cut ad spend by one percentage point in the first half of 2020 – it typically spends 3.5% of its turnover on marketing. That topline figure masks “a dynamic adaption and reallocation” of spend as circumstances around Covid changed.
For example, Unilever cut brand and marketing investment (BMI) by 40% in food service and by 30% in ice cream, but increased spend behind skin cleansing and hygiene categories. On a geographic basis, it cut spend by 15% in China in the first quarter, but then upped it by 16% in the second quarter.
“We have been adapting and reallocating our BMI spend very dynamically on a weekly basis as the status of country lockdowns has changed and consumer habits have altered,” said CFO Graeme Pitkethly, speaking on an analyst call this morning following its first half results.
“We have suspended channels, geographies and categories where local conditions meant investment would have been wasted, but have diverted investment to support the many growth opportunities.”
Unilever has also changed “almost all” its advertising to ensure it remains relevant, switching to messaging such as ‘stay inspired’, ‘home BBQ season’ or ‘summer staycation’. It is also focusing on more purposeful messaging, such as around hygiene for brands where it makes sense like Lifebuoy and Domestos.
We have been very dynamic with our marketing investment and deliberately kept some of our powder dry in managing the challenges of Q2.
Graeme Pitkethly, Unilever
Speaking on the same call, CEO Alan Jope said: “It’s never been more relevant for brands to demonstrate their positive contribution to society and address the issues our consumers care about in an authentic way, so we’re investing more of our marketing spend on communication which is explicitly purposeful. And we’re seeing purposeful brands matter more to consumers and perform better.”
Despite the drop in spend, Unilever says the efficiency of its advertising in the first half had increased as media rates “softened” by around 20% and total ad spend declined. Its share of voice is also “above 100 year to-date”, which it suggests means it has been investing in the right places.
Pitkethly also added that Unilever is “in no way BMI constrained” and plans to up spend in the second half.
“We have been very dynamic with our investment and deliberately kept some of our powder dry in managing the challenges of Q2,” he said. “In the second half of the year we plan to invest heavily as lockdowns ease, consumers learn to live with Covid and we expect significant investment to support brand campaigns and product innovations tailored to this environment.”
Weathering the economic downturn
Unilever appears to have weathered the Covid-19 pandemic better than expected, with underlying sales down by just 0.1% in the first half and 0.3% in the second quarter. Again, though, this masks huge fluctuations in performance.
For example, sales were down 4.5% in Europe in the second quarter due to falling demand for ice cream, food service and personal care products, but up 9.5% in North America due to greater demand for food at home and hygiene products. Across categories, food service fell 40% but brands like Knorr and Hellmann’s experienced double-digit growth, while its Lifebuoy brand was rolled out in more than 50 countries.
Ecommerce has been a particular bright spot, with sales up 49% year on year and accounting for 8% of total sales, up from 6% in the first half of 2019. And Jope said he does not expect online sales to “revert back to pre-Covid levels” when the crisis is over.
That has led to Unilever focusing on digital delivery by, for example, launching an ‘Ice cream now’ home delivery service that helped its food and refreshment direct-to-consumer business grow by 139% in the second quarter.
Innovating in ecommerce remains a priority, but Unilever admitted it needed to cut back on new products and services to prioritise “fewer, bigger” launches.
“We got too carried away on too long a tail of smaller innovation, trying to address every opportunity locally. Concentrating our resources behind fewer, bigger seems to have the impact to better growth,” said Jope.
“It is not just chopping off the tail, that is the easy bit, it is actually retooling the innovation programme to be relevant for the times we are in. That will generate more incremental turnover.”
Despite the positive results, Unilever warned that the route out of Covid would not be easy, with Pitkethly saying he expects a “two steps forward, one step back dynamic”. And with economic recession looming, Unilever acknowledged that value and pricing would become more important.
“The only certainty is there is a huge range of possible outlooks all with differing assumptions driven by the scale and impacts of lockdowns, consumer spending and the timeline for a vaccine,” he explained. “We believe talk of a quick recovery is at the optimistic end of the scale.
“A deep global recession has already started and consumer habits are changing quite dramatically. In a recession, the role of price, value and affordability will be paramount in driving the penetration of our brands and we know this is an area of strength and deep experience for Unilever.”