Investment in digital has now hit 20 per cent, up from 17 per cent in 2013, as the FMCG giant looks to better target consumers with relevant messages across digital, social and mobile channels. That is in line with the wider market but trails rival Procter & Gamble, now spending upwards of 30 per cent of its media budget on digital.
Speaking on a conference call this morning (23 October) following the announcement of Unilever’s third quarter results, chief executive Paul Polman said the shift to digital was resulting in “better ROI” because returns exceed those on more traditional media “when digital is done well”. However, he ruled out any big cuts in marketing spend.
“On brand and marketing investment, spend has been and will continue to be competitive. We want to start next year with momentum,” he said.
Unilever says it is making progress in its stated aim of cutting non-working media spend – production costs and agency fees, for example – which Polman admitted had been at “embarrassing levels” five years ago. He said Unilever has reduced such costs by four percentage points to 20 per cent, saving the company around £100m.
“This is a proxy of having a simple, effective global and local organisation in terms of supporting brands,” he said.
The changes to media spend are part of wider cost-cutting measures at Unilever aimed at boosting profitability after the company reported its weakest sales growth in five years following a slowdown in China and fall in European sales. However, Polman said Unilever would avoid any “disruptive, big bang restructures”, instead taking a “continuous improvement approach”.
That suggests there will be no dramatic culling of brands like its rival P&G, which announced plans to get rid of up to half of its brands. Instead, Unilever is slowly disposing of non-core brands as and when the opportunity arises, having recently sold Slim Fast and Ragu this year.
In Europe, price deflation in markets including the UK caused mainly by a drop in the price of ice cream and spreads hit sales. Polman said the increasing popularity of discount chains such as Aldi, Lidl and Poundland is having an impact on its business, forcing the company to focus on £1 ranges and larger pack sizes.
However, he said turnover from the discounters is now more than €1bn and that margins are in line with the rest of the business. Unilever has set up a dedicated team to work with the discounters.
“Rather than see them as an enemy we see them as part of the business. We need to serve the shopper and the shopper has decided to go more to discounters than traditional retailers,” he said.
Overall, underlying sales increased 2.1 per cent in the third quarter, down from 3.7 per cent in the first half of the year. Sales in emerging markets slowed to 5.6 per cent and were down by 2.5 per cent in developed markets.
To reboot sales, Polman said Unilever would continue to invest in its core brands and providing value for customers through innovations and new products. He cited premium products such as Tresemme and toothpaste brand Regenerate, which retails at £10 in the UK and he claimed had “good rates of trial and repeat purchase”.