Nipped by upstarts, Unilever decides to imitate them
The world's biggest brands are under siege from an army of insurgents. Unilever Plc, the maker of Dove soap and Hellmann's mayonnaise, is fighting back with guerrilla tactics of its own.
The Anglo-Dutch packaged-goods giant resorted to a marketing prank last year to try to outflank new competitors of its TreSemme and Suave shampoos. In July, it launched a copycat high-protein, low-sugar ice cream after a startup usurped its brand, Breyers, as America's favorite pint. And in India, executives sought out Ayurvedic doctors to help whip up a turmeric face wash and a clove-oil toothpaste to compete with a celebrity yogi's line.
"We have to match them in terms of insight, speed and the ability, frankly, not to be 110% sure all the time that what you've got is going to work," said Unilever Chief Financial Officer Graeme Pitkethly, who is helping to spearhead the company's globe-spanning reorganization to respond to the new, local competition.
The success of that effort is far from assured. The world's biggest brands are facing a broad-based revolt among shoppers, threatening a business model that has served them, and their investors, for decades. Consumers in rich countries once embraced the consistency, convenience and affordability of their offerings, from disposable razors to ready-to-boil ravioli. In other parts of the world, a growing middle class clamored for many of the same trusted, Western brands.
Investors loved these standbys, too, for their dependable if modest growth. Consumers needed these home, personal-care and food staples in good times and bad, the thinking went. In past sales downturns, companies ratcheted up research and development – rolling out "new and improved" versions – and tapped their vast marketing budgets.
Today, that isn't good enough. Shoppers have gravitated in droves toward smaller, niche or locally made products. In many cases, they are seeking out healthy alternatives and more natural ingredients. Manufacturing costs have fallen, allowing small players to seize quickly on trends. Social media and e-commerce have made marketing and distribution easier.
"Basically there are no entry barriers," says Peter Ter Kulve, a 20-year Unilever veteran tapped as its "chief transformation officer" to lead the counterattack.
More than a decade ago, he said, Unilever centralized decision making, believing consumers in similar income brackets, from Miami to Mumbai, would be drawn to the same global brands. Instead, "the more things globalize, the more people want to affiliate with everything that is local," he said. "This has led to unbelievable fragmentation."
The global market share of the top 15 beauty and personal-care companies fell to 51.8% in 2016 from 52.5% in 2011, according to Euromonitor. Meanwhile, the share of the next 85 grew to 19.8% from 18.1%.
The stakes are especially high for Unilever. The company was formed in 1929, when a British soap maker founded in the Victorian era combined forces with a slightly older Dutch margarine producer. Today, it remains a global giant in two of the consumer-goods sectors hardest hit by changing consumer tastes and the rise of smaller entrants: home and personal-care products like kitchen cleaners and Q-tips, and packaged food like tea and soup.
Some of the world's biggest investors say these big brands are doomed if they don't change radically. In December, veteran activist investor Nelson Peltz won a highly public battle for a board seat at Procter & Gamble Co., maker of Gillette razors and Tide detergent. He is pushing for a massive overhaul at the Cincinnati giant to retool its approach to selling consumer goods around the world. P&G says the same big brands that have powered it through past decades remain relevant today and just need to be presented in different ways, using different media.
Switzerland-based Nestle SA, the world's biggest packaged-food company, has an activist investor of its own in American billionaire Dan Loeb. Nestlé's new CEO, Mark Schneider, has been snapping up small, local brands – such as Sweet Earth, a vegan line of frozen food – to cushion falling sales of its older brands like Lean Cuisine and Stouffer's. "Thirty, 40 years ago being global almost automatically meant 'this is cool,'" Mr. Schneider said in September. "These days the head-start belongs to a lot of the local things."
The S&P 500 consumer-staples index, which includes companies that make both personal-care products and food, was up 10.46% in 2017, gaining ground at just over half the rate of the broader S&P 500.
Early last year, Unilever found itself in the crosshairs, too, after Kraft Heinz Co. launched a surprise $143billion takeover bid. Unilever Chief Executive Paul Polman fended off the approach, but executives were shaken by the unwelcome bid.