IN A COMPOUND in Shanghai two rising stars in the marketing world used to share a beer together. One was Alan Jope, who in January became the boss of Unilever, a 130-year-old Anglo-Dutch consumer-goods firm famous for its Knorr stock cubes and Dove soaps. The other was Miguel Patricio, the incoming chief executive of Kraft Heinz, the macaroni-to-ketchup deal machine that in 2017 choked in an attempt to swallow Unilever.
He may run a firm that is worth $175bn, but Mr Jope seems the sort of bloke with whom it would be easy to have a pint. The 55-year-old Scot is refreshingly down-to-earth. He wears jeans and trainers, but no tie. He has good tales to tell. His first job was driving a butcher’s van. His hobby is joining friends on an intermittent mission to circumnavigate the globe on a BMW 750 motorcycle—and he has bones, broken in the Gobi desert, to prove it. He is also loyal to former drinking buddies, such as Mr Patricio. There is, he has said, “no Schadenfreude” about the troubles at Kraft Heinz following its calamitous results in February.
In temperament, Mr Jope could not be more different from his predecessor, Paul Polman, a self-confessed “Calvinist Dutch” whose messianic belief in long-term sustainability gave him a haughty air. Unlike Mr Polman, who was famously dismissive of shareholders, Mr Jope has been listening to them. Among the most radical ideas out there is a perennial one: that he should take Unilever on the business equivalent of an off-road trip, abandoning the slow-growing food business and focusing exclusively on more exciting areas such as beauty and home products.
Mr Jope should resist the urge. There are other ways to rev up Unilever’s engine.
Most consumer-goods behemoths are in the midst of soul-searching. For much of the post-war era, the mass marketing of strong brands to ever-wealthier Westerners was the epitome of a stable business. According to McKinsey, a consultancy, for 45 years to 2010 few industries could top the returns to shareholders of the slow-moving business of selling fast-moving consumer products.
In the past decade, though, firms like Procter & Gamble, Nestlé and Kraft Heinz have increasingly resembled overweight cyclists in a bike lane. They have looked sluggish next to smaller, more agile competitors. Social-media-obsessed millennials have shaken their understanding of consumer tastes. In the developed world, the toughest business is food and beverages, especially easily replicable items like dressings, spreads and builders’ tea. Hence the pressure on Unilever to ditch the food business entirely.
Unilever is already on a diet. Food and refreshments have shrunk from more than half of sales when Mr Polman took over in 2009 to 36% (it shed its 90-year-old spreads business last year). Home and personal care, including soaps, deodorants and laundry liquids, are up. This was not just a case of breathing new life into old brands like Dove. Unilever has made 29 acquisitions since 2015, mostly in the personal-care division formerly headed by Mr Jope, including upmarket beauty products like Dermalogica and subscription services like Dollar Shave Club. Known inside Unilever as “speedboats”, they are meant to bring more oomph to the mothership yet remain separate from it.
Analysts and some investors tout the merits of potentially seismic deals to enhance the focus. Martin Deboo of Jefferies, a brokerage, has long argued that Unilever should sell the rest of its food business and buy Colgate-Palmolive, a potentially $62bn mouthful of toothpaste and other home and personal-care businesses. Andrew Wood of Bernstein, a research firm, says Mr Jope should attempt to buy Reckitt Benckiser’s smaller, $20bn hygiene-and-home business, shedding more food brands in the process.
But there are three reasons why Mr Jope ought to avoid game-changing transactions. The first is Unilever’s lack of experience in handling big acquisitions. Most of the recent ones cost less than €1bn ($1.1bn). Unilever’s biggest splurge was the disastrous $24bn acquisition of Bestfoods in 2000, after which it wasted 15 years selling off unloved brands. Tastes are changing so fast that any big purchase could end up a dud.
The second reason is that Unilever’s emerging-market ambitions are well served by having a food arm. Some 58% of sales come from developing countries. Fast-growing markets such as Bangladesh could provide as much growth in dollar terms as a region like Europe. Short of formal shops, such places rely on sprawling distribution networks that work best combining food, beauty and home products. People there have a growing appetite for nutritional items. That helps explain Unilever’s recent €3.3bn purchase of Horlicks, a malt drink popular in India, from GlaxoSmithKline.
Third, food can be made more valuable. Mr Wood notes that Nespresso allows Nestlé to charge ten times more per cup of coffee than Nescafé Gold Blend. Other competitors are pushing teas and ice creams up market. Unilever has acquired a few trendy food companies such as the Vegetarian Butcher. Moreover, the line between food, beauty and health is blurring; brace for more nutraceuticals, such as dietary supplements, cosmeceuticals, such as acne deep cleanse, and nutricosmetics, to make hair thicker.
Off the soap box
Ugly neologisms aside, such a bundle of salubrious brands would dovetail with Unilever’s trademark pursuit of environmental and social responsibility that Mr Jope is keen to preserve. He would be wise to do so. Though shareholders in Britain turned against Mr Polman when he tried to end Unilever’s dual listing in London and Amsterdam, few want the firm to jettison the sense of purpose that he brought, if only because it helps win customers and keep staff committed. Mr Jope may be less preachy than his predecessor, more pragmatic and, possibly, more profit-oriented. He should resist Evel Knievel-ish leaps into the unknown. Otherwise he may have more than broken bones to reminisce about over a lager.
This post was originally posted at https://www.economist.com/business/2019/05/04/how-to-rev-up-unilever.