The performance of Unilever‘s food business has come under scrutiny in recent quarters. Sales growth has lagged its non-food operations and although Unilever has offloaded some “non-strategic” food brands, some in the investment community have suggested more could be done. In part two of just-food’s interview with Unilever CEO Paul Polman, the Dutchman discusses the company’s spreads business.
There is little question Unilever’s food and non-food businesses have enjoyed contrasting fortunes in recent years.
Go deeper with GlobalData
In 2012, for example, Unilever’s foods division, which includes brands like Flora spreads, Maille mustard and Knorr stock cubes, saw underlying sales increase 1.8% to EUR14.4bn.
The foods division (ice cream is included in Unilever’s “refreshment” arm) is Unilever’s second-biggest business. By comparison, in 2012, its largest – personal care – booked a 10% increase in underlying sales to EUR18.1bn.
The first half of this year has seen similar trends; food sales inched up 0.2%, personal care sales grew 5.8%. In fact, according to analysis from Investec, when sales volumes are measured, personal care has outpaced food for all but one of the past 14 quarters.
It would be wrong to say Unilever’s foods business is a division without its bright spots. Knorr is Unilever’s largest brand full stop and remains in growth, with sales up 5% in the second quarter of this year. As well as international brands like Flora or Knorr, Unilever also has category leaders in local markets, such as Indian ketchup brand Kissan.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCritically, Unilever has also looked to sharpen its food portfolio in recent years. CEO Paul Polman has called the strategy “weeding and feeding” – offloading some brands and investing more in others. And that is a strategy that has continued this year, with the disposals of two US assets – the Skippy peanut butter brand and a dressings business led by the Wish-Bone brand.
However, Unilever’s foods business is largely one operating in the mature markets of Europe and North America and, in recent months, there have been calls for the company to take more aggressive action. When earlier this month Unilever reported its third-quarter sales would come in below expectations, in part due to a performance in developed markets that would come in “flat to down”, some in the City again questioned whether Unilever should in particular look to re-evaluate its strategy in one category – spreads.
Unilever is the world’s largest producer of spreads, with brands including Becel and Rama, as well as Flora. The business is one predominantly centred on Europe and North America and some industry watchers question whether spreads are a concept that can be rolled out to faster-growing emerging markets. There have been some signs consumers in Europe and North America may be turning more to butter as they deem it more natural, a potential problem for a spreads category said to be only seeing volumes only grow at 1-2% a year. And Unilever has had some specific issues in some markets, notably the recent changes to the recipe for Flora in the UK.
Speaking at an event in Germany to mark the 175th anniversary of the start of the Knorr business, Polman acknowledges there could be some issues in introducing spreads into some emerging markets (“You’re not going to teach Indians how to do spreads when that habit doesn’t exist”) but says he believes “100 per cent” that, if the company can do a better job convicing consumers of the benefits of spreads, the business can grow. And he indicates Unilever had in the past invested less in spreads than it had in other, faster-growing parts of its consumer goods empire.
“As we are so big in spreads ourselves, I haven’t given you any external excuse. It’s our own doing,” he tells just-food. “I can explain it because there are priorities, there are focus areas and you have to do things in a certain sequence. We haven’t put more money behinds spreads first because we had bigger opportunities somewhere else. I am unashamedly clear about that. When you grow a company, the result is that some brands grow faster than other brands.”
Polman is keen to emphasise the benefits of consuming margarine over butter and admits Unilever needs to improve the way it markets its products.
“If you look at butter and its environmental footprint and its health footprint versus margarine, there is no comparison. There are more people dying from non-communicable diseases. The World Health Organization policy is changing its focus now. Many of the margarines are trans fatty acid free, if you will, it’s a cheaper product [and] it’s natural,” he says. “If we can make it taste the same, and if we can make it of the quality people look for, margarine makes much more sense.”
Unilever is said to account for around 16% of the global spreads market. Its nearest challenger is private label, with 12% of sales. The company’s nearest branded rival is Brazilian firm BRF, which accounts for 4% of sales, predominantly in Latin America. Unilever’s dominance of global sales often means arguments over whether the company should sell the business founder on the question of which companies could buy the unit. However, some in the City have recently put forward suggestions, including BRF and perhaps US agribusiness Bunge.
Asked if Unilever planned to keep the business, Polman initially says: “Well, we will always look at any business. We’re actually growing share now but the markets aren’t growing. We are managing those businesses better than anyone else.”
Polman, however, then questions why some would suggest Unilever sells the business. “Because of spreads and that cash flow, we could go into these emerging markets so fast. A lot of these analysts say things but don’t think,” he says. “If you get spreads out in the short term, the share price goes up for five minutes but what have you done? And the press jumps on that to be honest. For CEOs it’s very annoying. I’m long enough CEO now that I don’t have anything to worry about.
“If you have 15 or 20 products like Unilever does, you always have ones that grow fast and others that [don’t]. Sometimes that changes. And you try to put money behinds the brands that are growing fast because they clearly have something going for them. But if you listen to [people] that want to cut the ones on the bottom, you end up with nothing or only one brand. It’s not a way to run your business.”
According to some estimates, spreads accounts for around a quarter of sales from Unilever’s foods portfolio, making it a significant chunk (if not the largest, which is the savoury business housing Knorr) of the division.
Polman, however, points out that spreads remains 7% of the total Unilever portfolio. “Last year we grew 7% as a company. It’s all relative,” he says. “We maintain our profits, we manage it very efficiently. It doesn’t mean it’s a bad business. We’ve sort of translated that if something doesn’t have a growth rate of 4-5%, that it’s bad. I don’t buy that. We would like to have it perform better, I don’t want to sound defensive. The good thing is that we are growing so fast that it becomes every year [relatively] smaller so my problem becomes less every year.”
Polman insists Antoine de Saint Affrique, the head of Unilever’s foods business, is “spending a tonne of his time” on the spreads business. “We want it to be performing better. We are the first ones to say that. We’ve put the best people on there.”
