On July 1, Hein Schumacher became Unilever’s chief executive officer. His appointment came after a long search from Dutch dairy cooperative Royale Friesland and Campina, and the immediate task of turning the company around was clear.
Over the past five years, Unilever shares have fallen 6%. Meanwhile, adjusted operating profit totaled just 3%.
Unilever faced criticism from investors for focusing too much on ESG and ignoring the challenge of driving revenue and profit growth.
Schumacher clearly understood his task. In Unilever’s third-quarter earnings report released in October, he detailed both the issues facing the company and plans to address those concerns. Schumacher spoke for 40 minutes at the financial results conference.
Additionally, Unilever’s turnaround strategy is a challenge faced by U.S. packaged food companies, even though Unilever derives only about a third of its revenue from food and a similar percentage from the Americas. It also seems to highlight some issues.
Two things stood out from this financial report. First, despite the length of his remarks, Schumacher did not appear to be proposing a transformative strategy. There was a 10-point “action plan,” but none of the items seemed to significantly encourage actual change. Schumacher wants to focus on the top 30 brands that generate about 70% of sales, with items such as “returning gross margins” and “scaling innovation over multiple years” to be typical. becomes. resultit’s not a strategic decision.
This led to the second notable aspect of the conference call: a great deal of skepticism from financial analysts. The overall tone was summed up by one questioner, who said of the company’s plans to foster innovation: What is the difference? ”
But the last question was probably the most pertinent one. The analyst noted that the strategic changes are “very similar to before.” [what] It’s basically what every other company is doing. ” So she asked, “Who do you expect to gain market share from?”
And that’s an important question for food manufacturers everywhere. Inflation has slowed but remains above pre-pandemic levels, and consumers are trading up to private labels.
For Unilever and its U.S. peers, core brand strength must be enough to convince consumers to keep paying.
last week, Reuters Columnist Amy Donnellan asked whether these brands could carry such weight. She proposed the concept of “edible stranded assets,” likening legacy brands to oil reserves that will have no value at some point in the future. Wealthier consumers are pivoting to healthier options, often offered by small independent manufacturers, while less affluent customers are willing to pay a premium for branded options. cannot or will not pay.
Increasing regulations and societal pressures against unhealthy food further complicate Unilever’s food business.
Mr. Schumacher’s immediate task is to instill confidence in the market that his plans to improve execution and innovation are enough to accelerate growth and outperform peers. But the fact that the main purpose of these plans is simply to “make things better” highlights just how difficult a road ahead lies.
There is no longer a silver bullet for manufacturers of daily necessities.
With so many markets in so many regions stagnant, the only way to drive growth is to gain market share through fierce competition.
That’s why Schumacher’s plan is to change the fate of a company that has fallen into financial trouble. exactly the same as everyone else. All big food companies can do is make things better and hope for the best.
Vince Martin is an analyst and author whose work has appeared on multiple financial industry websites.He is the lead writer of overlooked alphaprovides weekly market-wide and single-stock analysis.
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