Summary
Unilever plans to buy Sara Lee Soaps for $1.9 Billion - biggest purchase since the triad of Bestfoods, Slim-fast and Ben & Jerry. This purchase looks expensive under the existing strategy of brand conolidation to bigger fewer brands. The same money put into trade funds would be more efficient. Perhaps there is more...a 'back to the future strategy' returning to its roots, as a sprawling trading company?
Analysis
There are several ways to grow top line volume and sales: innovation, organic growth through efficiency and lower unit prices, and acquisition followed by integration.
Unilever has, for several years, been challenged in the ‘top line growth’ area. There have been numerous strategic programs, changes in organization, going lean, and in the end Unilever finds a 2% growth rate to be its natural stride.
I joined Unilever in 1990 as a manager in the corporate research division. The then Chairman, Sir Michael Perry I believe, visited, shook hands with everyone (and I mean everyone – as much as 1000 souls) uttered a few words of hope and encouragement, and departed back to London. Our research lab was temporarily on the top floor of Colworth house – a stately home with a grand staircase nestled into rolling Bedfordshire parkland. Each day, I walked the grand staircase, past the oil paintings of Chairmen past, and there was no mistaking that Unilever was an old European trading company.
You are what you are.
Twenty years later Unilever still has ‘trading company’ genes. It talks up innovation, but acts only in bursts of brand or technical genius. It aspires to organic growth, but is really a portfolio manager – once the s-curve of growth starts to flatten, it gets bored. What it does best is trade. It is a company of financiers in their explorer khakis traversing the continents and looking for a business to buy, a business to sell, and a business to integrate into the ‘mother-ship’.
Perhaps the biggest disservice to Unilever has been the focus on fewer larger brands and the lopping off of the tail of minor brands and activities. Twenty years ago Unilever was a true sprawling conglomerate – even owning the caterpillar tractor franchise for Africa. That has all changed. But as a focused brand company it seems a little stilted, a little shy and reticent.
The recent acquisition of Sara Lee Corp’s home and beauty care line might be a sign of a return to roots. From a brand perspective it makes little sense, especially with the buy price of 1.7 times sales. Unilever has just finished consolidating and eliminating brands and can in theory buy the same volume through trade funds of its existing brands at only 1 times – not 1.7 times. It looks more like the Slim-fast debacle, and even Bestfoods itself – ‘kinda’ expensive!
But as a trading company, I think the Unilever financiers and accountants in their explorer khakis might be onto something. Go back to the trading company roots. After all, it is the perfect contrarian play when everyone else is divesting and consolidating. Does this signify a new ‘back to the future’ strategy under Paul Polman? It just might work.This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
