Unilever has long been dogged by odious comparisons. As an Anglo-Dutch multinational with two boards and two stockmarket quotations it is often compared with Royal Dutch/Shell. And as a consumer-goods giant heavily into soaps and spreads, it invariably has to stand comparison with its American rival Procter & Gamble (P&G). So, with Royal Dutch/Shell having decided to abandon its dual structure, and P&G last week acquiring Gillette (for $54 billion), expectations have been rising that Unilever would follow suit.
The company's announcement, during the presentation of its annual results on February 10th, that Patrick Cescau, its London-based co-chairman, is to become chief executive while Antony Burgmans, the Dutch co-chairman, becomes non-executive chairman until his retirement in 2007, duly paved the way for the unification of the binational company.
But there is so far no sign of a deal that would help Unilever to catch up with the new P&G/Gillette combination. Colgate- Palmolive, an American maker of toothpaste, and Reckitt Benckiser, a European household-products company, are possible takeover targets. But Reckitt, for one, would be expensive. On February 9th it announced an increase in its pre-tax profits to £770m ($1.4 billion) from £660m in 2003. Moreover, Unilever's debts are high: at the end of December net debt stood at €12.5 billion ($15 billion).
The company needs to sort out its own problems before it takes on the complex integration of another business. Last year sales were down by 6% and operating profits slipped by 9%. In September 2004 came the group's first ever warning that it would not deliver a promised increase in profits. That led it this week to scale back the performance targets it had set itself for the next five years.
Mr Cescau will be given four years to turn the company round, says Andrew Wood, an analyst at Sanford C. Bernstein, an investment-research firm. At the beginning of 2000, P&G was a basket case and Gillette was in bad shape, Mr Wood points out. Their turnarounds took that long.
Analysts say that Unilever's main problems are too little (and misdirected) advertising; unrealistic performance targets; some unattractive products; and a lack of innovation. The firm spends 14.5% of its revenues on advertising, which is more than the 12% spent by Nestlι, the world's biggest food firm, but far less than the 20% that P&G splashes out on promoting its products. Victoria Buxton, an analyst at Lehman Brothers, says that the problem also lies in the way that the company spends its advertising budget. It made a mistake, she says, in sacrificing longer-term advertising on television and other media for short-term promotions in an effort to stem its loss of market share.
Unilever could also sell some of the businesses that have failed to contribute to growth over the past couple of years. Slim-Fast, a weight-loss brand that it bought for $2.3 billion in 2000, household-care products, so-called prestige fragrances and frozen foods together account for about 10% of the group's sales. But they make scarcely any money. Analysts mostly reckon that some of these could go, but a big disposal is unlikely. Mr Cescau is believed to take the view that Unilever has in the past been too quick to sell its problems.
It has, however, been too slow to introduce new products. It failed to react to the worldwide craze for the low-carbohydrate Atkins diet in 2003. Thanks to Atkins, Slim-Fast's global sales dropped by nearly 30%. Now that Atkins seems to be going out of fashion, Slim-Fast is belatedly venturing into low-carb foods. Last month, the group's new low-carb and low-calorie shakes, soups and cereals went on sale in Britain, France and the Netherlands.
By: N. Peter Kramer
