Recently, Unilever has hired Morgan Stanley and Evercore Inc to sell its non-core beauty and personal care brands, including Q-Tips and Impulse. The batch of brands planned for sale is named Elida Beauty. According to sources, Elida’s revenue is expected to reach approximately $760 million by 2022. This is the first major move since Hein Schumacher took over as CEO of Unilever in July this year, with his main focus being streamlining the business while addressing inflation. Under Hein Schumacher’s series of reform measures, Unilever’s turnover and net profit reached €60.1 billion and €8.269 billion respectively in 2022, with turnover hitting a historic high.
Unilever’s turnover in 2022 surpassed €60 billion, reaching a new record
As the world’s leading consumer goods giant, Unilever operates in five main sectors: Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. These sectors were reorganized from the original three sectors at the beginning of 2022. Under the leadership of former CEO Alan Jope, the restructured business achieved breakthrough results.
According to Unilever’s 2022 annual report, the company’s turnover grew by 14.5%, reaching €60.1 billion. This marked the first time Unilever surpassed €60 billion in turnover, setting a historic record for the company. Despite a 230 basis point decline in operating margin due to input cost inflation, the underlying operating profit slightly increased to €9.7 billion. The net profit in 2022 reached €8.269 billion, a significant increase of 24.89% compared to the previous year, and the highest net profit for Unilever in the past four years. From 2019 to 2021, the net profit ranged from €6 to €7 billion, but in 2022, it exceeded €8 billion for the first time.
Historical data shows that Unilever’s turnover has been hovering around €50 billion over the past decade, with a low of €48.4 billion in 2014 and a high of €53.72 billion in 2017. The turnover in 2012 was €51.32 billion, and in 2021 it was €52.44 billion. In other words, overall, the turnover has not shown significant fluctuations over the past ten years, with a growth of only 2.18% from 2012 to 2021. There has been a certain level of stagnation in the company’s operations. However, in the first year after the organizational restructuring, turnover surpassed €60 billion.
Unilever has stated that brands generating over €1 billion in turnover account for 53% of the group’s total turnover. The strong performance of brands such as OMO, Hellmann’s, Rexona, Sunsilk, and Magnum drove a 10.9% increase in underlying sales.
Alan Jope stated “We have made further progress in the transformation of Unilever and continued to deliver against our strategic priorities. Our new operating model is already unlocking a culture of bolder and more rapid decision-making with improved accountability. We continue to improve our growth profile, with the sale of the global Tea business and the acquisition of Nutrafol. We are increasingly realising the benefits of the reshaped portfolio, accelerated savings delivery, and improved execution. There is more to do, but the changes we have made mean that we start 2023 with momentum, setting us up well for delivering another year of higher growth, which remains our first priority.”
In terms of specific business segments, driven by price increases, the Beauty & Health category saw a 7.8% growth in underlying sales. With the continued strong performance of Prestige Beauty and Health & Wellbeing, sales volumes slightly increased, and the turnover surpassed €2.5 billion. The Personal Care category experienced a 7.9% growth in underlying sales, primarily driven by robust pricing. While deodorants saw an increase in sales volumes, other categories experienced a decline. The Home Care category, which is particularly sensitive to rising input costs, had the highest price increase but saw a decline in sales volumes, resulting in an 11.8% growth in underlying sales. The Beauty & Health and Personal Care segments together accounted for 43% of the group’s total turnover, highlighting the significant importance of the beauty business in Unilever’s overall performance.
Unilever attributes the achievement of surpassing €60 billion in turnover over the past decade to organizational restructuring.
The bold organizational restructuring of Unilever
On January 25, 2022, Unilever announced a significant organizational restructuring, with the latest structure revolving around five business divisions: Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. Each business division assumes full responsibility for its overall strategy, growth, and profit delivery. Additionally, Unilever’s Operations function will provide technical, system, and process support to the five new business divisions.
Furthermore, Unilever disclosed personnel changes and stated that the new organizational model would result in a 15% reduction in senior management positions and a 5% reduction in junior management positions. In addition to substantial adjustments in the business, Unilever streamlined its personnel structure.
For a long time, the performance of this consumer goods giant has remained stagnant. The reason is attributed to the company’s “relatively cumbersome” organizational structure. During Unilever’s earnings briefing on February 9, 2022, Alan Jope explicitly stated, “We have recognized that our current matrix structure (comprising three business divisions and 15 regional performance management units) has a certain level of heaviness.”
Unilever stated that the core objective of this restructuring is to transition from the existing matrix to an operating model that enhances agility, improves category focus, and strengthens accountability, ultimately driving performance improvement. The new structure will be simpler and more focused on category businesses. Following the restructuring, each division will be responsible for its global strategy, growth, and profitability.
Under the new business architecture, Unilever’s Operations function will provide support to the five business divisions, including technology, systems, and process aspects. The streamlined Unilever Corporate Center will continue to be responsible for setting the group’s overall strategy.
In fact, during the earnings briefing, Unilever’s Chief Financial Officer, Graeme Pitkethly, also revealed that the company currently has approximately 90 General Managers for country/markets and senior leaders overseeing the three business divisions. These executives are primarily responsible for formulating global brand strategies, product portfolios, M&A decisions, and setting market objectives. Once the objectives are set, the Chief Operating Officer is responsible for driving optimization and achievement of these short-term performance targets, involving 15 regional performance management units. However, the size of this extensive organizational structure and workforce has, to some extent, affected decision-making efficiency and clarity of departmental and individual responsibilities.
Therefore, in this business realignment, the business divisions will be divided into 7 to 8 regional markets based on similarities in consumer groups, customers, and channels. The fundamental difference in their new structure lies in the change of business scope for the General Managers of each country/market. They will shift from overseeing 13 or 14 categories in their respective markets to being responsible for the same category across multiple markets.
Previously, Unilever organized its management scope based on markets, where a country or regional head was responsible for the market within their jurisdiction, overseeing all categories of products within that market. However, the current approach is category-based, meaning that the head responsible for a specific category, such as personal care, is no longer limited to one regional market but oversees personal care business across multiple regions.
The advantage of such a comprehensive organizational reform is that the market general manager responsible for a specific category can be more focused and specialized. They no longer need to divide their attention and energy among different products and brands, as different brands and products have variations in supply chain management and marketing. By dedicating their attention to a specific category, they can better coordinate and manage the advantages within that category.
Unilever’s new department structure is somewhat similar to that of L’Oréal. Currently, L’Oréal’s business is mainly divided into divisions such as luxury products, professional hair care, scientific skincare, and consumer goods. Each division can have relatively unified marketing strategies and product characteristics. This allows decision-making to consider a broader range of brands without neglecting any of them. For example, within the luxury products division, although there are different categories such as skincare and fragrance, marketing and brand management tend to resemble those of luxury goods companies. On the other hand, divisions such as hair care and skincare, due to the consistency of the products within the respective divisions, can have simpler and more consistent approaches to product development and market promotion, without the need to consider different product categories within the division.
Unilever stated that the new structure would be implemented within the existing restructuring plan starting from July 1, 2022, and aims to achieve cost savings of approximately 600 million euros within the first two years after July 1, 2022, with a significant portion being realized this year. The restructuring has also shown positive results, with Unilever achieving a record-high turnover of 60 billion euros in 2022.
Utilizing both mergers and acquisitions as well as divestitures, Unilever continuously streamlines its business operations
In fact, for traditional consumer goods giants, acquisitions have been one of their most effective means of expansion. However, in recent years, the traditional value creation model of fast-moving consumer goods has become disconnected from the market, unable to meet the new demands of the global millennial generation, and does not align with the characteristics of sales in the digital age. Additionally, local brands in emerging markets have risen, posing challenges to the performance of established consumer goods giants. As a result, these consumer goods giants are no longer relying on large-scale acquisitions as a means of seeking growth. Instead, they are streamlining their businesses and concentrating resources on developing their core brands with higher market recognition and popularity.
Similarly, Procter & Gamble, as a consumer goods giant alongside Unilever, has faced challenging times. The company has experienced an overall decline in revenue in recent years, with a CAGR of -2.0% from 2007 to 2017. While its net sales exceeded $80 billion in each of the three fiscal years from 2011 to 2013, in 2022, its net sales remained at $80 billion. This means that over ten years, Procter & Gamble’s net sales have essentially remained stagnant.
To change the situation of stagnant net sales growth, Procter & Gamble (P&G), a company with a 180-year history, has initiated a series of reducing plans. It has gradually divested itself of certain brands, aiming to reshape its corporate image and development strategy by concentrating resources on core brands with higher market recognition and popularity.
Since 2012, P&G has been selling off several of its brands, including the Salon Professional business, CoverGirl cosmetics, and licensed fragrance collections from Dolce&Gabbana and Gucci, among others. As of August 2017, the number of brands under P&G had been reduced from over 200 to 65.
Following these reducing moves, P&G’s net sales have gradually recovered. In the fiscal year 2017, its net sales reached $65 billion, and in 2020, it surpassed $70 billion, reaching $70.95 billion. By the fiscal year 2022, P&G’s net sales had even reached $80.19 billion, marking its return to the $80 billion level for the first time since the fiscal year 2014.
The two consumer goods giants have chosen different directions to address the challenges of revenue growth. Procter & Gamble (P&G) has opted to “focus” its product portfolio by trimming areas where it lacks expertise, while Unilever pursues a dual strategy of mergers and acquisitions alongside divestitures to actively adjust its business portfolio.
The sale of Elida Beauty by Unilever is part of its efforts to streamline its business. Although Hein Schumacher took over as the CEO of Unilever in July this year, the fundamental organizational and strategic direction changes have not been altered.
Taking Unilever’s largest business, the beauty and personal care segment, as an example, the company prioritizes mergers and acquisitions as well as divestitures in its beauty and personal care operations. This means that in the beauty and personal care sector, Unilever still leans towards optimizing its business through mergers acquisitions, and divestitures. In 2021, Unilever acquired Paula’s Choice, followed by the acquisition of hair care brand Nutrafol in 2022. However, compared to Unilever’s existing large-scale operations, the impact of these acquisitions on total revenue is relatively low, with no cases in the past six years where the impact exceeded 2% of its turnover. It can be observed that the influence of acquisitions on the company’s revenue in recent years has remained at a relatively low level, minimizing the impact on performance.
The confidence in streamlining their business lies in the strong performance of several major brands in Unilever’s beauty and personal care segment. In 2022, there were five global brands within the beauty and personal care business with turnover exceeding €1 billion: Axe, Dove, Lux, Rexona, and Sunsilk. Other well-known brands include TRESemmé, Signal, Lifebuoy, Vaseline, and Clear. These billion-dollar brands collectively accounted for 53% of Unilever’s total turnover, demonstrating the effectiveness of Unilever’s business streamlining efforts.
Market research firm Nielsen has indicated that consumer goods giants are experiencing overall weak growth in the fast-moving consumer goods industry, with a market share of 31% in the US market but only a 2% annual growth rate in sales revenue. On the contrary, small companies have shown the fastest revenue growth among the four categories of companies. In the US market, although small companies currently account for only 19% of industry sales, their growth contributes to 53% of the overall market growth. This indicates that the consumer goods industry is still growing, but the growth of some giants is relatively lackluster. Therefore, these consumer goods giants are not opting for large-scale acquisitions to expand their market presence, but rather choosing to streamline their businesses and concentrate their resources on developing core operations.