Two years ago Kraft Heinz audaciously tried to takeover Unilever. It was a move that put both companies strategies and growth prospects into the spotlight. As former Unilever CEO Paul Polman summarised, it was a “clash between a long-term, sustainable business model for multiple stakeholders and a model …entirely focused on shareholder primacy.”
With Kraft Heinz’s shareholders now hit by a share price collapse it appears that Unilever’s business model and strategy has been vindicated. Of course, it is not that simple, Unilever’s dramatically better performance can, in part, be attributed to a more ambitious cost-reduction and margin growth programme initiated in response to the threat.
Unilever rapidly learned from the challenge, but it seems Kraft Heinz did not. I capture below some key differences that have led to Unilever’s relative success:
1. Unilever is not relying on enduring brand love or loyalty.
Simply comparing the two company websites reveals a different view of brands. Kraft Heinz present a long list of “brands people love” described as “powerful and iconic.” Unilever, instead, leads with “brands with purpose” a recognition that the rules for relevance have changed and that brand love, if it does exist, is vulnerable to new, attractive and more purposeful alternatives. As Havas Group research recently revealed if 81% of brands sold in Europe disappeared consumers would not care.
2. For Unilever sustainability is embraced as core to value generation, for Kraft Heinz it remains a corporate social responsibility.
Unilever has been actively involved in the establishment of the United Nation’s Global Sustainable Development Goals (SDGs) since 2012 and has enthusiastically embraced these as drivers of long-term value growth. Kraft Heinz similarly demonstrates a strong commitment to ‘growing a better world’ that includes a pledge to deliver 1 billion meals to people in need by 2021, direct action for 8 of the 17 SDGs and a programme of innovation and renovation for product and packaging.
There is however an ‘ambition and embedding’ gap between the two companies. Unilever is seeking to ensure brands are the champions of action to support goals – driving and communicating social purpose. The company has now identified 26 brands committed to ‘sustainable living’ agendas that include the likes of Dove, Lipton and Knorr. In 2017 these brands delivered 70% of the company’s turnover. Unilever showcases these brands in the attached document which is a recommended read: making-purpose-pay
3. Unilever are making decisive portfolio choices for sustained growth
Unilever has acted energetically with disposals and acquisitions to reshape their brand portfolio to deliver growth and attract the purchasing power of Millennials. The recent purchase of Graze reflects this focus, increasing presence in healthy snacking and out of home consumption. Graze follows new additions such as T2, Grom, Pukka Herbs, The Vegetarian Butcher and Mãe Terra and, as importantly, the disposal of Slimfast, Pepperami and Flora. Alongside food there are, of course, big personal care growth bets including Dollar Shave Club and Dermalogica.
In contrast, Kraft Heinz’s focus on consolidation and cost reduction has left a portfolio that is not geared to Millennial appeal or growth. Recent acquisitions of coffee brand Ethical Bean and Primal Kitchen shows Kraft Heinz know the problem and it appears the company may have to to sell the iconic Maxwell House brand to accelerate reshaping.
4. Unilever are more sharply focused on innovation and collaboration to attract Millennials and following cohorts.
Kraft Heinz have certainly increased their innovation pipeline in recent years and in 2018 introduced their Springboard Brands incubator (some four years after Unilever’s Foundry team). Notable recent innovations include O, That’s Good! (a frozen pizza range with cauliflower-based crusts endorsed by Oprah Winfrey), Heinz [Seriously] Good Mayonnaise (aimed at stealing Hellmann’s brand share), McCafe compostable coffee pods and BOCA‘s first vegan burger.
Kraft Heinz are undoubtedly urgently responding to changing tastes – although Mayochup a ‘hybrid condiment’ combining mayonnaise and ketchup suggests that the consolidation and cost efficiency model is also shaping innovation.
Where Unilever have differed from Kraft Heinz is in the earlier and greater urgency placed on engaging Millennials and Generation Z (the youngsters following behind). In doing so Unilever innovations (like acquisitions) are recognising the importance of direct to consumer sales, the shift to out of home food consumption, the need for brand experiences and, of course, social purpose. Developments such as Magnum Pleasure Stores, the launch of 700 vegan products and Love Beauty and Planet’s trial of packaging refills reflect this focus.
The last two years are a vindication of Unilever’s “sustainable business model for multiple stakeholders” that has been enabled by a commitment to confront the challenging trends, insights and implications of generational shifts in needs and expectations of brands and society.
With Kraft now recognising the necessity of much of Unilever’s approach the voice of their insight team will need to be heard above shareholders.