The last few weeks have seen some serious upheaval in the world of consumer goods. Three weeks ago the news broke that P&G had sold 43 of its beauty brands to French rival Coty for over US$12bn. Although it had been expected for some time, the size of the deal is still mind-boggling. Here in the UK, Unilever has also been on a spate of acquisitions, acquiring four premium skincare brands within the last five months. P&G then announced earlier this week that venerable CEO AG Lafley will be stepping down in November – for the second time – and will be succeeded by the long-serving David Taylor.
So, what’s going on?
The consumer goods conglomerates have not had it easy over the past year, as the combination of the strong dollar and the continued stagnation in emerging markets have led to challenging trading conditions for everyone, as seen in P&G’s trading update yesterday. P&G has responded by slimming down. Ever since Lafley came out of retirement in 2013 the company has been looking to shrink its portfolio, and will now focus on just 65 brands across 10 categories. So far, the strategy seems to be working, with the company planning to return some US$70bn to shareholders over the next four years. Coty obviously believes that it too can generate significant value from the new deal, which will double its annual revenue to over US$10bn. The company has already said that it expects to hike its annual dividend by the end of 2016.
On the other side of the channel, Unilever has built a premium skincare portfolio with the acquisitions of REN, Kate Somerville, Dermalogica and Murad within the last five months. Getting into the high-end skincare business looks like a good move at the moment, not least because food revenues are becoming ever more squeezed. The company could even be looking to divest its spreads business, which it decided to run as a separate unit last year. Acquiring smaller brands with unique identities and making them work is a challenge in itself, though. All four of Unilever’s brands are distinctly premium, so they cannot simply be rolled out aggressively across stores.
One key issue across at least two of Unilever’s new brands will be the importance of the founders. Dermalogica, for example, was founded by husband and wife Raymond and Jane Wurwand, and many people had thought that they would never sell. The brand’s future success will hinge on the global conglomerate’s ability to tap into the ethos of a brand built around sustainability and “making profits with a purpose.” Unilever is in a good position to do so, though, with its commitment to sustainable business through the Unilever Sustainable Living Plan. The company’s aim to double its turnover while reducing its environmental footprint and focusing on its positive social impact must have been attractive to the Wurwand’s.
Murad is also unique, with its founder, Dr Howard Murad, central to the brand. The brand currently has a large presence in the US, but could be ripe for growth in the UK. In both cases, it will be a boost that the founders will remain involved. A founder-led brand with the kind of backing that Unilever has to offer will be a potent combination.
How do you think Unilever can ensure its latest acquisitions are successful? Let me know at moira@thembsgroup.co.uk, and have a lovely weekend.