Unilever is to prune its portfolio of individual products by up to 40 per cent by the end of 2014 in an effort to boost earnings

December 5, 2013 6:58 pm

Unilever to prune back product offering

By Scheherazade Daneshkhu, Consumer Industries Editor

Unilever is to prune its portfolio of individual products by up to 40 per cent by the end of 2014 in an effort to boost earnings. Jean-Marc Huët, finance director of the Anglo-Dutch company, told investors at a London conference on Thursday that it aimed to make savings by further reducing product lines, known as “stock keeping units,” and cutting stock levels.Consumer goods companies are having to work harder to boost profits in the face of flat demand in austerity-hit Europe and a slowdown in emerging market growth. Paul Polman, Unilever chief executive, said last week that the slowdown in emerging markets, on which the company depends for 57 per cent of its sales, was here to stay.

He promised investors at the conference to boost operating profit margins. Although the group’s operating profit margins are average for the food industry, they are below average in personal care.

Reducing complexity is seen as one answer. Michael Silverstein, senior partner at the Boston Consulting Group, said: “We have found across packaged goods that complexity can be reduced enormously at no sacrifice in sales. The consumer wants an edited assortment. The savings are extraordinary for supply chain.”

Pier Luigi Sigismondi, Unilever’s chief supply chain officer, told the conference that the maker of Dove soap, Knorr stock cubes and Ben & Jerry’s ice cream would have cut 20 per cent of its stock-keeping units by the end of this year.

He said another 10 to 20 per cent would be reduced next year. There are about 50,000 product variants – with different flavours or formats – in Unilever’s portfolio.

Nestlé, the world’s biggest food producer by sales, has said it will sell off underperforming units to boost profitability and help simplify the business, as well as further reducing product lines.

Paul Bulcke, Nestlé chief executive, told the Financial Times last week that the Swiss group had “intensified” its reduction of product lines. “SKUs can really be a burden on your capacity usage, working capital and resources that it absorbs,” he said.

Unilever has been restructured under Mr Polman, who became chief executive in 2009. He has increased the proportion of higher-margin personal care products to 36 per cent of sales, from 29 per cent in 2008.

But shares have been hit by the emerging market slowdown and Unilever has come under pressure to tilt its portfolio further from food towards personal care.

“The company’s growth has decelerated in emerging markets more than its peers,” said analysts at Liberum Capital. “It is losing share in North America in home and personal care and the turnround efforts in food seem halfhearted to us.”

But analysts at Bernstein said: “We believe this transformation to becoming more of a home and personal care company will continue over time and should drive better operating performance and improved valuations, given that home and personal care companies trade at a significant premium to food companies.”