Like all consumer goods companies, Unliever is facing pressure on margins as it continues to see inflation affecting costs. Despite this, the maker of Dove and Ben & Jerry’s is continuing to invest where executives see opportunities to align the organization around digital commerce.
In 2023, this will include a significant move to bring digitally-focused teams together.
The London-based company will open 29 ecommerce hubs around the world. Called DMCs, they will combine digital marketing, media, data and sales teams.
“They're aligned to our five business groups, and those DMCs comprise experts in media, in data-driven marketing, in content excellence and sales capabilities, and they will ensure that we deliver seamless consumer experiences and optimize our investment across all channels,” said CEO Alan Jope. “These DMCs represent a key investment to ensure that Unilever continues to win in this important channel of the future.”
The investment comes as Unilever is seeing continued gains in ecommerce. In 2022, priority digital commerce channels grew 23%, outpacing overall underlying sales growth of 9%. Behavior is also continuing to shift toward digital. While there was a return to stores in 2022, Jope said that many in-person sales started with online searches.
“These channels are going to remain a key source of growth, and we're seeing rapid changes in the landscape as different channels, different models compete for consumers' attention and spend,” Jope said.
Unilever has ramped up marketing spend along with this growth. The London-based company increased marketing by €500 million in 2023, with 80% going directly to media. Marketing spend as a percentage of sales was up in categories including beauty and well-being, personal care and home care, as well. The company plans to once again increase marketing spend in 2023. The DMCs represent a move to ensure the allocation of those dollars is moving at the pace of change in commerce.
Inflation outlook
As one of the world’s largest consumer goods companies, Unilever has a unique vantage point into how inflation is sweeping around the world
It was among the first major companies to recognize costs going up, even before the invasion of Ukraine. Looking forward in 2023, Jope said the company is not expecting to see a deflationary environment in the second half of the year. However, he allowed that there are “a wide range of potential outcomes.”
In particular, the company is keeping an eye on two key “bellwether” areas for inflation trends. Jope shared the following:
China reopening. After COVID closures, China has $1.5 trillion-2 trillion in excess household savings. That’s leading to a “consumption boom” in China as reopening moves across the country. Travel bookings and cinema occupancy are leading indicators, and Unilever is watching closely to see how that will extend into demand for consumer goods.
Soy crop yields. Commodity pricing is a key driver of inflation. If companies have to pay more for raw materials, that drives manufacturing and supply costs up, which in turn get passed onto the consumer in the form of price increases. Soy crop yields are particularly affected by weather, and have a “knock-on effect” to palm and other crops, Jope said. So they are a leading indicator of supply costs. Unilever is paying close attention to spot pricing and trends so that it can adjust contracts accordingly.
While it monitors conditions for future change, inflation remains a very present concern, and Unilever is continuing to raise prices. In 2022, it raised prices 11.3%, and the fourth quarter increase pushed even higher to 13.3%. This comes with consequences, as the volume of units sold declined by 2.1% for the year. Margins at the company also declined, as Unilever opted not to pass on the full costs wrought by inflation to consumers.
For executives, the task is to balance each of these concerns, while still investing in initiatives such as the ecommerce hubs to spur growth over the long-term.
(Source: University of Michigan)
