Unilever taking the fight to private label and profiting from brand investment

Posted by Daniel Palmer on 31st October 2008

Unilever has posted third quarter underlying sales growth of 8.3%, as they continue to reap rewards from investing in their brands. The global consumer goods giant managed to also increase volume by 0.6% for the quarter despite raising their prices.

In Australia, where their prominent food and beverage brands include Streets, Flora and Lipton, they reported a better third quarter with “good volume growth and a greater contribution from price”.

“In the first nine months of the year we have delivered over 7% underlying sales growth. We have strengthened the business in a tough environment,” Patrick Cescau, Group CEO, said. “Despite the price rises needed in the light of unprecedented cost increases, our volumes are holding up. Our cost savings programmes are far reaching and on-track to deliver.”

“We have been reshaping the portfolio, allowing us to focus our resources where it matters most; behind our brands and our priority categories,” Mr Cescau added. “All this leaves us well placed for the future. This year we now expect to deliver underlying sales growth well in excess of our long-term target range of 3-5%, together with an underlying improvement in operating margin for the year.”

James Allison, Head of Investor Relations at Unilever, reported that the company was keen to press home the notion to consumers that value isn’t just about price, as they seek to counter the threat of private label. “We have … been more outspoken in defending the strength of our brands, especially when challenged by Private Label,” he advised.

An example of their attempt to highlight the quality of their brands in the face of increased private label share was a recent campaign run in the Netherlands.

The advert was entitled “Are we going to compare?”, and proceeded to point out real differences between Unilever’s Calve Brand of peanut butter and the leading retailer own brand:
• The taste of more peanuts
• No added sugars, good source of nutrition and rich in vitamin
• Calve tastes better according to independent taste trials

“It is no coincidence that Calve peanut butter has been Holland’s favourite for 60 years,” the advertisement noted.

Mr Allison also reported that the company was of the belief that any downturn or recession should not dictate that marketing spend should fall.

“We believe that, in periods of severe commodity-cost-driven price inflation, relating marketing spend to turnover places too much emphasis on pricing and not enough on volume… As you will have seen from our announcement the ratio of advertising and promotional expenditure to sales is down 50 basis points in the year to date and 70 basis points in the quarter,” he said. “The fact is that we have continued to invest in Brand equity at a time when others have taken a more cautious approach.”