Unilever claims ‘new, bigger’ approach to innovation is driving growth amid turbulence

A stronger pipeline, bigger innovations and a more expansive use of technologies are helping Unilever dampen slowing sales with innovation now accounting for 75 per cent of its margin growth.

The FMCG brand is in the midst of turbulence from demand slumps in Asia, North America and Europe where sharp slowdowns have seen marketers redouble efforts to seek out new growth opportunities in competitive segments such as men’s grooming and haircare. And while its first-half results reveal that Unilever continues to struggle, chief executive Paul Polman said “innovation is delivering results”.

Gross margin rose by 40 base points in the first half of the year, mainly due to what Unilever called “margin-accretive innovations” and cost cuts. Polman said this is the seventh year in a row the business has increased sales, albeit at a slowing pace, with unederlying sales up 2.9 per cent, down on the 3.7 per cent it posted for the same period last year.

Since 2013, the average size of innovation projects have increase threefold, while the number of projects using new technologies such as beacons has jumped from 35 per cent to 45 per cent. The stronger pipeline these investments underpin has seen innovation deliver 20 per cent incremental turnover in the period also.

From ramping up its partnerships to using innovation to build premium segments for its Magnum and Comfort brands, Unilever is using the sharper focus to shift its product offering away from slower growing food products toward premium personal care brands - its biggest arm. Sales from the category grew three per cent, buoyed by increases in both volume and price.

It expects the growth to quicken in the latter half of the year and claimed on a call to analysts that it is close to accounting for 50 per cent of its business, making it the world’s second largest personal care business behind L’Oreal.

Polman singled out the importance of innovation in maintaining this momentum. He said a focus on innovation “growing the core” of its brands had spurred its dry spray aerosols to accrue a 75 per cent of share of the segment in 12 weeks. The launch of Dove’s Advanced Hair Series last year in the US added 94 per cent incremental sales to the brand.

Unilever’s interest in personal care goes all the back to 2008 when the business first began rationalising its food business due to its failure to deliver more than low single digit top line growth. Unilever’s food loss is its personal care division’s gain and Polman had made the category its main priority this year in its attempt to gain firmer footing in developed markets where competition is rife.

Sales in North America and Europe dropped 0.9 per cent and 0.7 per cent respectively, while sales in emerging markets – which accounted for 57 per cent of Unilever’s business last year – rose six per cent on an underlying basis.

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