Unilever's CEO, Hein Schumacher, Navigates Challenges: Market Share Decline and Strategies for Future Growth

Unilever's Chief Executive Officer, Hein Schumacher, has expressed his dissatisfaction with the company's performance, revealing a decline in market share despite a noteworthy surge in sales volumes.

The conglomerate, well-known for brands like Magnum ice cream and Dove soap, documented a 7% surge in underlying sales for the twelve months concluding in December, aligning with analysts' predictions.

However, the total revenue witnessed a slight dip of 0.8%, amounting to €59.6 billion.

Erosion in Market Share

As per a Financial Times report, Unilever's market share dwindled to 37%, a drop from 38% in the previous quarter and a significant plunge from 48% in the first quarter of the fiscal year.

This downturn was ascribed to consumers' inclination towards private-label products, particularly conspicuous in the European market, resulting in a shift away from Unilever's offerings.

Nevertheless, the company managed to sell more of its products following a volume decline in 2022, driven by subdued price hikes that prompted customers to make additional purchases.

For the entire year, sales volumes experienced a 0.2% uptick, propelled by robust growth in Unilever's prestige beauty and health and wellness divisions, with a 1.8% increase in the fourth quarter. Meanwhile, prices saw a surge of 6.8%, leading to a nearly 3% rise in shares during morning trading.

Hein Schumacher remarked, "Today's results demonstrate an ameliorating financial performance, marked by the return to volume growth and the gradual rebuilding of margins. However, our competitiveness remains unsatisfactory, and overall performance requires enhancement."

He added that inflation is anticipated to revert to normal levels this year, ranging between 2.5% and 3%, with some regions experiencing pockets of deflation, like South and Southeast Asia. However, he noted, "We wouldn't necessarily witness negative pricing."

Increment in Group's Profitability The group's profitability showed a slight increase in 2023, reaching an underlying operating margin of 16.7%, compared to the previous year's 16.1%. The underlying operating profit also rose by 2.6% to €9.9 billion.

Numerous consumer goods companies have grappled with maintaining their margins amidst high inflation and dwindling consumer demand.

Companies resorted to price hikes to counter increased costs, revealing the limitations of their brand pricing power as consumers pushed back against escalating grocery prices, opting for private label and more affordable goods.

Schumacher is committed to revamping Unilever's performance, fostering growth, and concentrating on the company's 30 most robust brands, with the support of activist investor and board member Nelson Peltz. Peltz initiated his stake in the group after its unsuccessful attempt to acquire GSK's consumer health division.

"We are in the early stages of this endeavor, with much work ahead. Nevertheless, we are moving swiftly and urgently to transform Unilever into a consistently high-performing business," Schumacher emphasized on Thursday.

In Unilever's latest trading update, the company announced a leadership shake-up, appointing a new chief financial officer, Fernando Fernandez, and new division chiefs in the beauty and wellbeing, ice cream, and home care sectors.

Surmounting Challenges

The report acknowledged that Schumacher has encountered mounting challenges, including a scrutiny by the UK competition watchdog over Unilever's environmental claims, tensions with its ice-cream brand Ben & Jerry's regarding its stance on the Israel-Hamas conflict, and scrutiny of its ongoing operations in Russia.

On Thursday, Unilever stated that it had reassessed its position in Russia and concluded that "the containment actions we put in place at the beginning of the war minimize our economic contribution to the Russian state."

As of the end of last year, the company possessed net assets of about €600 million, including four factories, in the country.

Essential Information

Unilever recently declared its intention to sell over 20 brands, including Q-tips, Timotei shampoo, and Impulse body spray, to the private equity group Yellow Wood Partners. This move, generating approximately £700 million in annual turnover, marks the first under Unilever's new CEO, Hein Schumacher, as part of the company's effort to streamline its portfolio in response to investor pressure for enhanced growth.