How Unilever is growing volumes through innovation

By Katy Askew contact

- Last updated on GMT

Unilever is leveraging innovation to 'modernise' its food brands
Unilever is leveraging innovation to 'modernise' its food brands
Unilever wants to grow its food and refreshment brands in developed markets like Europe through a focus on innovation. This focus has enabled the group to increase its sales volumes in the face of weak markets and pricing pressure.

Delivering its first quarter results this week, Unilever noted this is the first full reporting period that has seen its recently formed food and refreshment unit up and running. So, how did the new business unit fair?

Food and refreshment sales increased by 2.3% in the three-month period, in line with the growth rate seen in the preceding quarter. Sanford C. Bernstein analyst Andrew Wood noted that this was driven by “strong volume growth​” – up 2.1% - despite “limited​” pricing. Excluding the divested spreads business, underlying growth was stronger still at 2.7%.

“Category-wise, premium ice cream continued to perform well, with new launches in Magnum and the roll-out of Ben & Jerry's non-dairy offering contributing to a good start to the year. Meanwhile, Knorr delivered another quarter of growth above the group average, driven by the emerging markets,”​ Wood observed.

Speaking during a conference call to discuss the results, investor relations director Richard Williams said that the performance of Unilever’s ice cream, savoury and tea brands offset the pressure in dressings, where lower pricing due to the US “mayo war​” pushed overall sales down.

Priorities in food: innovation and channel growth

According to Unilever chief financial officer Graeme Pitkethly, the company has a clear set of strategic objectives in foods and refreshment.

“The priority for our newest division is to grow its presence in emerging markets, to modernise the portfolio and to continue to build growth in alternative channels such as food service and out-of-home impulse occasions.”

Unilever's attempt to "modernise​" its portfolio centres on efforts to respond to consumer needs in fast-growing segments such as free-from, vegan, health and wellness. Targeted innovation supported Unilever’s best performing food brands, the company revealed.

Product development initiatives included the launch of Magnum Core and Praline variants and the roll-out of the Ben & Jerry’s non-dairy platform from the US into Europe. Breyers delights’ low-calorie, high-protein variants have now been launched in 11 countries.

While much of Knorr’s growth was generated in emerging markets, Unilever also leveraged innovation to expand the brand into adjacent categories in Europe.

“Knorr had a good quarter, launching a range of natural mini meals in 11 countries across Europe and in North America, a new range of organic meal starters has gone into the market,”​ Pitkethly added.

Pricing environment still soft

Despite innovation driving volume growth – and improving the product mix, which is factored into Unilever’s underlying sales growth – the pricing environment remains a concern.

Pitkethly described the pricing atmosphere as “muted”​. He revealed price increases in markets such as the Netherlands, Eastern Europe and Turkey were offset by deflation in the UK, Brazil and North America.

“Price growth of 0.1% is lower than we’ve seen for quite some time. This was expected,”​ the finance chief stressed. “We’re not concerned about relatively low pricing in aggregate. Pricing decisions are made locally… What is important in making pricing decisions is that we balance the needs of the consumer and the shape of the P&L.”

Despite these reassurances, Alain Oberhuber, CEO of MainFirst, described the mood as “downbeat”​ and suggested that pricing is likely to weigh on the organic growth rate throughout the first half.

“Pricing remains challenging and will continue to be soft throughout 2018,”​ he predicted. Obeehuber noted that the group’s promotional activities in Europe are “significant”​ and likely to continue throughout the year.

Related topics: Business, Dairy, Prepared foods, Food prices

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