The Unilever (LSE: ULVR) share price may be up 18% in a year, but scratch the surface and things are not all well at this consumer goods giant. The previous CEO was barely in the job 18 months when the board fired him last month. With a change of direction afoot, is now the right time for me to consider investing?
Misfiring strategy
At the heart of the company’s recent problems is a baffling, complicated strategy. A few years ago, star investor Terry Smith accused it of being more interested in sustainability credentials than building shareholder value.
The ‘woke’ agenda may have been expunged since then but its overarching strategy didn’t change much. Unlike its bitter rival Procter & Gamble, it still relies heavily on a number of food brands and volatile emerging markets.
The new CEO looks determined to cull the company’s behemoth portfolio. In an interview in early March he stated that the business has identified around €1bn of local brands in Foods Europe that “don’t fit well with the portfolio” and are not “strategic priorities”. His intention is to act on these at “pace”.
Back to basics
I believe that the intention behind the new strategy is to replicate a similar one P&G undertook some time ago.
Wind the clock back 10 years and P&G was in the same boat Unilever finds itself in today. It was losing market share to smaller more nimble rivals. I remember the issues Gillette had when the Dollar Shave Club was launched, to provide one example.
What did it do? It went back to basics, to its core brands. Its new strategy of ‘irresistible superiority’ was so simple that many analysts at the time saw it as nothing more than a meaningless mantra. But it worked. Since 2015, its share price has doubled and its market cap is now much bigger than its main rival.
Consumer squeeze
One of the biggest challenges the company faces in the next few years is one of cash-strapped consumers tightening their belts. In some instances this means switching to cheaper brands.
The US is by far its biggest market, accounting for nearly 40% of its entire turnover in 2024. The US stock market might be booming, but its consumers are not. The cost of living in the US has shot up recently. Elevated inflation has meant that the value of the dollar is 30% less than it was four years ago.
Now with the talk of tariffs and trade wars, people fear that the US is heading for a recession. To me, the company cannot afford to stand idly by doing nothing as it is likely to get steam rolled in the coming years.
There is definitely value in Unilever. Its many world-leading brands speak for themselves. The new CEO may be known as the hair brand guy, but I expect a cull at virtually every category of its portfolio. He has, after all, done it before.
At the moment, I have significant exposure to a much smaller consumer goods business, PZ Cussons, so I won’t be buying. If I didn’t, I wouldn’t hesitate to snap some up.
