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Investors lose patience with Unilever's ethical dilemma

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Unilever Hellmann's mayonnaise - Jake Hawkins for The Telegraph
Unilever Hellmann's mayonnaise - Jake Hawkins for The Telegraph

What is the point of Hellmann’s mayonnaise? It depends on who you ask.

Terry Smith, one of Britain’s best known fund managers, says Hellmann’s is quite plainly a condiment for salads and sandwiches.

But to Unilever, the brand’s lofty purpose is to “help people enjoy good, honest food, for the simple pleasure it is, without worry or waste”, as it aims to “inspire and enable 100m consumers every year to be more resourceful with their food”, according to its website.

These declarations sit at the heart of Hellmann’s advertising campaign: “Make taste not waste.”

It is a key example of the “purpose-led” approach being driven by Unilever boss Alan Jope, who has warned that brands without an evangelical mission risk being dumped by the £100bn behemoth, also the parent of Marmite and Dove soap.

But, as analysts scrutinise the company’s lacklustre performance compared to rivals in recent years, that approach is coming under pressure.

Smith, who is a top 10 shareholder in Unilever, vented his frustration this week after his returns were dragged down by the consumer goods giant’s poor stock market performance. It has tumbled nearly 10pc over the past year alone.

“Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business,” Smith wrote in a letter to shareholders.

Pointing to the recent dispute between Israel and Ben & Jerry’s, another subsidiary, as “the most obvious manifestation of this”, he went on to criticise “far more ludicrous examples”.

“A company which feels it has to define the purpose of Hellmann’s mayonnaise has, in our view, clearly lost the plot”.

Yet it is not just mayonnaise that has been given a rebrand. All of Unilever’s biggest products now have their own purpose - from Dove’s mission to “make a positive experience of beauty accessible to all women” to a pledge by bleach brand Domestos to “win the war against unsafe sanitation and poor hygiene”.

Last year Ben & Jerry’s made the divisive decision to stop selling products in Jewish settlements within the Israeli-occupied West Bank, under the values of “peace, love and ice cream”.

It sparked huge controversy globally, an apology from Jope and the abandonment of Unilever’s shares by several US state pension funds.

Ben & Jerry's announced last July that they would stop selling their ice cream in the occupied Palestinian territories, saying its sale "is inconsistent with our values" - AHMAD GHARABLI/AFP via Getty Images
Ben & Jerry's announced last July that they would stop selling their ice cream in the occupied Palestinian territories, saying its sale "is inconsistent with our values" - AHMAD GHARABLI/AFP via Getty Images

Unilever's pricing problem

While the FTSE 100 firm has long said its values need not detract from growth, some analysts fear the corporate campaigning may be overshadowing financially important matters.

While overall turnover in the third quarter rose to £11.3bn, up by 4pc compared to the previous year, all of Unilever’s headline sales growth came from price rises rather than volume, according to company filings.

Analysts at Bloomberg say the firm appeared to have suffered a loss of market share across all three of its divisions - food, beauty and home care - “which won’t be easily recouped”.

Another broker warned: “The prices of raw materials, packaging and distribution are soaring. There’s only so much of that extra cost it can add to a tub of Marmite before consumers skip the spread altogether.”

Despite the concerns, Richard Cope of market research firm Mintel, argues that sending household brands into battle to save the planet is now expected by consumers and therefore cannot be ducked. But he warns that for this to be successful, brands must not simply adopt their new values superficially.

“Customers don’t like being talked at, or down to. They don’t want to sacrifice quality but they want brands who they know are taking action on sustainability,” Cope adds.

“They want to not have to worry, to be able to trust companies are committed to these things. And to be fair, that is what Unilever’s strategy is about.”

Certainly, no one could reasonably accuse Unilever of simple opportunistic posturing.

The firm first launched its “sustainable living plan” in 2010 and was talking up green causes long before its investors started to adopt ESG (environmental, social and governance) targets.

Under former boss Paul Polman, who left in 2018, the company launched a new model that sought to reframe sustainability not as an optional extra but something essential to its future.

“We shouldn't be ashamed of growth,” Polman said in 2010. “But growth at any price is not viable.”

Among a plethora of pledges, Unilever vowed to source more ingredients from sustainable farms, cut use of materials that cannot be recycled and help tackle poor sanitation in developing countries.

Since then, the company has continued to expand its commitments. Jope, Polman’s successor, has championed the causes with similar fervour and extended the requirement for “purpose” to each of its individual brands.

In 2019, he warned that even top sellers such as Marmite and Pot Noodle could be sold off if they didn’t find a purpose.

Hopes rest on Jope

Unilever boss Alan Jope wants every product to have an ethical purpose - Riccardo Savi/Getty Images for Concordia Summit
Unilever boss Alan Jope wants every product to have an ethical purpose - Riccardo Savi/Getty Images for Concordia Summit

Justifying this to sceptical investors, Jope - whose own purpose is “to lead the adventure” - said: “Principles are only principles when they cost you something.”

But while Unilever could claim to have netted total returns of more than 250pc under Polman, Jope’s record so far is more patchy.

Some investors are openly supportive.

John William Olsen, portfolio manager at top-20 shareholder M&G Investments, argues Unilever has spearheaded “the sustainability effort amongst the large consumer staples companies for decades”.

“We believe overall that Unilever’s focus will pay off,” he says. “From a branding and sales point of view, to attract bright young talent, but also to the benefit of a growing next generation of investors.

“Investors who care about a wider set of issues such as diversity and carbon emissions, not just profits, or at least not profits at any expense.”

But others argue Unilever’s corporate focus could be hampered by its lofty ambitions. Advertising tycoon Sir Martin Sorrell, whose firm S4 Capital joined Unilever last year in signing a pledge to reach “net zero” by 2040, says he believes Smith was “half-right”.

He points out that S4 has made its own environmental and diversity pledges, to attract customers and the best potential recruits, adding that “companies are being judged on their purpose by stakeholders, including customers and their employees”.

“But you can go too far, and as a packaged goods company, if you are not getting the basics right - that is focus, innovation and branding - then you are going to have problems,” Sir Martin adds.

“I don’t think Terry [Smith] is right to say Unilever has lost the plot but what he is getting at is top-line growth.

“It has scale and some extremely strong brands though, so it is bound at some point to get its mojo back.”

That is likely what Jope will be hoping as he tries to assure investors that Unilever’s purpose, though it might be deemed old-fashioned, is still to turn its profits.

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