Fund manager Terry Smith has reiterated his disapproval of Unilever’s brand purpose strategy, accusing the FMCG giant of “virtue signalling” while taking aim at the company’s soap brand Lux.
In his annual letter to shareholders, the founder of Fundsmith Equity Fund highlighted Lux’s stated brand purpose, which is ‘inspiring women to rise above everyday sexist judgements and express their beauty and femininity unapologetically.’
“I will leave you to draw your own conclusions about the utility of this,” Smith wrote, adding: “When I last checked [soap] was for washing.”
The boss of Fundsmith, which is reportedly Unilever’s 15th largest shareholder, said linking brand purpose with brand growth “confuses correlation with cause and effect”. Smith returned to the example of Hellmann’s, having criticised Unilever’s decision to define a brand purpose for the mayonnaise brand back in 2022.
“There is no control in that experiment; we don’t know how well it would have grown without the virtue signalling ‘purpose’,” he wrote.
“There may be a positive correlation between stork sightings and births, but that doesn’t prove that one causes the other. Maybe Hellmann’s would be growing as fast or even faster without its ‘purpose’.”
The comments from Smith come as Unilever CEO Alan Jope, who will retire from the business later this year, reiterated his belief in the power of purpose.
Prestige is now one of the fastest-growing parts of Unilever and another example of how putting purpose at the heart of your business is a pathway to sustainable growth.
Alan Jope, Unilever
In a LinkedIn post yesterday (10 January), Jope credited Unilever’s “Brand-first. Founder-first. Technology-first” approach for helping its prestige business achieve €1bn (£883m) in turnover in 2021.
He highlighted the work of group CEO of Unilever Prestige Vasiliki Petrou, a former Procter & Gamble marketing director, for building a portfolio of modern luxury brands with a “strong founder-led purpose”.
“Prestige is now one of the fastest-growing parts of Unilever and another example of how putting purpose at the heart of your business is a pathway to sustainable growth,” said Jope.
During an investor event last month, the Unilever CEO reiterated the company’s belief that purpose-driven brands grow faster, claiming ‘high purpose’ brands delivered 6.1% of underlying sales growth in 2021, compared to just 0.2% contributed by ‘low purpose’ brands.
Acknowledging purpose takes time to build, Jope said the pre-requisites for any purpose-driven brand to succeed are being strong on value and a great product at the right price. However, when done well Unilever claims the media ROI of purpose-driven brands is 20% higher.
Major Unilever investor says business has ‘lost the plot’ with brand purpose focus
According to Petrou, Unilever Prestige was founded in response to a “white space” the company identified for luxury brands “anchored in purpose and social impact.” Established in 2014, the division spans nine beauty brands including REN, Dermalogica, Living Proof and Hourglass.
Writing last month, Petrou insisted Unilever Prestige looks for strong brands with global appeal, that will “stay relevant for at least the next 15 years”, with each brand displaying a “clear social impact mission”.
“If a brand doesn’t have purpose, then it doesn’t belong here,” she added. “We’re building a business of principled and authentic brands which consumers trust and believe in. Consumers want to see the brands they love standing up for something bigger than beauty.”
Some 45% of incremental turnover delivered by Unilever Prestige since 2017 was driven by organic growth and the rest through acquisitions. The FMCG giant claims to have doubled the turnover of some of its newly acquired brands since they joined the business.
The division achieved underlying sales growth between 2019 and 2021 of 11%, with more than 50% of total sales coming via ecommerce.
‘Lost the plot’
This belief in the power of purpose shown by Jope and Petrou is not, however, shared by Terry Smith. Last year, Smith branded Unilever’s focus on sustainability and brand purpose “ludicrous”, claiming the strategy led to the FMCG giant’s underwhelming performance in 2021.
Smith took aim at Ben & Jerry’s refusal to sell its ice cream in Israel’s settlements in occupied Palestinian territory, as well as the decision to define a brand purpose for Hellmann’s.
In his 2022 letter to investors, he accused Unilever management of being “obsessed” with publicly displaying the company’s sustainability credentials, which he alleged was “at the expense of focusing on the fundamentals of the business.”
“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913, so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches),” he wrote at the time.
A month later, Unilever highlighted the superior growth of Ben & Jerry’s, Hellmann’s and Dove in its 2021 fiscal year. Dove experienced its fastest growth in eight years at 8%, while Jope called out Hellmann’s 11% growth and Ben & Jerry’s 9% growth as “key performances” within the group.
Unilever’s mission to put purpose at the heart of all its brands began in 2018, after finding that its purpose-driven brands were growing at a faster rate. The company’s 28 ‘Sustainable Living’ brands grew 69% faster than the rest of the business, up from 46% in 2017, and delivered 75% of Unilever’s overall growth that year.
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