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Brand Purpose: Why the Unilever takeover was never going to happen

It would have been one of the largest deals in corporate history. The merger would have dethroned Nestlé as the world´s largest food company. But the 143 billion Dollar takeover of the Anglo-Dutch consumer goods giant Unilever by US food conglomerate Kraft Heinz was called off on February 19, only two days after it had been announced. Media reports named “political unease over British jobs” as well as an insufficient takeover price as possible reasons for the failed bid. But a closer look reveals: Unilever´s philosophy of long-term, sustainable brand building would have collided with the rigorous game plan at 3G, the Brazilian private-equity firm that engineered the merger of Kraft Foods and H.J. Heinz in 2015 in conjunction with Warren Buffett´s Berkshire Hathaway.

“Never have two brands been more unsuited”, concluded the UK magazine “Marketingweek”, after the two companies issued a statement announcing they had “amicably agreed” to not further pursue the deal.

Had 3G been successful in its bid, it might well have followed the same script it applied when it bought Heinz back in 2013 or when it acquired Canada´s leading coffee chain Tim Hortons in 2014: Slashing the payroll, enforce austere budgets and change the corporate culture. Once a new company is embedded in the 3G universe it has to implement a razor-sharp focus on expenses and apply a cost-cutting process which is called “zero-based-budgeting.”

For managers it means planning each year´s budget from scratch and to shift spending to higher-yielding projects and initiatives, by focusing, as the Wall Street Journal once put it, “on details as minute as how to make photocopies.” Strategists and investment experts have praise for the so-called “3G Way.” Profits typically follow in short order after the required changes were put in place.

But the same Wall Street Journal in August 2015 presented a review of companies 3G had previously invested in. The result was unmistakable: They show “increases in profit margins but mixed performances in sales growth.”

In this context imagine Unilever CEO Paul Polman sitting at the table discussing the possible merits of a takeover by a company that strives for fast results and ruthless cost-cutting. Polman, the second of six children, was an altar boy during elementary school. He delivered milk and sold Dutch cheese to German customers as a little boy in order to earn his pocket money. When Polman took the helm at Unilever in early 2009, shortly after the financial crisis started to shake the financial and corporate world, one of his first actions was to abolish quarterly reports and earnings guidance. When Forbes asked Polman in an interview about the shocking introduction, he simply stated: “I´m not just working for them (the shareholders), slavery was abolished a long time ago.”

Not long after he became CEO, Polman introduced Unilever´s 10-year “Sustainable Living Plan.” The vision is to decouple the company´s growth from its environmental impact. The goal is to double Unilever´s turnover while reducing its carbon footprint by half. Unilever has a huge marketing budget for building brands – among them Knorr soups, Lipton tea and Vaseline crème – that are focused on helping society. The company is bound by its historical roots in the late 19th century when it started to make soap available to the masses. Polman no longer wants to bow to the demands of shareholders. He even takes an active role in selecting them, if possible.

Instead, the Unilever CEO wants the company he runs to grow on a straight and reliable brand promise. The mission is to “improve health and well-being”, “reduce environmental impact” and “enhance livelihoods.” Brand purpose and corporate sustainability are the two key ingredients in this long-term growth strategy. On its corporate website the company explains its strategy for sustainable business as follows. “Unilever has, from its origins, been a purpose-driven company. Today our purpose is simple but clear – to make sustainable living commonplace.” According to Unilever´s website, in 2015 34 percent of the company´s portfolio by volume “met the highest nutritional standards, based on globally recognized dietary guidelines.” In 2015, the Unilever CEO received the UN´s highest environmental honour, the “Champion of the Earth Award.”

 

Sources for this report:

https://www.marketingweek.com/2017/02/20/unilevers-brand-building-kraft-heinz/

https://www.theguardian.com/business/2017/feb/19/kraft-heinz-unilever-shareholders-lobbies-uk-government-takeoverbid

https://www.ft.com/content/e6696b4a-8505-11e6-8897-2359a58ac7a5

http://www.forbes.com/sites/andyboynton/2015/07/20/unilevers-paul-polman-ceos-cant-be-slaves-to-shareholders/#3c793b1740b5

http://www.europeanceo.com/business-and-management/unilever-ceo-paul-polman-is-redefining-sustainable-business/

https://www.unilever.com/sustainable-living/the-sustainable-living-plan/our-strategy/

https://www.unilever.com/sustainable-living/the-sustainable-living-plan/improving-health-and-well-being/

https://www.unilever.com/news/news-and-features/2015/Paul-Polman-receives-UNs-highest-environmental-accolade.html

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