Unilever CEO Beats Rivals by Bucking Ad-Spend Trend

Passed-Over Polman Bests Nestle, P&G -- but Isn't Bragging

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BATAVIA, Ohio (AdAge.com) -- You might expect a last laugh from Paul Polman, but he's having none of it, at least not yet and not publicly.

Four years ago, he left Procter & Gamble Co. after being passed over by executives closer to then-CEO (now chairman) A.G. Lafley. Two years later, he lost a closely watched beauty contest to become CEO of Nestle to Paul Bulcke, an insider with deeper roots. He finally got the brass ring that eluded him at the Earth's two biggest package-goods companies at No. 3 Unilever when he became CEO Jan. 1. And this third time is looking charmed.


A look at Paul Polman's corporate climb over the past 30-plus years.
Both of Mr. Polman's corporate alma maters disappointed analysts and investors with their top-line results last quarter, fading at the end of a mostly stellar decade for each. Unilever, with a more-checkered decade, delivered an upside surprise in Mr. Polman's second quarter at the helm, with 4% organic sales growth and 2% volume growth that ended a recent streak of flat to negative volume.

Unilever's progress has come partly from a product portfolio well configured for recession and some pricing adjustments. But it can also be credited to Mr. Polman, 52, quickly creating a leaner, faster organization and paying more attention to marketing.

"Unlike some of the competitive set, we have invested in [advertising and promotion] and spent behind our brands and innovation, and that has given us the growth," he said. Indeed, after a few quarters of cutting marketing spending as a share of sales, Unilever started going the other direction last quarter, not long after he took the reins. Overall, it reported $7.2 billion in ad spending globally last year, a close second to the $7.6 billion P&G reported in its fiscal year ended June 30.

'A proper marketer'
Unilever appears to have accelerated further in the current quarter, including in the U.S., launching Starbucks ice cream and running four simultaneous, benefit-focused campaigns for its more heavily advertised brand, Dove.

It's the first time a proper marketer has run Unilever," said Unilever Chief Marketing Officer Simon Clift in an April interview.

Last year, Unilever grew the top line 7% organically, but all from pricing. "This year the growth is coming from innovations and [marketing]," Mr. Polman said. "That's quality growth."

It's enough that Sanford C. Bernstein analyst Andrew Wood, long one of the company's toughest critics, put a buy on the stock for the first time in seven years. The research house also put out a report detailing how much risk rival companies it covers faces from competitive overlap with Unilever. Suffice it to say, fear of Unilever hasn't driven many investment decisions in the past decade.

Mr. Polman said he believes that Unilever is much better positioned than some rivals to weather recession, and that last quarter's results are proving it possible for brand marketers to deliver at- or above-market growth in tough times. "In light of the competitive results and what we set out to do, I think we should be pretty pleased with the progress," he said. "But there's a lot more to do." He also continues to credit work by his predecessor, Patrick Cescau, to revamp Unilever's portfolio and organizational structure.

Growing with markets
Mr. Polman said he wasn't surprised so much by Unilever's results last quarter as by those of its competitors. "There must be a whole area of the market disappearing that we are not competing in," he said. "But roughly we are growing in line with what we see as the markets."

He said he isn't getting satisfaction from beating his old companies. "We are focused on the consumer," Mr. Polman said. "I live in a world where someone's gain doesn't need to be someone else's pain." Besides, he said he thought Nestle's results -- 3% organic growth vs. the 4% expected of it and delivered by Unilever -- were "pretty good."

Few CEOs know their chief competitors so intimately. Though he hasn't lived in Cincinnati for eight years, Mr. Polman still has plenty of ties to his old hometown. In mentioning that Unilever is about to launch a line of frozen prepared meals licensing the P.F. Chang's brand, he recalled one of its restaurants in a shopping center east of downtown. He returned in June to deliver the commencement address at the University of Cincinnati -- where he met his wife of 29 years and received his finance M.B.A. -- staying at the campus Marriott hotel where P&G conducts many of its training retreats, and taking time for dinner with some old friends.

Friendliness aside, Mr. Polman is making Unilever into a bigger problem for P&G and other competitors. And he's doing so with what looks like a mixture of the toughness associated with his old mentor -- former P&G Chairman-CEO Durk Jager -- and the charm of another former boss, Mr. Lafley.

Because of his runner's physique (he ran in the Boston Marathon in May with his son for charity), he lacks Mr. Jager's appearance of a man who could crush an associate brand manager with his bare hands. Yet Mr. Polman got tough fast at Unilever, instituting 30-day action plans for troubled brands and businesses, freezing management salaries, freezing out consultants and instituting performance reviews every six months rather than annually.

Top leadership intact
The tough love came with little top-level turnover. Predictions that an outsider with a P&G pedigree would have the Unilever veterans he beat out for the CEO post heading for the exits haven't proved correct: The senior management team in place a year ago when Mr. Polman's appointment was announced remains entirely intact, save for the CEO.

"There was a lot of speculation about people leaving, and we haven't seen that," he said. "In fact, we have more applications than we've ever had before, including from a lot of our industry colleagues who see some dynamism they want to be part of. And we're selectively looking."

"I think external commentators predicted [Mr. Polman coming] would be an enormous cultural shock, which it hasn't been," Mr. Clift said back in April. "I suspect Procter & Gamble and Unilever are made of rather similar stuff."

One Unilever veteran -- also a veteran of P&G and PepsiCo -- described the company as a mix of Pepsi's seat-of-the-pants decision making and P&G's bureaucracy. Mr. Polman, a devotee of data-driven decisions yet a foe of lengthy cogitation, appears bent on changing both. "This company has gone through tremendous change," Mr. Polman said, with a nod to near continuous restructuring since the late 1990s. "People are change agents as a result."

But all that restructuring probably made the company too internally focused, he said, adding that he wants it more focused on consumers, with "a little more bias toward action. Thirty-day plans were one of the tools to get there. ... Big companies like ours have layers and complexity you need to fight."

Surprise stars
Beating the enemy within isn't as simple as vanquishing the one without: the economy. Unilever has, however, been making strides there.

While it has a food business that's broadly more recession-resistant than beauty and personal care, the surprise stars of late have actually been personal care -- which posted well-above-average 5.4% organic growth globally last quarter -- and home care, which, freed from the results of the U.S. laundry business divested last year, posted industry-leading 9% growth.

POLMAN: At world's third-largest company, he's bringing in 4% organic sales growth and 2% volume growth.
POLMAN: At world's third-largest company, he's bringing in 4% organic sales growth and 2% volume growth. Credit: Laurent Gillieron
Some analysts see Unilever getting more aggressive on price than competitors, which could dent that marketing-dependent "quality growth" Mr. Polman is so proud of. However, he said he doesn't see a move toward pricing, noting that last quarter's 4% organic revenue growth still came roughly half from pricing vs. the prior year. "We are not really adjusting prices downward," he said, adding that it would be a bad idea, since he's expecting costs to rise again.

The economy is probably in for "a long and slow recovery," he said. "I think we've seen a shift in the consumer buying habits and value equation that are going to stay with us for a long time."

But looking at averages doesn't make sense in a business where winning 2% to 3% of consumers can translate into a big win, he said. "You really have to peel the onion and find a certain group of consumers willing to spend more and buy more quality in today's environment." The upcoming launch of P.F. Chang's frozen entrees in the U.S., for example, capitalizes on people eating out less but still wanting restaurant-quality food.

No ultra-premium here
At the same time, he said, Unilever has brands such as Suave that are well-positioned for more- cost-conscious consumers. And it lacks the foodservice business of Nestle or the prestige and ultra-premium product lines of rivals such as L'Oreal and P&G. "Companies that have been too focused on the premium segment are seeing bigger hits," he said.

Having the right product portfolio is one thing; managing it is clearly another. And for Mr. Polman, progress is relative -- which might just be why he isn't having that last laugh. After all, this is a man who was tested by being pinned down alongside his predecessor, Mr. Cescau, and several other Unilever executives for more than a day during the terrorist siege at the Taj Mahal hotel in November.

"I'm very close to the Indian organization now and have a lot of admiration for them," he said. "Unfortunately, there were many in Mumbai that night who were not so lucky. It puts in perspective what things are all about."

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