Incremental innovation or game-changing NPD: Have Unilever and Nestlé really started to tap new trends?

By Katy Askew

- Last updated on GMT

Two giants of the global food sector - Unilever and Nestlé - reported increased sales momentum yesterday (18 October). The news will be welcome respite for the two ‘big food’ manufacturers who have seen market share come under pressure from the fragmentation of the global food market. But does it point to a turning tide?

Unilever and Nestlé reported an acceleration in organic sales yesterday, which rose 3.8% and 2.8% respectively.

Both companies have acknowledged the need to bring innovation to market quicker to reflect the disruptive pace of change and adjust their product portfolios to align them to changing consumer preferences, which have shifted towards fresh, healthy, local foods.

Tipping point reached?

Delivering its nine-month sales, Nestlé said it has made progress in shifting its portfolio towards attractive high growth categories. Nestlé plans to sell its skin care business in order to focus on its core food and nutrition business and the company called out the acquisition of the rights to produce Starbucks retail products – which closed faster than expected - as an example of how it is managing this shift.

“Our growth was supported by disciplined execution and faster innovation. We have reached significant milestones in portfolio management and are particularly pleased with the early closing of the Starbucks transaction,”​ CEO Mark Schneider said.

Nestlé has focused its internal innovation efforts on better-for-you brands. The group is extending its plant-based Garden Gourmet range in Europe while the launch of non-GMO and organic products is helping to revitalise its infant formula business in China.

©Nestle Investor Presentation, 18 Oct

Real internal growth – a company measure that strips out currency exchange, M&A and pricing – rose 2.3%. According to MainFirst CEO Alain Oberhuber it is likely that Nestlé will increase its innovation pace to support growth moving forward.

“Nestlé's 3Q results were solid and encouragingly illustrated an improvement in the organic growth rate,”​ Oberhuber said. MainFirst analysts expect full-year organic growth to stand at 2.9% - with an acceleration in 2019 to 4.3%.

For its part, Unilever reported an organic growth rate above its European peers, with sales accelerating across all three of its divisions: food and refreshments, home and personal care. However, stripping out pricing, Unilever’s volume growth was only marginally higher than Nestlé RIG at 2.4%.

Commenting on the quality of the growth, CFO Graeme Pitkethly said that increased prices were a “good sign of the fundamental strength of our brands and our brand investment”.

The company, which has restructured its R&D capabilities in order to speed its innovation pipeline, has rolled out a number of new products in the year-to-date, including Kinder ice creams in Europe. It is also experimenting with direct-to-consumer models in its ice cream business. In the US it launched IceCream Now, which enables consumers to order ice cream from home and the firm has trialled ice cream delivery at events in the UK.

Unilever is also working to expand in higher growth spaces with the launch of brands such as Prepco in the UK.

“The actions were taken to evolve our portfolio and build our presence in new channels are working. We so far launched 10 new brands this year and our e-commerce business is growing at 50% year-to-date,”​ Pitkethly said.

‘How much of this is new, behaviour changing?’

This turnaround in fortunes could be a ray of hope for CPGs who feel increasingly under siege from the proliferation of new brands and start-up companies.

“This was a good reporting,”​ Bernstein analyst Andrew Wood concluded.

However, Jon Tipple, chief strategy officer at “creative futures”​ company FutureBrand, questioned whether Unilever’s innovations were truly disruptive – and indeed if the company is affectively communicating its ‘mission’ and sustainability

In the recently released 2018 FutureBrand Index, which takes PwC’s Global Top 100 companies by market capitalisation and re-orders them in terms of how strongly positioned they are for future success, Unilever fell 19 places to 50th position.

“Unilever called out innovation as a key growth driver but how much of this is new, long-term behaviour changing stuff versus simply extending what exists?”

Tipple said that the “overriding emotion”​ that came out of the FutureBrand Index consumer attitudes survey was “indifference​” towards Unilever.
“Unilever is a company driven by purpose, so it is worrying to see almost all its purpose measures in the FutureBrand Index have fallen since 2016, while on the experience side, all measures are down with story, seamlessness, personality and innovation the most pronounced.
“To win in the everyday premium mainstream, a constant battle against banality is inevitable and, right now, there are other companies perceived to be grasping this better than Unilever.”

Nestle's Garden Gourmet brand is an example of the company's work to meet changing consumer preferences

According to Tipple’s assessment, Nestlé is one such company. The firm has risen significantly in the rankings since 2016, going up ten places to number 24, making it one of the most future-proof brands in the Index.

Learning to adapt its business through periods of technological and consumer change could well be behind its highest 2018 uplifts in perceptions of pleasure, trust, innovation in products and services that are genuinely useful, and having a great story,”​ Tipple told FoodNavigator.

“The companies that score well in the FutureBrand Index, and which are therefore most strongly positioned for future success, are those that consistently align the totality of the experiences they create with their wider corporate purpose. Nestlé is strongly perceived to be mastering a balance between its health and wellness orientated purpose and the brand experiences it delivers.”

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