Unilever may, like most food companies, be facing rising commodity costs but Emmo Meijer, senior vice president for food R&D, believes effective product innovation is a key way of mitigating the problem. Meijer spoke with Dean Best about the challenges and opportunities presented by a group strategy, which aims to streamline decision-making and cut costs, while also ramping up new product development.
Unilever is a company in a state of flux. The Anglo-Dutch conglomerate, home to brands such as Knorr soup and Ben & Jerry’s ice cream, is going through its latest stage of rebuilding.
As it had hoped to do in an earlier reorganisation attempt in the 1990s which eventually stalled, the company, through its “One Unilever” programme, is aiming to streamline its business, boost efficiency and, ultimately, improve sales and earnings.
The strategy has been two years in the making, initiated after the arrival of current chief executive Patrick Cescau. However, in recent months, Unilever has announced a series of significant measures to revamp the company, most notably in August when it said it would cut 20,000 jobs worldwide and close or streamline up to 60 factories.
Unilever wants to move away from managing its operations on a country-by-country basis and create a more streamlined, centralised business. Its latest push has won praise from analysts, who see a simplified structure as key to reducing costs, boosting margins and accelerating innovation.
Innovation is a central plank to Unilever’s turnaround strategy. Lowering costs will boost margins and make the company more flexible and responsive, but to take advantage of flexibility an effective innovation organisation is vital.
Emmo Meijer, Unilever’s senior vice president for food R&D, is convinced the company now has the right structure in place to get the most out of its innovation programme. “There has been a big change in the operating framework of Unilever; for the first time, we’re working with brand development and R&D in one organisation,” Meijer says. “All the pieces of the puzzle are coming together; top managers are focused on innovation. Innovation is at the top of the agenda.”
just-food met Meijer in his office at Unilever’s food R&D centre in Vlaardingen, just outside Rotterdam. The 56-year-old joined the company in 2005, around about the same time that the “One Unilever” programme began to roll into action. With a PhD in biochemistry, Meijer’s scientific background could be invaluable as Unilever looks to make a major push into functional foods.
Emmo Meijer, senior vice president, food R&D, Unilever
The focus in the months ahead will be on its so-called “vitality mission”, aimed at tapping into growing demand for healthier products. Weight management, fortified products for children and foods designed to improve brain health will be key battlegrounds, as Unilever looks to accelerate its product innovation programme.
Nevertheless, for all its ambition, innovation can be held back in such a large company because of the sheer number of employees and cumbersome bureaucracy. Some industry watchers had suggested that managing by country and by brand had slowed the company down so much that it lagged behind its rivals in getting new products to market quickly and efficiently.
For Meijer, such views no longer hold any relevance. “Those comments originate from the past and they are still lingering around,” he says. “We are focusing on innovation and on R&D and making the right moves to get faster to the market and be more effective.”
Meijer insists that in the two years he has been at the company, Unilever has made significant progress and insists the “One Unilever” programme is already bearing fruit. “You can see the effects already on our top-line growth. There’s a hell of a difference,” Meijer says. “Nobody [else] has made such dramatic changes. People say that we are still lagging behind Nestlé’s top-line growth; my comment immediately is what a step change there has been from negative growth to the momentum that we are seeing in the top line.”
Indeed, Unilever’s announcement of job cuts last month coincided with a rise in first-half revenues, prompting one analyst to remark that there was “real evidence of sustained improvement in the group”. Nevertheless, Unilever, like all its competitors, has not been immune to rising commodity costs in recent months. For a company with Flora in its portfolio, it has been the rise in edible oil costs that has put the greatest strain on the business.
Meijer, however, smiles when asked about the impact of raw material costs. For him, it presents an opportunity for the R&D team to come to the fore. “A substantial part of R&D is how to reduce margin pressure; how we can use less raw materials is part of the innovation agenda,” he says.
Meijer acknowledges that factors like rising demand in China and India are pushing up commodity costs, but he believes that Unilever, and the industry as a whole, can ride out the storm. “Growing pressure from raw materials is clearly enormous [and] people are seeing enormous margin pressure but I’ve looked at the margins of companies from their latest results; they’re seeing a bit of margin pressure but they can cope with it.”
Unilever may be confident it can prosper despite the rising cost of food production, not least because of the cost cuts it is making elsewhere. However, the restructuring could cause other problems, especially where innovation is concerned. The changes at Unilever mean that decision-making is going to become more centralised, with the business run on a more regional basis, rather than market-by-market.
As Unilever has discovered, the danger of operating locally is adding cost to your business. However, the danger of centralisation is not being close enough to react to evolving consumer demand. In its drive to centralise, cut costs and remove duplication from its business, is there a danger that Unilever will become too distant from its markets?
Meijer admits there is a need to “find the right balance” but believes a more streamlined approach is the right way to go. “You should centralise the process to make sure how you manage innovation is disciplined.”
Meijer acknowledges there is tension between needing local input on innovation and developing products on a regional or global basis – but he seems comfortable with that. “There’s always tension in the innovation process. There’s nothing wrong with that – it keeps people sharp. If there’s no tension in the innovation process, then you’re doing something wrong.”
Meijer manages an annual food R&D budget of EUR400m (US$555m) and he insists Unilever’s innovation capability is strong enough to drive the company forward through its period of transition. “Other companies have a more focused portfolio, like Danone, which has an extremely good R&D effort but, of those companies with a more complete portfolio, like Unilever, there are not too many companies around that have the same power.”