Unilever's CEO - 5 Years Before Any Growth Returns.

Western shoppers stay on the shelf
For people searching for signs of life in the stagnant economies of Europe and the US, results from the world's consumer goods giants Procter & Gamble and Unilever won't have made happy reading.

By Amy Wilson
Published: 6:15AM BST 06 Aug 2010

Paul Polman, Unilever's chief executive, says anyone counting on consumers to spend those markets out of their torpor will have a long wait – it could be five years before any significant growth returns.

Mr Polman does not regard himself as a pessimist, but a "realistic optimist". And with more than 50pc of the company's revenue in emerging markets, where sales volumes grew at 10pc and above in the first half of 2011, he has plenty of reasons to be cheerful.

Unilever's emerging markets of Asia, Africa and Latin America have become "decoupled" from the developed economies, he said.

It's the same picture painted by Reckitt Benckiser, the maker of Dettol and Vanish, and Procter & Gamble (P&G) which is aggressively chasing growth in Asia as American shoppers turn to supermarket own-label products.

For companies of their size, the fast-growing emerging economies offer a growth engine. But for politicians on both sides of the Atlantic struggling to withdraw fiscal stimulus and cut debt, without sending the economy into another downturn, the indicators from the consumer sector are that the situation at home remains very fragile.

Companies like Unilever, P&G and Reckitt pride themselves on knowing what you, the consumer, wants before you know yourself. But the most recent results show the siege mentality of the recession has not lifted – we want to pay as little as possible for exactly what we need. The era of continual consumption, which drove the US and UK economies in the last decade, will not be staging a comeback any time soon.

"I cannot see that Europe and the US will show significant growth for five years at least," Mr Polman said after Unilever announced first-half results yesterday. "Our business is driven by employment levels and consumer confidence. In Europe it will be difficult to move unemployment from 10pc."

However, he did make clear the situation was "nothing to panic about" from the company's point of view, with Unilever focused on taking share from its rivals with innovative new shampoos, deodorants and washing powder, and improving profitability.

Promotions and discounts have been the lifeblood of the branded food and household products makers for the past 18 months. Along with the retailers, they have offered two-for-ones and 20pc extra free to keep cash-strapped customers loyal.

Premier Foods, the maker of Hovis and Branston pickle, said the same trend prevails in branded food.

"Six months ago we were seeing 4pc growth in our markets in Europe, now it is below 1pc... In Europe there is now virtually no market growth," said Bart Becht, chief executive of Reckitt, when the company reported second-quarter results last month. "We have not lost market share. The key driver of the fall was extra promotional spend to maintain market share, coupled with economic problems."

Mr Polman said Unilever has also invested in promotions, and that is unlikely to change soon.

"We have spent time in Europe making sure that our brands are cost-competitive," he said, but insisted it is not a straightforward case of belt-tightening in Europe. Sales of cheaper supermarket own-label goods have not increased in the sectors where Unilever competes.

In the US there has been more of a shift away from the big brands, but the own-label share was lower to start with. About 20pc of the markets Unilever trades in – personal care, laundry powder, home cleaning, ice cream, tea and savoury food such as stock cubes and sauces – are own-label in Europe, compared to 12pc in the US.

P&G, Unilever's US-based rival whose biggest brands include Gillette razors and Pampers nappies, reported an 11pc fall in profits earlier this week, admitting shoppers in the US are turning to own-label to save money.

"We see a mixed effect as consumers without jobs or in challenging positions trade down," said Bob McDonald, chief executive.

Desirable new products are still a vital part of sales growth in the developed markets, and the consumer-goods companies have spent more on advertising to lure shoppers.

Innovation is "not a sticker saying '€5 off' " Mr Polman said. "We do this seriously," he said, citing Dove conditioner which repairs damaged hair and longer-lasting deodorant as recent product improvements.

But like everything else consumer goods companies are doing, their new improved products are aimed at least as much at the emerging markets as the traditional ones.

"People there have been exposed to all these products and they want choices, they want something better," Mr Polman said. "Anyone who thinks they don't needs to catch up."

http://www.telegraph.co.uk/finance/...29136/Western-shoppers-stay-on-the-shelf.html

 

According to the Telegraph , Unilever, Proctor & Gamble and Reckitt are increasingly looking to emerging markets as a key area for growth, with over 50 per cent of Proctor & Gamble's revenue coming from such markets."I cannot see that Europe and the US will show significant growth for five years at least," said Unilever's chief executive Paul Polman. "Our business is driven by employment levels and consumer confidence. In Europe it will be difficult to move unemployment from 10 per cent.".

 

If P/E multiples shrink by one-third, the 50% growth will not matter. :eek: