Brexit, Soap and Water
As the multinational, Unilever, aims to recover from the pandemic, increase its social and environmental impact and become solely UK based, the results will indicate the wider global economic climate of 2021.
Back in a past that feels so distant, almost like a lost hinterland, the land of 2018, a big corporate tussle emerged within one of the UK’s most important companies. With the onset of Brexit looming and a failed takeover bid by Kraft-Heinz behind it, the then Unilever NV Dutch chief executive, Paul Polman, acted to bring the Anglo-Dutch consumer group to domicile as a single entity in Rotterdam and away from the confusion of Brexit vote rocked London. This bid eventually failed, largely due to the objections of the British shareholders, as it would have meant the company disappearing from the FTSE 100, which shareholders feared could have sparked a sell off and a decrease in the share price.
Long considered a bit of a dinosaur, with its dual company structure, and laden with dependable, but unexciting flagship brands, such as Persil and Dove soap, it took a new and British chief executive Alan Jope, in 2019, to start pushing ahead with unifying its legal structure, this time he aimed for London, UK.
At the time, putting everything under a UK umbrella seemed to be a vast and perhaps quixotic project, yet it was sold to shareholders as a development that would make the company nimbler and more adaptable, with minimal job losses in either country. With everything consolidated in the UK, it was imagined by business commentators that it would be able to move quickly when disposing of stale brands and acquiring new ones. The UK capital has other immovable attractions, often noted by Brexiteers, such as the English language, a trusted, well-functioning legal system and a favoured time timezone. Reluctant shareholders, this time on the Dutch side, were eventually convinced this was the right path.
At the start, this didn’t turn out to be much like resembling the “oven ready” agreements that Boris flaunted would be beckoned in as part of the Brexit quest though. The Dutch government had a large stake in Unilever NV and their Green party opposition politicians were threatening an 11 billion euro retroactive “exit tax” for the privilege of leaving Rotterdam and becoming a UK company. Despite this, the UK High Court last week approved the legal change and a combined public company began trading from 30th November, 2020, in London and was listed on the coveted FTSE 100. The main activity after this shift, observed to date, was a huge spike in share volume. Shares traded usually numbered between two to three million daily, but on 26th November 2020, the day before the switch, the level reached 100 million, showing substantial passive investment.
By Monday 30th November, the first day of the London only listing, this had slowed considerably to normal levels, making the story the fact that there was no longer a story. Jumping ship across European city centres wasn’t that big a deal. However, if similar companies want to do the same in 2021, they would be reliant on the terms of the Brexit deal, the existence of which is so far unknown. Some would argue that the act of staying in London and preserving its place as a global company, on a globally significant index, is in itself a symbol that post-Brexit may well not be diminished.
Unilever were determined to complete the merger before Brexit at the end of the year, in order to make use of the EU’s cross border merger regime, while it was still possible. A smooth transition, may help other multinationals to see that in future, companies already struggling with the pandemic, may not necessarily have to jump countries, as was widely suggested by economic pundits after the Brexit vote. As the political climate moved on from post referendum shock, to acceptance of the reality of the Brexit fuelled Conservative election success in late 2019, it was evident that competing capitals, like Frankfurt and Paris, making aggressive moves to win large companies away from the UK seemed like a dated strategy. Hard to say it has failed, but it has hit a profound symbolic wobble, if the newly UK based Unilever remains stable, as the share price is today, or even experiences positive growth post transition.
Another area worth watching closely, is the ambitious sustainability projects that Unilver have pledged to implement in the coming decade. The corporate environment is such these days that adherence to reducing the use of fossil fuels and using natural resources responsibly, is a significant determiner of consumer appreciation and loyalty. The pandemic has highlighted this further, with sound ethical credentials as a marker of corporate behaviour coming into greater focus. Social media is full of clamour by consumers to “reset” after lockdowns, to an economic environment serious about reducing the impact of climate change. Alongside this, the UK government launched a hugely ambitious 10-point plan for greener investment, which although has no corporate obligations embedded in it, the tone has been set. Who will police this? The government? Green consumer demand? The shareholders? The power of twitter retweets? The next decade will show us some answers.
On November 18th, Sebastian Minden, Vice-President of Unilever UK & Ireland, stated the company was on a path to net zero carbon commissions on a timeline more than a decade ahead of the Paris Agreement deadline of 2050. They already have five carbon neutral sites in the UK, as well as being involved in a hydrogen power collaboration in the North West. An encouraging start.
Unilever have also shown a huge commitment to domestic social causes, such as partnering with the Trussell Trust to tackle domestic food poverty and using their body products brand, Lynx, to link with charities to engender a frank discussion around “racial microaggressions”. Social influence and commitment to sustainability may soon be just as important as the quality of the tea in Unilever’s PG tips teabags, when it comes to brand loyalty. Again, highly admirable initiatives, bounced out towards a future conclusion. The company seems to be acknowledging that the consumer is demanding these changes seamlessly, without price increases. Despite the fact that they are initially financially very costly.
Although the most sought after white powder of 2020 has definitely been flour, which has seen a 40 per cent rise in sales in the UK alone, like most of its competitors Unilever saw sales flourish towards the end of this year due to both the “hygiene boom,” where the pandemic saw a dramatic increase in demand for cleaning products and the linked rise in “back to basics” shopping, where consumers returned to familiar brands. Unilever’s Lifebuoy soap became a billion dollar brand for the first time in it’s 100 year history. Dettol products, made by Unilever rival, Reckitt Benckiser, saw its highest sales of all time. Supermarkets also looked for comfort buys and prioritised brands that could provide both scale and a reliable supply chain. So, while industry analysts were speculating in 2019 that Unilever needed to keep on the path of acquiring luxury cosmetic goods and skincare lines, to target higher income consumers, this path is now unpredictable.
Unsurprisingly, sales of face cosmetics continue to decline, as people are staying at home. With the acquistions of American skincare brands Ren, Dermalogica and Tatcha just pre-pandemic, one wonders if Unilever would still be vying to snap up a cosmetics firm like Charlotte Tilbury today, as it was in only April of this year.
Unilever is faced with multi-faceted customer unpredictability and global macro-economic changes. We will see soon whether it’s unified structure really will help adapt to long term consumer trends in the next decade. If we want to know what is relevant in 2021 and where we are heading, we could do worse than to watch its progress.
Additional research: Raphael Harris, undergraduate at The London Institute of Banking and Finance, UK.
