Unilever CEO on inflation: ‘We are not seeing trading down’

Unilever CEO Alan Jope joins Yahoo Finance Live to discuss earnings, consumer resilience amid inflation, international markets, leadership changes, sustainability efforts, and more.

Video Transcript

- Unilever is looking to counteract soaring costs with price hikes, saying it raised its prices by a record 12 and 1/2% in the third quarter. The move caused the consumer goods company to lift its full-year sales growth guidance to over 8% in 2022. Unilever CEO Alan Jope joins us now. Alan, good to have you on the program here.

We've talked a lot to a lot of different consumer products companies in recent weeks and trying to get a sense if the consumer is trading down, given the inflation they are seeing. What are you seeing in your business? Alan, I think you're muted.

ALAN JOPE: Apologies, Brian. Thanks. We had another good quarter of growth. We've raised our guidance, as you said. And it's coming in line with our strategic priorities.

In particular our big brands are doing very well. Unilever has 12 billion-euro brands. And those brands grew 14% in the quarter.

To directly answer your question, our portfolio is made up-- about 35% of our business is in premium segments, 50% in the middle of the market, and 15% in what we would consider value offerings. And slightly counterintuitively, in times of inflation we are not seeing trading down. The premium end of our portfolio is growing at least as fast as the value segment.

I think that may be a moment in time. We've invested a lot in our brands in quality and in marketing support. And I don't think we're anywhere near the end of the inflationary period. So we are preparing for potential future down trading. But we're not seeing it right now, Brian.

- For the customers, as of right now, are you looking at where prices are having to be passed through to them and where they're continuing to take those prices versus where they're pushing back on those prices? And in which product categories are you seeing that the most?

ALAN JOPE: So the first thing to say is that we're extremely sensitive to the situation that the ordinary household is finding itself in around the world. And price increases are our last resort, not our first resort, where we are doing everything we can to take waste and cost out of our own business. We are very far from having passed along all of the inflationary costs that we have felt to the consumer.

One particularly important thing to look at is most of the markets of the world outside the US are experiencing simultaneously commodity inflation and currency devaluation. And in those markets, we are seeing mid to high teens price increases, places like Latin America, Southeast Asia, Turkey. In countries with harder currencies like the US, of course, it's just the commodity inflation that is being passed through, and even then not at 100%.

As far as our retail customers are concerned, we are working in partnership with them. So far it's been very collaborative. And we all have the same thing, which is to try and provide great value to the consumer. Remember, value is not just price. It's a function of quality and price.

- Alan, it's Julie here. I have some question about Unilever's structure, if you will. We know that Nelson Peltz's is now on the board of the company. We know that you are leaving at the end of next year. What does Unilever look like five years from now, three years from now, as a result of the big change in leadership, as well as perhaps changes that he's pushing for?

ALAN JOPE: Yeah, I would like to just confirm that Nelson is turning out to be a great member of the board. I'm thoroughly enjoying working with him. And as far as he tells me, he's enjoying working with me.

We recently made a radical-- before Nelson joined the board, actually, we made a significant change to our structure. We moved from a rather complex matrix organization that we've had for about a couple of decades, actually, and we moved to five divisions, each somewhere between 8 and 12 billion euros of revenue.

Interestingly, after all the work we've done in our portfolio, shedding slower-growth businesses, like spreads or tea, and acquiring into higher-growth spaces, like luxury beauty or health and well-being, each one of those five business groups has the potential to grow ahead of Unilever's overall growth over the last five years. So we've done our tinkering with the organization. We've got five very focused business units. And Nelson is very supportive of that direction on org change.

- And Alan, Unilever, perhaps more than any other company of its size, has pushed a lot into some of your units becoming B corporations. And I wonder if you've gotten any pushback, either from Peltz or other investors, if there's any plans to pull back on those efforts. There's been a larger public backlash against some of those types of efforts, not specific to Unilever as well? What's your current thinking on it?

ALAN JOPE: We are not an NGO. We're a for-profit organization. And the reason why we care so much about sustainable business, B corps and other expressions of it, is because we think it contributes to the bottom line. We're seeing our brands that offer consumers a sustainable choice are growing much faster.

We've taken 1.2 billion euros of cost out of the business through sustainable sourcing. We know it reduces risk. A world on fire or under water is not a great place to be selling soap or soup. And it's a magnet for talent. Our employer brand is in tremendous shape because of our commitment to sustainability.

We hear overwhelmingly from shareholders and board members, all of our board members, to stay the course. BlackRock, who work with us on our carbon commitments, other investors work with us on our nutrition profiles, other investors are interested in our commitment to pay a fair living wage in our value chain-- these are all actions taken to make Unilever a strong business into the future and improve the bottom line. They are not in any way an alternative to strong financial performance.

- Alan, is Nelson running the playbook he did when he shook up P&G? And by that, I mean is it more of an internal changes in how things operate? Or is it a different situation at Unilever, where you might see asset sales within the next 6 to 12 months?

ALAN JOPE: We've been busy on portfolio change, as I already mentioned. We've committed to the market that we are not undertaking a major portfolio change for the foreseeable future. And our board is unanimously aligned behind the strategy that we've laid out in our last couple of earnings quarters and we will again in our Capital Markets Day.

So please don't be expecting any surprises from Unilever. We've got five wonderful divisions, a business that's capable of delivering high-quality growth, and that, as you'll see from our performance and our share price, is rather resilient through the types of downturn that the world is going into right now.

- It sounds like, Alan, you are enjoying working with Nelson. I mean, do you think you'll stay on longer than you expect?

ALAN JOPE: Look, I made a deal with myself and my family when I came into this job to do it for up to five years. I'm already four years in. The end of next year is five years.

We've accomplished a lot of the things that we wanted to accomplish. I am enjoying working with the board and with Nelson as a member of that board. But we've made our decision on leadership of this company. And I'm sure the board will do a great job finding a wonderful successor.

- We often ask executives such as yourself whether you're activating an economic downturn playbook or a recessionary playbook. But from what you're seeing in the data and the sales that comes through and across some of the core segments that you operate, are your consumers operating their own recessionary playbook?

ALAN JOPE: That is a great question. Not one of us in this show or in Unilever's business has lived through and operated a business through a period of significant global inflation. But we have plenty of markets around the world that have operated through periods of inflation. So if you ask Unilever's managers in Argentina or Brazil or Turkey or parts of Southeast Asia, we certainly have a playbook on what to do in inflationary times. And we are following it.

I think one unusual characteristic of this downturn is it's accompanied by high levels of employment. And things have to get pretty grim in a household before they start to materially cut back on the type of brands that we sell. So so far, so good. We are not complacent. And we're certainly drawing on our playbook from those other markets around the world.

- Alan, finally, we wanted to ask you just quickly about the dry shampoo recall that the company just issued, affecting a number of different brands, for potential presence of benzene. It seems as though benzene has been creeping its way into various kinds of consumer products and causing these kinds of recalls. How does that kind of thing happen? And then what do you do to address it?

ALAN JOPE: Yeah, we have an enviable track record for the quality and safety of our brands. It is true that we discovered very, very extreme low levels of benzene in the propellant of a number of dry shampoos. Our safety experts and independent experts have assessed that there is no safety risk to consumers. But out of an abundance of caution, we put safety ahead of any other value in the business. And so we are recalling a small number of these products.

And we have the highest protocols for safety. But every now and again, something creeps through the net. And we will be measured by our response. And at the moment, our response is the most cautious one we could possibly muster.

- Is there a financial write-down that you expect as a result of the recalls?

ALAN JOPE: No, the financial impact is trivial.

- All right, Unilever CEO Alan Jope joining us here today. We appreciate the time, Alan.

ALAN JOPE: Thank you very much.