Unilever has underperformed since Jope succeeded Paul Polman in January 2019. The shares have delivered a total return of 13% since his arrival, whereas rival Nestle has generated a total return of about 45% in the same period. Unilever shares rose almost 4% on Monday before falling back slightly. Earlier this year, activist investor Nelson Peltz’s Trian Fund Management built a stake in Unilever, and in July, Peltz joined the Unilever board. Trian said in a statement that it was “sorry to learn of Alan Jope’s decision to retire," and that Peltz looked forward to being part of the recruitment process.
Jope set in train a difficult tenure by not ditching a target to deliver a 20% operating margin by 2020 as soon as he took on the role. The goal was put in place after Kraft Heinz’s short-lived siege in February 2017, when it tried to buy the company for $143 billion. Hanging onto the target meant Unilever was constrained when it needed to turbo-charge sales growth — something that eluded Jope, despite the company generating almost 60% of sales from faster-expanding emerging markets.
He also came under fire for his focus on social purpose. Expecting Hellmann’s mayonnaise and PG Tips to do more than flavour sandwiches and make tea was supposed to encourage younger shoppers to pay more for the Unilever products. Although that may be an effective marketing strategy, poor communication left the company open to criticism from fund manager and major shareholder Terry Smith.
More investor concern came in January over Unilever’s $54.6 billion proposed bid for GSK’s consumer arm, now listed as Haleon. Shareholders were unconvinced by the strategy, the price and whether management could make the deal work.
To make matters worse, Mark Schneider, Nestle’s CEO, has made a series of canny disposals and successful deals, such as acquiring Starbucks’s products sold in supermarkets for $7 billion in 2018. Given Unilever’s lacklustre performance, the board should appoint an external CEO.
Dave Lewis, who led Tesco between 2014 and 2020, was mooted as a candidate for the role before Jope was appointed. He is now chairman of Haleon. He still has a strong following among investors, so Unilever could try to persuade him to move back to an executive role.
Another option would be to resurrect the idea of a deal with Haleon, with Lewis leading the enlarged group. The combination wasn’t completely without merit. It would have married Haleon’s strong consumer brands, such as Panadol painkillers and Sensodyne toothpaste, with Unilever’s portfolio, including Dove and Vaseline. Shareholders may be more convinced if Lewis is at the helm.
Alternatively, there could be senior executives within Nestle, Procter & Gamble, Reckitt Benckiser Group and US consumer giants such as PepsiCo who could be elevated to the role. One complication is that Reckitt is also searching for a new CEO after Laxman Narasimhan’s move to Starbucks.
Whoever gets the top job eventually should be given the freedom to axe Unilever’s conglomerate structure. Jope is already turning ice cream, beauty and personal care into independent businesses, as he reorganizes the group into five units. His successor should go further. He or she should at least split the group into its food and non-food businesses, with potential further honing of the portfolio from that point onwards.
According to analysts at Jefferies, the beauty and personal-care businesses could have an enterprise value of about €111 billion ($107.1 billion), with food and refreshment worth about €48 billion. This is just ahead of Unilever’s current enterprise value, but there could be other benefits to a split. For example, the food arm would benefit from greater focus as a standalone unit, freed from the shadow of toiletries and cosmetics.
The danger is if there’s a long hiatus before Jope’s successor is appointed. That could see Unilever drift amid cautious consumers and surging inflation.
The board, led by chairman Nils Andersen, and with Peltz’s support, should waste no time in making an appointment and then backing the new CEO in taking radical action.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry.
