LONDON (Reuters) - Consumer goods giant Unilever (ULVR.L) (UNc.AS) is stepping up new product launches to drive growth as it raises prices to offset commodity cost hikes and struggles with sluggish economies in Europe and North America.
The Anglo-Dutch maker of Hellmann’s mayonnaise and Knorr soups gets a third of its turnover from products launched in the last two years, and claims its pipeline for new products is full and will be rolled out irrespective of market conditions.
Bigger and faster new product launches are part of Unilever’s strategy to double group turnover in the next 10-12 years, and it hopes to raise advertising and promotional (A&P) spend in 2011 even after a big jump over the last two years.
“Innovation will step up in 2011 versus 2010. It needs to. And in 2012 versus 2011. It needs to in order for us to realize the ambition we have stated externally,” Michael Polk, Unilever’s president of global food, home and personal products told the Reuters Global Food and Agriculture Summit on Tuesday.
“In 2010, roughly 33 percent of our turnover was touched by innovation, which is a very good number by industry standards. That’s a big number. We hope to sustain that, and will sustain it, if not increase that,” he added.
Unilever’s new products are reaching 30-40 markets in quick succession such as for Dove Men ranges, Magnum Gold ice cream, Knorr Stockpot and Axe Twist deodorants. The group’s recent new products can add 50 million euros of sales in their first year and so 0.1 percent to overall group turnover.
The group has hiked its A&P spending by 700 million euros in the last two years, and Polk said he hoped it would increase this year to push more behind its big innovations.
Unilever is confident it can offset higher commodity costs -- such as for edible oils, tea, milk and tomatoes -- this year by its own price rises and internal cost savings and still sees operating profit margins growing from 2010’s 15 percent.
Unilever says its commodity costs will rise by 4 percent of its turnover in 2011 -- or nearly 1.8 billion euros -- which analysts calculate as a rise of 12 percent, less than the 20 percent rise seen in the commodity boom of 2008.
Analysts expect Unilever to raise its pricing by around 2 percent in 2011 after falling 1.6 percent in 2010, but the 2011 rise will not be as large as 2008’s 7.2 percent increase.
Unilever has stepped up its acquisitions with last year’s Sara Lee personal care purchase and its agreement to buy Alberto Culver, and Polk said the group was looking more similar bolt-on acquisitions and not transformational deals.
But even without acquisitions, Polk says the group could reach its aim to double the size of the 44.3-billion-euro ($61.8 billion) turnover company in the next 10-12 years.
Last month, the world’s third largest food and consumer goods group posted underlying sales growth of 4.1 percent in 2010 and said it should be able to grow at 4-6 percent despite commodity cost rises and heightened competition from larger rival such as Procter & Gamble (PG.N) and Nestle NEN.VX
Unilever saw its best sales volume growth of 5.8 percent for more than 30 years during 2010, but this was boosted by price cuts as the group benefitted from falling commodity costs in the early part of 2010, but now costs are rising fast.
Reporting by David Jones; Editing by Mark Potter and Jane Merriman