PORT SUNLIGHT, England (Reuters) - Nearly three months after Unilever (ULVR.L) (UNc.AS) CEO Paul Polman promised shareholders greater returns coupled with investments to drive growth, the launch of what it calls the biggest laundry breakthrough in a decade will be a key test of whether it can put its money where its mouth is.
The Anglo-Dutch company is this week launching Persil Powergems, a brand new kind of detergent that is neither powder nor liquid, after spending 18 million euros ($20 million) on research, development and marketing.
It remains to be seen whether the premium-priced, lentil-shaped crystals will make their way beyond Britain, the launch market. Not all innovations are hits, as Unilever learned when its now-abandoned Persil Power was found to damage clothes in the 1990s.
But if successful, Powergems could strengthen Unilever’s No. 2 position behind Procter & Gamble (PG.N) in a global retail laundry market worth $74 billion and lift the company, which investors are closely watching to see if its new cost-savings promises will hurt long-term growth.
“We’re not holding back or saying we have to pause, that we can’t do this this year or next year, no. We are going straight ahead, investing as much as is needed,” Nitin Paranjpe, president of Unilever’s home care business, told Reuters.
This project, code-named “Dazzle,” was well on its way at the Port Sunlight R&D lab in northwestern England in February when Unilever fought off a surprise $143 billion bid from Kraft Heinz (KHC.O) that forced changes designed to show it can improve performance as an independent company.
“It would’ve been throwing money away to not launch this one, but the question is, will we see more of these going forward?” said Liberum analyst Robert Waldschmidt. “They need to keep doing this type of thing because driving innovation is the lifeblood of big, branded companies.”
Evolving consumer tastes and an onslaught of new, upstart brands that can gain popularity quickly mean that traditional multinationals need to improve their portfolios faster to protect market share.
Paranjpe said Unilever’s heightened frugality would not interfere with that, and said adopting the “zero-based budgeting” approach making waves across the sector does not automatically mean investments will be cut.
For example, he said the company’s R&D budget, of about 1 billion euros a year, was not being cut.
Zero-based budgeting (ZBB)is an accounting method whereby all expenses must be justified from scratch for each new period. The approach, responsible for the fat profit margins at Kraft Heinz, is spreading throughout the industry as growth slows.
“Many people have given ZBB a bad name, only thinking of it in terms of indiscriminately cutting things to shore up the bottom line. We don’t believe in that,” Paranjpe said, citing Unilever’s promise to reinvest two-thirds of the 6 billion euros in savings it has targeted.
He said his 10 billion euros-a-year home care business was a little ahead of its cost-savings plans.
“It has given us a pot that has enabled us to invest in initiatives,” he said, referring to the 18 million euro splashout on Powergems, which covered things like a new line at its Warrington factory and new technology that allows fragrance molecules to cling to fabric throughout the wash.
In addition, he said a recent restructuring has helped speed cooperation between groups, allowing for more quick, local projects, such as a Thai laundry soap for black clothes rolled out in only two months after the death of the king sparked a year-long period of mourning.
Keith Rutherford, head of R&D for Unilever’s home care business, said creativity is often boosted by restrictive guidelines. He cited financial or environmental concerns, which are both common on his team, which designs lots of goods for developing and emerging markets where disposable incomes are limited.
“The more I constrain and say ‘I want you to innovate on less than two euro cents per unit, or without the use of water’, everyone initially says it can’t be done,” Rutherford said in Port Sunlight, built in the 19th century by William Lever to house his soap factory workers. “And then about two weeks later, someone says they can.”
Reporting by Martinne Geller; Editing by Adrian Croft