The announcements this summer came rapid-fire, like so many jets taking off from the deck of an aircraft carrier in precise formation.
Unilever’s acquisition of Camay and Zest complete. Zoom.
Unilever to acquire Ren. Zoom.
At a time when much of the industry was busy speculating about who was going to buy the myriad beauty businesses Procter & Gamble Co. was shedding, Unilever, its largest rival, was soaring, doubling down on personal care with a string of deals that are reshaping the competitive landscape of the beauty industry.
At the controls sits Alan Jope, Unilever’s president of personal care, who took over leadership of the division—the company’s largest—just 14 months ago, in September 2014.
Since then, he’s taken the mandate to escalate the Anglo-Dutch giant’s personal-care business and flown with it. “We are an 18 billion euro [$20.4 billion at current exchange] personal-care business right now and I expect to put 10 billion euros onto that in the coming years,” Jope says. “That’s pretty hefty growth.”
Thus far, he’s off to a promising start. For the third quarter of 2015, Unilever’s personal-care division had underlying sales growth of 6.2 percent to 5.1 billion euros, compared to company-wide growth of 5.7 percent, driven partly by the successful launch of deodorant dry sprays in North America across a host of brands, which have posted first-year sales of 100 million euros in the U.S. and Canada alone.
But for Jope, this is only the beginning. When an observer remarks that he’s had a great first year, his response is immediate. “No. I’m moderately happy,” he says. “Approaching satisfaction is how I would describe these results.”
When asked how he would define great, his response is decisive. “A sustained run at this level.”
While Unilever’s core group of powerhouse, billion-euro personal-care brands such as Dove, Axe and Sunsilk will continue to be a key growth engine for the kind of growth Jope envisions, it’s emerging categories and countries that present the most white space for Unilever. At the top of the list is the prestige market. The strategy is to capitalize on the company’s core strengths in skin care and hair care by moving into premium brands where product prices start at $25 and rise from there.
“We don’t want to play in prestige just as a niche activity. We want to build it into a big business,” Jope says. “This is a growth play for us in two regards: Number one, it is a faster-growing segment, no matter what time period or geography you look at. Secondly, it’s all white space,” he continues. “If we launch another mass-market shampoo or skin cream, there will be an element of cannibalization. But as we step into the prestige business— that is all incremental for us.”
Jope says step, but what he really means is jump. More than a decade has passed since Unilever divested its prestige beauty holdings—Elizabeth Arden and Calvin Klein Cosmetics—to focus on its core mass businesses. At the beginning of 2015, Unilever had only two prestige beauty plays—Iluminage and Ioma—both skin care-related, both under the auspices of its Unilever Venture Fund umbrella. While Jope’s predecessor, Dave Lewis, who decamped to become chief executive officer of the troubled U.K.-based supermarket chain Tesco, had spoken elliptically about Unilever’s plans to increase its penetration in the prestige sector, it wasn’t until this summer that the company began to make good on that promise by putting its money where its mouth is with its string of acquisitions.
Thus far, the deals have centered on skin care, but hair care is on the horizon, too. A key part of Unilever’s strategy centers on establishing a prestige hair-care business, a sector that Jope posits Unilever can create and own. “It’s a huge opportunity,” he says. “The other major players in hair care have got very big salon businesses and that creates a conflict of interest—all of their energy has been going into building salon plays more than retail prestige hair care.”
Not so Unilever, whose primary exposure to the salon sector is via the relatively small Tigi, which it acquired in 2009. “We are unencumbered by a big salon business,” Jope says. “We can go much more pure play into prestige hair care in nonsalon channels than our competitors.”
“There is nobody—the market is waiting to be developed,” emphasizes Vasiliki Petrou, senior vice president, prestige, of Unilever, who was recruited from P&G by Lewis to spearhead the division.
That being said, there are some significant stumbling blocks: a lack of robust brands available to buy, for one, as well as anemic category sales, particularly in North America. Industry sources report Unilever has been looking closely at Living Proof, and Jope himself mentions the natural hair-care brand John Masters Organics when talking about the segment. But ask him when an announcement might be forthcoming and the straight-talking Jope is ready with a characteristic quip as a means to deflect the question: “Someone wiser than me said when you’re looking at an acquisition, there are three things that matter: strategy, price and timing. And the rank order is timing, timing, timing.”
Unilever also plans on building its prestige portfolio through organic growth and brand development. For example, on a global basis, the company is testing the appeal of Nexxus as a premium-priced hair-care line. Acquired as part of the Alberto-Culver deal in May 2011, Nexxus was a U.S.-based salon brand that the company took into the mass market in North America.
In the U.K., though, the brand is being positioned at the prestige level and is sold at Selfridges and, more recently, QVC U.K., where it went 70 percent over target during its eight-minute debut show, according to Petrou. Prices range from 14 pounds, about $22 at current exchange, for a shampoo and rise to 29 pounds, $45, for specialized treatments such as Youth Renewal Elixir and Oil Infinite Nourishing Hair Oil.
While Jope says Nexxus’ hybrid distribution model is not a blueprint that other brands in the portfolio will follow, he believes that its initial success is a strong proof point that prestige hair care can be a viable category. “There are still huge unmet needs in hair care. Women are constantly experimenting,” he says. “Globally, the amount of daily hair care bought in salons is relatively small. It’s in the single digits. I don’t think the industry has put the lever against prestige hair care.”
Going against the grain of conventional industry thinking is characteristic of Jope, who was most recently president of Russia, Africa and the Middle East, and learned of his appointment during an early morning call from ceo Paul Polman. While he said he was initially hesitant to accept—he was only one year into his previous position and felt conflicted about the commitment he had made to his team—Jope has clearly taken to personal care with energy, enthusiasm and a unique take on the competitive landscape.
“Our sharpest competitors are now the local players,” he says. “When we look around the world at who has gained market share in the last five years, Unilever has gained quite a bit. The other winner would be that constellation of companies and brands that we call local players or others,” he says, ticking off companies like Innoherb and Jala Group in China and Wardah in Indonesia (“a wonderful brand,” he enthuses.) “We are now much more concerned to compete effectively against locally insightful, very responsive players. They are a much bigger threat than the names you’re more familiar with.”
A Unilever lifer who has worked across categories and countries, Jope believes Unilever has a competitive advantage over other multinationals because of its deep ties in emerging markets. (Jope was recruited out of college by both Unilever and P&G. He says he, or rather his wife, chose Unilever because of its central London locale versus P&G, which was based in Newcastle.)
In fact, he refers to his wife frequently and fondly, calling her his adviser and noting they make all major decisions together. When appointed to his current post, Jope chose to remain in Singapore rather than move to London, so that his youngest son can finish high school there. He also has a daughter who attends Edinburgh University and a son at the University of British Columbia. “Just for the avoidance of doubt, my daughter is perfect and the two boys are freakin’ knuckleheads,” jokes Jope, a straight-talking Scotsman with a mischievous sense of humor. Jope’s unpretentious demeanor—his daily uniform consists of jeans and Nikes and he carries a backpack rather than a briefcase—belies his rapid ascent to the upper echelons of management, but he’s clearly been able to adapt to Unilever’s international mind-set, both personally and professionally.
For the personal-care category, Jope believes that ability has enabled the company to grow faster than its competitors. “One of Unilever’s strengths has been our ability to play the global local trade-off,” says the executive, who has lived in Thailand, Shanghai, Singapore and the U.S., among other locales. “We’ve always prided ourselves in having deep roots in local markets and being able to [apply] those insights alongside things that are global scale matters, like technology, access to capital and low-cost manufacturing. Getting that balance right is one thing we’ve done well,” he says, recounting a story about a competitor during his stint in Thailand who launched hair color into the market with packaging that featured predominantly blonde models. “It is inconceivably stupid,” he says.
“Our culture is very international,” says Jope, who today is in London HQ, where he sits with his team in an open-plan office when he’s in town. “If I step outside right now, I will find 15 people with 15 different nationalities.”
That level of local understanding is driving another significant area of opportunity for Unilever in personal care: Muslim beauty, particularly in four global regions with large Muslim populations: Southeast Asia, Central Asia, the Arabian Peninsula, and North and Western Africa. “These are some of our most core markets and so we are already almost by accident the biggest Muslim beauty company in the world,” Jope says. “But there are specific needs we’re not addressing.
“Are our supply chains halal-compliant? Not always. In our communications, are we insuring local relevance? We can do a better job at that. Why do we not yet show hijabi women in most of our advertising in those parts of the world, yet that is the predominant dress code?”
Jope goes on to enumerate the specific physical needs of Muslim women who wear hijabi, from skin-care issues that arise from wearing tight-fitting undergarments in a hot climate to wet hair that is wrapped up tight before it is dry. “No one is addressing that— all the way up to some brands that are rooted in Muslim values. We see huge opportunity there,” he says.
One of the keys to Unilever’s success in personal care has been the successful implementation of its Sustainable Living plan, which involves imbuing brands with a purpose—such as Dove and its global self-esteem campaign. Jope bristles when asked if focusing on markets where women are often denied the fundamental rights accorded to men is at odds with the corporate ethos, and insists that by entering a market the company is creating opportunities for women that would otherwise not exist. “Do we turn our back and walk away or do we actually do business and try to do good by doing business?” he asks.
In fact, it was Unilever’s purpose-driven philosophy that was key to clinching the deal with Dermalogica’s Raymond and Jane Wurwand, who founded the professional skincare brand 30 years ago and have reportedly turned away interested suitors repeatedly before stunning the industry and accepting Unilever’s offer this summer.
“How about that?” Jope says, a slight smile turning up the corners of his mouth, when a visitor remarks on Unilever’s success in ending Dermalogica’s long streak of independence. What enabled the company to emerge victorious? Jane Wurwand is passionate about a program she established called FITE, Financial Independence Through Entrepreneurship, which helps female entrepreneurs establish their businesses. Unilever has a program in India called Project Shakti, which is designed to financially empower women living in rural India.
“It was so absolutely aligned with what she wanted Dermalogica to be doing that it did force her to think that maybe the company could benefit by being part of Unilever beyond just the commercial scale that we bring,” he says.
Still—the beauty landscape is littered with consumer product giants, including Unilever, looking to capitalize on the attractive profit margins in prestige but unable to effectively translate a need-based marketing culture into a want-based one. Jope says Unilever will avoid that fate a second time around by adopting a basically hands-off policy when it comes to integrating the new acquisitions. “Our default is to let these businesses run very independently and be selective about where we can add know-how,” he says. “By choosing the right segments to compete in”—by which Jope means not entering the makeup or fragrance categories—“and respecting the autonomy these companies need, we can avoid some of the mistakes that have been made by others in the past.”
Where Unilever will exert its influence is in geographical expansion and research and development. “The new portfolio we’re building creates an avenue for some things that have been unaffordable at mass,” he says.
“When you start operating with brands that are priced at $100 rather than $10, technologies that may not have made it into a massmarket brand have got an avenue to come to market and that is exciting for our teams.” As a company, Unilever reports that it spends about one billion euros annually on product development. While it doesn’t break down the expenditure by category, Jope says that a disproportionate percentage of that amount is invested in personal care.
Although the majority of the acquisitions thus far are Los Angeles-based (a coincidence, Jope insists, adding Unilever will not look for geographical synergies in the way the businesses are managed), the prestige division is being overseen out of London by Petrou, an industry veteran with experience both as a futurist and running brands.
Rather than running the division from Unilever’s headquarters in central London, Petrou has created a satellite hub called Pitch in London’s hip Shoreditch neighborhood. There is also a New York City outpost. Its function is twofold: It is both an innovation lab for Unilever’s personal-care business, where brand executives come for three-day creative ideation sessions, such as product pipeline innovation, and it serves as central offices and an incubator for the recently created Prestige division.
“People try to do innovation sitting in their chairs and it doesn’t work,” Petrou says. “You need to bring the outside in.”
To that end, the two-story space features myriad sensory areas, one focused on touch and manipulables, for example, another a fragrance lab where attendees can create scents. There’s also a graphic design studio with an enormous 3-D printer, studio space for two artists-in-residence, who rotate a few times a year, and a library with the latest art, fashion and design books. Pitch has even hosted Morning Glory, a drug- and alcohol-free energizing rave held in the pre-dawn hours.
The idea is to unleash creativity and the name itself is meant to connote speed. “Give me your business pitch in 60 seconds—not a 30-page PowerPoint,” Petrou says.
“This is a cultural revolution,” she continues. “Unless you get to a redefinition of normal, you won’t get to the breakthrough. It is about speed and quality. I’m trying to compete with the entrepreneurs rather than the multinationals.”
Thus far, employees ranging from Unilever’s senior executive team to those at the brand manager level and above have been through the program. But effecting change is easier said than done, as Jope and Petrou are the first to admit. “We are quite fast here, but then it goes to the machine,” Petrou says. “Now, how do we get them to move faster?”
Industry insiders posit that Jope, an avid motorcyclist whose LinkedIn page features a picture of himself in desert biker regalia, has a lot riding on the answer. He is on the short list of names mentioned as possible successors to Polman, speculation that Jope himself quickly swats away. “I don’t give it a minute’s thought. It’s not my ambition and I am consumed by trying to make a success out of personal care,” he says.
For Jope, success boils down to building market share in the mid-to-high single digits year after year and leaving behind a “bigger, stronger, healthier” personal-care market. “I’ll be very happy if I can do that,” he says, “and so will our shareholders.”
Jope is characteristically blunt when assessing what it will take to do just that. “Business is easy to make complicated. In fact, I think all big organizations specialize in making things too complicated,” he says. “We have made a simple set of choices and we are now going to drive those. If we’re right, it will work out. If we got it wrong, it won’t. I hope it’s the former.”