The Unilever (LSE:ULVR) share price had a bad 2023. It went from £41.93p to £38.02, a drop of 9% as the company battled inflation, a change of CEO, and allegations of greenwashing.
I don’t think the last of these is particularly significant. But the other two are worth thinking about carefully.
Inflation
The big theme of 2023 for Unilever was inflation. In theory, a business with strong brands ought to have some ability to pass on higher costs by increasing prices to customers.
According to its most recent update, Unilever had slightly mixed results in this area. The company increased prices by 8.1% since the start of the year, but this caused sales volumes to fall by 0.4%.
By itself, I don’t think that’s too bad – the result was 7.7% growth in overall revenues. But the rate of volume declines accelerated during the second half of the year and this is a concern.
The rate of inflation in the UK is slowing, but costs are still going up. So investors ought to be wary of signs Unilever is reaching the limit of its ability to raise prices without losing customers.
A new CEO
In July, Hein Schumacher replaced Alan Jope as CEO. And with the new chief came a new strategy for reinvigorating the business, which had been attracting activist attention.
The plan is to focus on investing in the company’s largest brands. This marks a shift from the previous strategy of attempting to grow through acquisitions.
Over the last few months, the firm has started selling off some of its smaller brands. These include Timotei, Impulse, and Brylcreem.
The firm has also reorganised itself into five categories – beauty, nutrition, home care, personal, care, and ice cream. And there’s speculation this might be preparation for further divestments.
Learning from the best
As a Unilever shareholder, the change of strategy is one that I’m 100% behind. With a number of brands failing to win market share, I think focusing on the strongest is sensible.
The approach is risky – it’s possible the company’s core brands just can’t be strengthened by further investment. But attempting to grow by acquisition is also risky.
It’s not so long ago that Unilever attempted to acquire the assets that now comprise Haleon from GSK for £50bn. Haleon now has a market cap of less than £30bn.
The approach of investing in core strengths is one that the likes of Coca-Cola and Kraft Heinz have employed successfully. And I think it’s the right approach here.
Time to buy?
As a company and as a stock, Unilever has been static for some time. But I think this could be the start of a really interesting turnaround.
With the stock having fallen through 2023, I think the current price looks like the risks are worth it. That’s why I’m looking to add to my investment at today’s prices.
