Strategy is the art of sacrifice.
And you really if you don't make tough choices, if you don't suffer when you make some of these choices, probably you are not really having a strategy.
Talking about transformation, you have been in the job for a year, you have in mind a pretty profound transformation. What's your theory of the case?
Well, you know, it's just we are trying to really build a Unilever that fulfills the incredible potential of our brands, our people, our geographical footprint, our category footprint. And we have been a bit of an inconsistent performer, and we have real pockets of excellence, but the performance has not been homogeneous across our categories, our brands, our geographies. So we are really sharpening the portfolio of Unilever, simplifying the company, making it easy to manage in a set of categories that really share significant foundations.
So let's take a very specific example to explore that. Ice cream out the door.
Both because it was not performing, but also because it didn't really have synergies with the rest of the portfolio.
Ice cream is a category that is fundamentally out-of-home channel with significant seasonality, high capital intensity. It's very different to categories like home care, personal care, or beauty. So that's a clear example of a category that didn't have significant complementarity with our portfolio and required completely different capabilities and a business model that is tailor-made for that kind of company. That's the reason we separated ice cream around a year and a half ago.
Yeah. Do you miss it? Did you have a favorite flavor? Were you a Chunky Monkey fan?
I love ice cream. I love Magnum, and some of our best innovation has been in the ice cream category, and some of our best brands are there. But, you know, strategy is the art of sacrifice. And you really, if you don't make tough choices, if you don't suffer when you make these choices, probably you are not really having a strategy. So we miss ice cream, and I miss it every dessert time. But we are really confident in the decision we have made.
And perhaps more significantly, you've made the decision to get rid of all the food and merge it into McCormick. Can you talk about that decision?
Yeah, we announced at the end of March the combination of our food business with McCormick. We are creating a large global flavor powerhouse of $20 billion revenue. I believe it's a company that will fundamentally have a scale and focus that is very difficult to find in the food industry. We believe we are building a fabulous company in foods, and at the same time, we are making Unilever a pure-play home care and personal care company. These are sectors in which the company's competencies in innovation, science, consumer understanding fit better with our capabilities. That's the reason for this big transaction. It's the fourth largest transaction in the history of consumer goods. We will close it in a year or so.
Interestingly, your investors don't seem to be that crazy about it. Both your stock and the McCormick stock are down somewhat. What are they not getting about this transaction?
Fundamentally, because we have built uncertainty in the short term. Unilever has been outperforming in the HPC side of the industry clearly in the last three years. Now we are building some risk with the separation. People say, 'Hey, Fernando, can you really secure that you can keep this performance while separating a business that is entangled in more than 150 geographies?' So we are building uncertainty. At the same time, McCormick will have to integrate a business that is two times their revenue size, which also has risks. But we believe in the long run we will create a lot of value. Markets can be imperfect in the short term, but they usually reward.
In the long run, of course.
There's been some reference to change fatigue. Is there a limit to how fast a transformation can move to get you to the right place?
You know, great companies simultaneously perform and transform. You have to do many things well. I'm in the fast-moving consumer goods industry. Fast-moving because you sell fast, you consume fast, you replenish fast. This is a company in which choice is made. In a year, consumers make trillions of choices in Unilever brands, from a hair sachet of 1 cent in India to a face cream of $200 in the UK. You have to change things in a company because the pace of change is significant, and you have to ensure you have a portfolio that is future-fit. That's what we are doing. We are embracing a lot of change, but I have a super talented team, a super engaged organization. I believe the future for Unilever is brighter.
Same question I asked Joaquin: where are you in the transformation? If one is where you started and 10 is where you want to get to, after year one, how far along are you?
My mom used to say that 10 doesn't exist. So, I believe we are in the quality of what we do. I would say we are now at seven, from five or six that we were. In terms of the transformation we have done with the portfolio, I believe we are entering a period of stability for Unilever. This is the portfolio I was keen on having, the board was keen on, the leadership team. Now in terms of portfolio, we will enter a period of stability. We will continue doing bolt-on acquisitions, but we don't intend to make any additional large transactions. In terms of leadership, there has been a lot of changes, and we are also entering a period of stability. So I believe we have now to harvest what we have been seeding in the last few years.
You have an activist investor, Nelson Peltz. I think he owns something like 30 million shares. He's paying a lot of attention. How has that affected the transformation? Has it been helpful? Harmful? Not a big factor?
Nelson is a super expert in the consumer sector. We have an excellent relationship with him. He understands the industry very well, he understands the US very well.
You talk to him frequently.
I meet with the board six times a year. Sometimes we have interaction in between. He is somebody I believe has helped make Unilever better, along with all the changes we've made in the board. In the last four years, we have eight new members on the board, and nine out of 11 on the leadership team. There has been a lot of change. Nelson has been a great contribution to the company.
Part of that change is that your predecessor held the job for less than two years. His predecessor held it for only four years. How long do you intend to hold the job?
[laughter] That's something we will see in the future. As I mentioned, we are entering a period of stability. Big decisions have been taken. We are very comfortable with the portfolio we have built. We are doing these changes from a position of strength. Our food business has been outperforming the industry, our HPC business has been outperforming. Better to change when you are in a position of strength than weakness. That's why we are doing this now.
I want to talk about leadership. You have a huge company, a 100-year-old company, 100,000 employees, how many brands?
Less. 150, something like that.
That's a lot of brands. Where did you learn leadership? How did you learn transforming large organizations? Did you have a coach, mentor, was there a particular book?
Sometimes when you are in these roles in business, you tend to be very siloed in looking at business. I learn leadership every single week in many aspects of life. I'm from Argentina. A rock star passed away in Argentina recently, and there were one million people at the funeral. 2% of the population was there. That guy was a great leader because he created cultural identity, followership, sense of belonging. Also, I'm a great football fan. PSG, Paris Saint-Germain, has killed it in the last couple of years. After a period of investing billions in superstars without success, they changed to a model where the team is more important than any individual. So I learn leadership from many aspects of life.
