The problem with that business model is that you have to keep buying other companies — like riding a bicycle, you have to keep on pedalling or you start to wobble. The charge against Kraft Heinz is exactly that.
There are a few branded food products, such as Unilever’s Ben & Jerry’s, where the product is strong enough to generate good returns, but most of them don’t naturally do so.
Household goods, by contrast, tend to be more profitable. We are, apparently, prepared to pay more for fancy dishwasher tablets or posh shampoo than we are for standard prepared foods. We will pay more for upmarket food brands, but they have to be genuinely upmarket.
For some reason — I’m not quite sure why — the food groups have been worse at developing and promoting premium food brands than the drinks groups have been at launching new top-end alcoholic drinks.
Anyway, Unilever will have been shaken by this experience, and should be. If you are that huge, you assume you are invulnerable. This experience shows you are not. Kraft can come back in six months with another bid if it has its act together by then.
Backing from US billionaire Warren Buffet carries street-cred, even if that cred is a bit battered right now. So what should happen next will be a faster roll-out of Unilever’s restructuring plans.
Is it really right to have so many food brands? Or any?
I’d like to think that Unilever will emerge as a better company as a result of this. It is not a bad one at all. But it needs to ask what its unique skills really are. It has a great portfolio of brands, but legacy food brands may not catch changing tastes.
And one thing is for sure. It needs to lift its game, for once a company becomes a target, however briefly, other predators will be sniffing around to detect a weakness.
