In 2017 Kraft Heinz tried to acquire rival global food company Unilever for $143 billion. The deal did not complete and at least part of the reason that then-Unilever CEO Paul Polman revealed later was that it would require too many compromises in Unilever’s commitments to positive social impact.
I’m often challenged by people who believe that social impact is a nice-to-have and that big companies really can’t afford to worry about it for fear of being punished by shareholders. But while it’s anecdotal rather that a full-on trend, the story of these two stocks (UL and KHC for those of you listening at home) tells a very different story. I find it interesting since these are two huge, established, highly diversified and very sophisticated companies (each can claim to reach a broader user base that even Facebook), not a couple of hot new startups hoping to disrupt a market.
Kraft has been following the course that would be suggested by pure, traditional capitalism. Its investors introduced an approach called zero-based budgeting meant to squeeze every unnecessary penny in costs out of the system. At its core, the system calls for assuming no costs and having to justify each and every expense in each and every budgeting cycle. Theoretically, this should maximize earnings in a low-growth, somewhat commoditized industry. (It’s hard to increase the overall demand for products like ketchup, so you either need to move market share or lower costs in order to grow earnings.)
Unilever, on the other hand, has embraced social impact as a key part of its corporate strategy, both at a corporate level through its commitment to sustainable packaging and through individual brand projects like Vaseline’s Healing Project. This approach is supported by research done by leading marketing firms like Edelman and Porter Novelli that in 2018 US consumers said they valued buying a brand that agrees with their social values behind only product quality and ahead of price. This is a 20-year rising trend and is particularly noticeable in highly competitive product categories with the differentiation between two items on the shelf can be relatively small.
While this has not been the only difference in the two companies’ approaches, it has been a very significant one. And over the period since the merger fell apart, the results are stark. Between early 2017 and today, Unilever rose from around 41 to 57 while Kraft Heinz went from around 89 to 32.
It seems social impact has a strong place in capitalism after all.