Intro/Outro (00:01):
Welcome to dial P for procurement, a show focused on today’s biggest spin supplier and contract management related business opportunities. Dial P investigates, the nuanced and constantly evolving boundary of the procurement supply chain divide with a broadcast of engaged executives, providers, and thought leaders give us an hour and we’ll provide you with a new perspective on supply chain value. And now it’s time to dial P for procurement.
Kelly Barner (00:31):
Hi there. This is Kelly Barner. Can I ask you a quick question? When you go to the grocery store, what drives your product purchase decisions? Is it simply your preference of product? Is it the cost? And that’s something we’re all concerned about with inflation, right? Maybe you have some sort of nutritional or dietary requirement that steers your choice. It’s probably not in most cases, a social mission, but maybe I’m wrong. Unilever, a $56 billion consumer brands company based in the UK is trying to take a mission led approach to increasing their market. Share every single one, all 400 of the company’s brands has to have a social or environmental mission. Now I’m gonna give you a couple of three letter acronyms TLAs. We like to call them in procurement, ESG and CSR. So ESG is environmental, social and governance initiatives think sustainability is supplier diversity. CSR is corporate social responsibility. That’s sort of the older way of putting it. That’s been phased out as ESG has become more popular.
Kelly Barner (01:53):
Now, what will be interesting to see as much as corporations and in some cases, shareholders or investors are interested in seeing measurable advances in these ESG initiatives. To what extent will consumers connect with them? As I said at the start of the podcast, my name’s Kelly Barner, I’m the owner of buyer’s meeting point and a partner at art of procurement. I’m also your host for dial P here on supply chain. Now, now for entertainment, some people binge watch Yellowstone or learn dances so they can try to become to stars me. I watch business. It’s the best sport we have. And when we dig into these stories, the facts are always more interesting than the hype. And not only that they have more to teach us. Now, before I get back to this week’s topic, I have a quick favor to ask. We’re building out dial P’s independent social media following.
Kelly Barner (02:55):
So I would love to get a review from you, maybe a few stars, a thumbs up alike, maybe share this podcast with someone that you know, that you think would enjoy listening. We’re grateful for your interest and your attention. So thank you for giving us your time and listening in all right now, where were we? I recently read two adjacent stories in the wall street journal that made me stop and think the first one was, does your Mayo need a mission statement? And it was published on May 20th. As I teased earlier, this is based on a mandate from Unilever’s CEO, Alan Jo, who has ordered each of the company’s brands to come up with a social or environmental mission to be tied into their branding and marketing. Now, the stakes are high. The brands have been told that if they can’t find a good fit mission, they may be divested.
Kelly Barner (03:55):
Now this has become an existential operational challenge for these brands. So here are a few examples of the ones that we know have already come to market. Ax is a deodorant body spray. Now their traditional marketing approaches tended to focus on masculinity and partying, and they moved from that to an ad campaign that supported guys who were anxious, skinny and depressed in an effort to be more affirming and inclusive. It did not work. It seems like it was too big of a pivot and it positioned the product next to negative associations, even if it was trying to be inclusive of some of these very real challenges, acts fairly quickly changed paths and went back to their traditional approach. Now, the feature of this story, the question about your mayonnaise, needing a social mission, Hellman’s mayonnaise has chosen the fight against food waste as their social mission.
Kelly Barner (04:59):
They even had a super bowl commercial that featured former NFL player and coach Jared Mayo, get it Mayo as well as Pete Davidson from Saturday night live, they paid $6.5 million for a 62nd spot focused almost entirely around tackling people so that they would not waste food. Mayonnaise. Didn’t really appear in the commercial. The creative agency, Wonderman Thompson that worked on the campaign with them actually has a feature about it on their website. And they say no one wants to be scolded or guilted into changing their behaviors. So Hellmans needed to reframe the no food waste purpose into an inspiring message that got Americans to act. We leaned into the emotional uplift undercurrent that we were observing in culture to reframe the conversation from being a food waster to a food saver with helmets. Now, if you haven’t seen the commercial super bowl, ads are easy to find on YouTube.
Kelly Barner (06:03):
It’s absolutely hysterical and well worth 60 seconds, especially knowing it costs $6.5 million. It’s hysterical and entertaining, and we get the point about not wasting food, but what is this commercial for mayonnaise doesn’t really make much of an appearance. Now, another food based example comes from the brand. No, they make shelf stable mixes and sauces. Their social mission is encouraging customers to incorporate plant based foods in their diet. They have partnered with Sedexo and world wildlife fund to conduct research talking about the impact that these sorts of changes could lead to. If consumers embrace them at scale, they use that report to certainly generate press and they’re encouraging consumers to include more sweet potatoes, spinach, seaweed, and cacti in their diet. Now, with this example, just like with Hellman’s mayonnaise, I’m not entirely sure how me attempting to trick my family into eating seaweed is going to sell more of no’s product.
Kelly Barner (07:12):
Personally. I love mayonnaise, especially in a really nice chicken salad, but I’m not sure a peripheral ad campaign is ultimately going to drive my brand choice. When we think about how competitive this market is, does the risk of these companies losing the plot, outweigh the impact they can have in terms of their social mission? I think this is a very challenging question that certainly the brands at Unilever are facing right now, especially we, as we go into an economic downturn, but that many consumers and other companies will be faced with as well. What is ultimately driving the decisions that cause you to spend CPG margins typically run between 20 and 35% depending on the product category. So those margins aren’t retail thin, but they’re not huge. The competition is intense and consumers are brand fickle. It’s very easy to switch brands and it’s even easier and potentially more advantageous to do it in cost conscious times like we’re in today.
Kelly Barner (08:27):
In addition to the competition between these products, private label think store brand, these products are more popular than ever. They are better marketed all the time and they are both lower cost. That’s an advantage to the consumer and higher margin. There’s an advantage to the retailer. Now it’s not to say that this approach can’t work. Alan Jo, I think rightly holds up dove as a positive example of how socially mission driven brand can work. They had a wildly successful ad campaign that visually embraced all women body types and shapes and associated the dove skincare line with that Peter dart who’s the lead at Dove’s ad firm talked about how dove organically and smartly developed this purpose. So listen organically and smartly, not forced, not mandated, certainly not under threat of divestiture. It was a natural messaging that worked well with the product and a good fit for the consumer.
Kelly Barner (09:40):
Maybe most importantly, it didn’t have an operational cost impact. It was simply the way that they chose to market the product. They didn’t actually have to change the way they functioned as a company in order to remain aligned with it. So that’s one way that companies are trying to elevate the role of social activism. But I told you, this idea occurred to me when I heard two different articles, right near each other. Let’s consider the other article for a very different example. One that I actually think ties to the same idea at the heart of the success experienced by dove also in the wall street journal on May 20th was an article titled old Navy made clothing sizes for everyone. It backfired so old Navy, which is owned by gap, wanted to be more inclusive of women’s body types and sizes. So there’s your mission driven connection to the same sort of attitude and approach that dove took in August of 2021, they rolled out women’s clothing sizes from zero to 30 in the numbered range.
Kelly Barner (10:53):
They corresponded to extra small, up to four X. They also brought in mannequins to represent the diversity of body types. They were selling clothes for the company, heralded this as one of the most important changes in retail clothing. One that they anticipated would change their industry well into the future. But since I’ve already read you the title of the article, you know, spoiler alert too late, it was a complete failure. Now here’s a quote from the article that I think gets to the heart of this tension between the good that companies are trying to do. And the challenges that it creates shoppers said old Navy’s message of inclusivity resonated with them, but it is sometimes outweighed by the frustration of not being able to find their size end quote. So here’s the reality. You can’t support a brand. You agree with if they don’t have what you want to buy in stock, even though old Navy had done research, they didn’t get the allocation of sizes quite right.
Kelly Barner (11:59):
And they very quickly sold out of the middle range of sizes. The sizes that they were traditionally known for selling, it was such a disruptive failure that it led to a management shake up at the company. Now I made the point earlier that Dove’s campaign did not add to their operating costs. The same cannot be said of old Navy’s inclusive sizing. It did add manufacturing costs. I’ve already mentioned that they had to invest in order to do that research into the distribution of sizes, but they also researched women’s body image trends to make sure that they understand the psyche they were trying to plug into with this change in product offering. But even beyond that, the company had to redesign some of their clothing to adjust the placement of pockets, seams, darts, et cetera, all of those details that have to be placed, right for women’s clothing to fit and look right across such a wide range of sizes.
Kelly Barner (13:04):
Now, the other perhaps uncomfortable reality of this challenge is that the much larger clothing simply required more cloth. And that added to the cost now companies that are trying to foster body positivity. And of course, we do want to be inclusive. They may not wanna talk about that, but it is a manufacturing reality that more thread, more cloth, more time on the machines when you’re running a very efficient lean business, any difference is going to affect the production line. And it also created some challenges in store. So one of the major concerns was how they were gonna distribute this additional cost. Were they going to have the larger sizes cost more, which is what retailers typically do. It’s one of the reasons that you’ll see a plus size department separate from whatever the conventional range of sizes department is called, maybe misses in some stores, they physically keep them separate both for the convenience of shoppers and also so that you don’t necessarily see different price tags for the same item in different sizes side by side.
Kelly Barner (14:17):
Now that was one of the things that old Navy changed. Not only did they expand their range of sizes and redesign some of the product they did away with their plus size section and brought all of the clothing together into one section. So it potentially created a negative PR problem. If they charged different prices for the different sizes of garments, did it look like they were penalizing their larger customers? Now, when you have these clothes hanging side by side, your consumer is either faced with paying a higher price for the same size garment they always bought or customers at the larger end of the range, being bothered by the fact that they’re being charged to X percent more for the same garment, both Unilever and old Navy are trying to do good, but here’s where you can never get beyond the business fundamentals. So let’s take a look at some of their financial results in Unilever’s case, their share price and sales growth have lagged behind competitors like Nestle L’Oreal and Proctor and gamble.
Kelly Barner (15:27):
Old Navy, as I mentioned, which is owned by gap is the most profitable, the highest sales of all of their clothing divisions. So gap and banana Republic are dependent upon old Navy sales numbers to meet their own. Unfortunately, when they announced their Q1 2022 results on May 26th, old Navy’s sales had flagged substantially and these execution challenges took down the CEO. In addition to that old Navy’s poor performance dragged down the whole company. But as we know, none of this happens in a vacuum. All of this is happening also against the backdrop of inflation, where consumers are making the decision simply to purchase less. Now, there are multiple sources of risk that can come from a social mission, led approach to brand development. One certainly is it distracts you from operational fundamentals and we’ve already talked about that, but there are two others that I think we should consider.
Kelly Barner (16:31):
One is the difference between consumer perception and consumer action. And the other is simply the economic challenge. So let’s talk about consumer perception. A research group called the Trafalgar group recently ran a study where they asked two consumers, how likely are you to stop using a product or a service of a company that openly advocates for a political agenda? You disagree with 87% of people said they were likely to switch products. 13% said not now. I’m well aware of the fact that we’re talking about social and environmental activism versus political agendas, but who’s to say what is perceived as a political agenda. Now, the interesting thing here is that one of the consumer brands most associated with social agendas is Ben and Jerry’s. And it’s funny because I live in the Boston area and every year or so, we will make a trip up to stove Vermont.
Kelly Barner (17:37):
And while we’re there, we have a tendency to stop in at the Ben and Jerry’s factory because how do you keep driving and not stop for ice cream? Even if it is November in Vermont, and there’s a tour with a video and they talk about the fact that Unilever purchased the Ben and Jerry’s brand in order to allow their sense of social mission and activism to be infused through the company’s other products. Now, I used to think this was hysterical. I don’t think this was supposed to be the comedic part of the video, but I always thought it was ironic because when you compare the size of little Ben and Jerry’s to enormous global Unilever, how on earth is Ben and Jerry’s going to affect all of these brands? Well, clearly I was wrong because the executive team led by the CEO’s own words is now trying to copy some of the success that Ben and Jerry’s has had in this area.
Kelly Barner (18:34):
And yet, sometimes Ben and Jerry, whose acquisition agreement with Unilever protects their right to choose the social causes and political causes they wanna get behind. Sometimes it has gotten Ben and Jerry’s as well as Unilever into trouble. Here’s another example AIOS recently released their AIOS Harris poll. It’s an annual survey that gauges the reputations of the most visible brands in the country. What they do is they compare brand popularity by political affiliation, which is interesting. But the most interesting thing to me are the companies that are widely seen as reputable by both ends of the political spectrum. Some of the examples of companies that have done a very good job with this trader Joe’s Wegmans and the grocery chain HEB, they focus their mission and outreach on local communities, not national issues. So not only do they get the benefit of acting locally and staying out of trouble, that’s not necessarily going to help them sell more groceries.
Kelly Barner (19:52):
They reinforce their connection to the consumer. It’s in the consumer’s community where their activism bears fruit. So that’s sort of the consumer perception versus consumer action does the way a customer sees your brand and your brand identity and the causes that you choose to support actually make them spend more. But there is this economic challenge that’s running as a thread through everything we discuss today, retailers are facing real challenges because consumers are facing real challenges. Here’s one last wall street journal article that I wanna touch on. And this one actually is more recent. It’s from Saturday, May 28th, it’s titled shoppers are fretting. Stores are listening. Now, old Navy manages their own retail locations. Unilever does not. So their relationship with the two sets of customers is going to be different. How well they understand those customers and are able to tie what those customers want in need into pricing production.
Kelly Barner (21:03):
And yes, social and environmental causes is important. Here are some examples of successful consumer connection. Given the economic situation where in, from that article, Walmart has scrapped their original advertising plans and they are now refocusing their ad messaging around value rather than having product that’s on trend. They understand they have a value conscious customer, and they want that to be saturated in their messaging. One of Unilever’s competitors, Proctor and gamble also is taking an interesting approach. They are marketing a new dish soap bottle that is designed to save customers money by making sure they can get every single drop of soap out of that container. Another product where they’re taking the same cost conscious approach, they’re marketing a cold water version of tide detergent because it is cheaper and more efficient to wash clothes on a cold cycle. Now this isn’t to say that mission driven brands won’t work.
Kelly Barner (22:12):
We talked about Dove’s incredibly successful body image campaign Ben and Jerry’s has gotten a lot of traction. Even companies like Tom’s shoes, where you buy one thing and they take some of the profit and use it to do good. In some other part of the world, it can work, but nothing, absolutely nothing. Substitutes for efficient product development, consistent innovation and reliable customer experience. This is becoming more and more true. As ESG programs themselves are changing. They’re becoming increasingly metric driven as more external insight is focused on them. So the question for company leadership is which set of metrics are you going to work to? Are you going focus first and foremost on your carbon footprint and supplier diversity spend, or are you focused on margins? Same store sales and share price companies naturally want to be good corporate citizens, but the old saying is true.
Kelly Barner (23:23):
The road to hell is in fact paved with good intentions and you can’t help anyone if you’re not in business anymore. Your ability to execute well is ultimately what buys you the Liberty to pursue those social and environmental missions that are important to your company and your team. But first things have to come first. That’s my point of view anyway, and I can appreciate that everyone listening may have a wide range of perspectives on this topic. So first of all, thank you for listening to this episode of dial P, but please don’t just listen, join the conversation, bring alternate points flat out disagree, but let me know what you think. Let’s talk about it and work together to figure out the best solution until next time. I’m Kelly Barner here on dial P for procurement on supply chain. Now I thank you for your time and interest, and I hope you have a great rest of your day. We’ll see you back here next time.
Intro/Outro (24:28):
Thank you for joining us for this episode of dial P for procurement and for being an active part of the supply chain. Now community, please check out all of our shows and events@supplychainnow.com. Make sure you follow dial P four procurement on LinkedIn, Twitter, and Facebook to catch all the latest programming details. We’ll see you soon for the next episode of dial P four procurement.
