Unilever saves €500m as in-housing is 'more efficient' than agencies

Unilever saved more than €500 million (US$566.25 million) on marketing last year as it said it created "more content in-house while making existing assets go further".

The world’s second biggest advertiser’s total spend on brand and marketing investment (BMI) dropped €400 million to €7.16 billion from €7.57 billion in 2017, but a source close to the company said the decline was largely driven by currency differences.

The proportion of money that Unilever spent on BMI dropped by only 0.1% to about 14% of turnover compared to 14.1% in 2017.

That suggests the Anglo-Dutch owner of brands such as Dove, Hellmann’s and Marmite is sticking to its commitment to reinvest some of the savings back into BMI, which it defines as investment for "the purpose of building and maintaining brand equity and awareness".

The annual report said the company is "increasing spend in the areas driving growth, such as digital media and in-store, whilst reducing production and promotional spend" and it "generated savings in BMI of over €500 million" in 2018.

Unilever has slashed the number of agencies that it uses as well as production fees in the past two years, after appointing in-housing specialist agency Oliver to run on-site agencies, called U-Studios, inside the FMCG giant's offices.

The company operates 18 U-Studios in 15 countries to "create brand content faster and more efficiently than external agencies", the annual report said.

Unilever has launched a series of cost-cutting initiatives since fending off an unwanted takeover approach from Kraft Heinz in early 2017.

Alan Jope, the newly promoted chief executive of Unilever, told shareholders on its Q4 earnings call in January that about 35% of its media spend is now on digital channels and that it would have increased that investment faster if it could find the talent.

"It turns out that when you're shifting directly and aggressively into digital, the constraint is not money in the BMI line, it's people to run the digital campaigns," Jope said.

"So we're building around the company, these digital hubs [such as U-Studios], with a whole new set of skills around the table. And the ability to manage the content-driven, highly targeted, data-led campaigns needs new people with new skills."

As Unilever has reduced costs across the supply chain, "we're actually adding back heads in the marketing space," he added.

"If we think for one second that our brands are being under-supported and that our BMI is insufficient, then we will react and we will prioritize growth and sufficiency of brand investment ahead of the bottom line," Jope insisted.

Unilever’s BMI spend peaked at €8 billion in 2015, when it was 15% of turnover, and it has fallen every year since then, although the company has also offloaded its margarine spreads business.

Jope said in the annual report that he remains committed to his predecessor Paul Polman’s focus on "purposeful" brands. 

"More and more of our brands will become explicit about the positive social and environmental impact they have," Jope wrote.

Unilever runs a long-term bonus scheme for senior executives that includes a "sustainability progress index", which measures the company on a range of issues from "climate change" and "sustainable agriculture" to "responsible digital marketing".

Keith Weed, Unilever’s chief marketing and communications officer, used a speech to the US Interactive Advertising Bureau in February 2018 to demand the ad industry and tech companies, in particular, clean up the digital "swamp".

Weed is due leave in May and Unilever has yet to name a replacement.