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Unilever: Inequality Is Bad For Business

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What's going on?

Unilever, one of the world’s largest consumer goods companies and the maker of products like Ben and Jerry’s ice cream and Axe deodorant, reported a 2015 sales increase of 4%. That beat investors’ expectations and the stock jumped more than 3%! (It was helped by a strong day for stocks with European stocks up 1.5%).

What does this mean?

One of the most interesting aspects of the results is that sales to emerging markets (EM) grew significantly more than they did in 2014 (7.1% vs. 5.7%). That’s impressive, given the broader slowdown in emerging markets (which we’ve reported before). Emerging markets are a big deal to Unilever: they make up almost 60% of its revenues. As the CEO said, a lot of its growth is predicated on people doing things like switching from hand washing to using washing machines – and, therefore, Unilever detergent.

Why should I care?

The bigger picture: Income inequality is not good for their business. As Oxfam reported yesterday, the world’s richest 1% own as much as other 99% combined. If economic benefits go only to the rich, that’s a concern for Unilever – as the CEO explained. And that’s probably a big, structural concern for all companies that target mass consumers in developed markets. Unilever has countered this by trying to focus on more innovation for products in mature markets while pursuing broader growth in emerging markets (where middle classes are still growing).

For the stock: Despite the good results, Unilever actually warned that 2016 would be tough. Slowing EM growth is a concern while a lack of any growth in developed markets doesn’t help. Unilever will try to offset any weakness by significantly cutting costs in the hopes of protecting underlying profits.

Originally posted as part of the Finimize daily email.

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