Unilever has announced its acquisition of Seventh Generation, a Vermont-based brand known for its eco-friendly cleaning products. The snapping up of Seventh Generation is the CPG giant’s latest attempt to broaden its brand portfolio and expand its reach in specific categories, coming on the heels of its acquisition of razor startup Dollar Shave Club earlier this summer and amid reports that it is also interested in purchasing consumer-products retailer Honest Co.

“Unilever is simultaneously entering new, adjacent categories, blocking its key competitor from acquiring and neutralizing disruptive players and acquiring teams and tools to position for the next decade or longer,” said Keith Anderson, svp of strategy and insights at e-commerce analytics company Profitero. “This is a period of consolidation in the consumer-packaged goods space. It won’t be a surprise to see many more acquisitions in the space over the course of the next 18 months.”

Both the Dollar Shave Club and Seventh Generation acquisitions are a telling tale about the struggles of the consumer products industry in a digital world. Basically, Unilver and other hulking CPG companies aren’t able to adapt quickly enough to the dizzying changes in digital. The market is moving faster than the incumbents’ ways of working can accommodate, and there are marked shifts in how products are sourced, discovered and sold in every consumer category today.

Faced with this challenge, brands like Unilever have two approaches in front of them, said Sucharita Mulpuru, chief retail strategist at Shoptalk, a retail industry conference. They can either rapidly innovate on products and processes internally, or acquire new or adjacent businesses that enable innovation externally. Despite also investing in a startup accelerator called the Foundry in-house, Unilever has been forced to look for innovation from the outside.

“An innovative company has to go outside as much as inside,” Unilever CEO Paul Polman said in an interview last week, according to Bloomberg, adding that Unilever was looking to acquire more companies like it. “The main incubators for our future innovation capabilities are more likely to be outside than inside.”

Unilever has been attempting to make inroads into the personal care category, the domain of its competitor Procter & Gamble in recent years. This is visible in its recent re-shuffling of brands and categories as well as its re-classification on the Standard & Poor and MSCI indexes from a “packaged food” brand to a “personal products” brand, as Bhaskar Chakravorti, professor at The Fletcher School at Tufts University, pointed out in this Harvard Business Review article. The acquisition of Dollar Shave club and now Seventh Generation helps it set its sights squarely on a diverse portfolio of CPG brands that can help it take on P&G.

“For a company the size of Unilever, it doesn’t make sense to make small bets because you’re seeking massive growth at scale,” said Shoptalk’s Mulpuru. “It makes much more sense to procure a challenger brand in a category and turn it from a $1 billion business to a $5 billion to $10 billion business.”

It is not unusual for incumbents to seek to absorb smaller rivals when they’re still relatively small. Both Dollar Shave Club and Seventh Generation (and even Honest Co.) have upended their industries, the former by offering a subscription service that sells blades for a fraction of a price compared to its competitors and the latter by being a strong purpose-driven brand committed to the environment. Nitin Paranjpe, president of Unilever’s home-care division, said that the Seventh Generation acquisition will help it meet a rising demand for high-quality products with a purpose.

“The deals represent young, on-trend brands with growth outpacing the market,” said Profitero’s Anderson.

Digital has transformed the traditional retailer-supplier relationship, causing a significant overlap between them. Retailers are now building their own brands, whereas suppliers and brands are coming up with new ways of reaching the consumer directly. While legacy companies like P&G and Unilever are still struggling to navigate this changing landscape, upstarts like Dollar Shave Club and Honest Co. have successfully built direct-to-consumer brands. They have forged digital connections with their consumers through social media, using it to not only market but also sell their products. Hence they are innovating on not only product but also the distribution front.

“They are digitally native, vertically integrated brands,” said Jason Goldberg, ‎svp of commerce and content practice at Razorfish. “Part of the reason in acquiring these companies is acqui-hiring — it brings more digitally native talent into the organization and helps fill that void.”

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