Terry Smith vs Unilever: The sin of mayo’s madness?

Terry Smith has mayo on his mind – and probably on his sandwiches and salads. Investors were annoyed when Unilever management spent time considering the “purpose” of Hellmann mayonnaise instead of making more money.

You can see why Smith is upset. His Fundsmith platform has provided significant returns for retail investors since its inception. However, a well-run streak was broken last year thanks to a handful of weak stocks.

Unilever, where Fundsmith is the 10th largest shareholder, is one of the culprits. Smith complained in annual mail This week, the company’s management was “obsessed with publicly displaying sustainability credentials at the expense of focusing on business fundamentals.”

The broad side attracts attention because it is rare for investors to challenge a company’s focus on environmental, social, and governance standards.

Organizations like BlackRock are cheerleader for ESG. Even the more demanding hedge funds find it convenient to play with. Elliott Management, not known for tree-hugging or corporate mischief, last month squeeze for the exit of Scottish energy group SSE to “attract more ESG capital from active and passive investors, in line with COP26’s objective to mobilize international finance to support leaders in the industry. energy transition today”.

Such monomania is unhealthy. According to Credit Suisse research, evangelists ignore the fact that US companies with high ESG scores underperformed companies last year, according to Credit Suisse research. .

However, vocal skeptics remain slim. One of the few bets against ESG is hedge fund manager Crispin Odey, who sees profits in controversial sectors like palm oil, aluminum and the North Sea oilfield. “Joy is everywhere,” says Odey. “The bad thing is trying to figure out how ESG is BP compared to Shell.”

Likewise, you may believe that ESGs are being overhyped, that good assets are being unnecessarily discarded, management time is being wasted on sustainability initiatives – but still sees Unilever as having credit for finding purposeful brands.

Smith’s mayo rocket — “a company that felt it had to define the purpose of Hellmann mayonnaise, in our view, had clearly lost its plot” — missed its mark.

Smith notes that the Hellmann’s brand has existed since 1913. But other venerable brands have failed. Kraft Heinz’s Velveeta cheese is also over 100 years old but is no longer the flavor of the month with more health-conscious consumers. Unilever’s high-fat condiments are similarly threatened. According to data from Euromonitor International, Mayo sales fell 13.8% in the US last year.

Not only is its health scrutinized, but millennials and wildlife have shunned it in favor of “the seven varieties of salsa, kimchi, wasabi, the delights of every ilk and hue”, as one magazine articles put it, worried about the relative increase of “spice identity”.

Mayo is too basic. And so is Smith’s review. It’s not a distraction that Unilever markets mayo in different ways – adding flavor and yes, selling sustainable mayo: a way to avoid food waste by packaging leftovers.

For consumer brands, as in the investment sector, past performance is no guarantee of future success.

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