Unilever PLC (ULVR) Earnings Call Transcript & Summary

Good morning and afternoon. I'd like to welcome you to the third in a series of deep dives where we invite investors to learn about the specific area of our business. The first webinar was in March talking about our business in the U.S. And in June, we talked about innovation with our Chief R&D Officer. Both are available to replay on the website. Today, I'd like to introduce Rohit Jawa, who is the EVP of Unilever China, and is going to talk about one of Unilever's most exciting businesses. And with that, let me hand over to you, Rohit.

Thank you, Richard, and welcome to all the participants for this presentation of the investors. Let me first start with a short introduction. I've been fortunate to work with Unilever across most of Asia, South Asia, almost all markets of Southeast Asia and now for the last 4.5 years and over I have been in North Asia, which is really the most exciting market, and I enjoy being here learning every day. Today, we will spend the next half an hour or so and then some type of questions to take you through the story of China and how Unilever has grown a really, really great business and with a lot of head space or growth in the future years to come. Before I start, I'd like to draw your attention to the disclaimer to forward-looking statements and non-GAAP measures. Thank you. Let me first, at the very outset start with giving you a set of headlines on what I'd like to communicate in the next 20-odd minutes or so. The key message I'd like for you to take out from the session is that winning in China is absolutely critical priority in Unilever. We are already the third biggest business in Unilever with a strong head and run foot growth. We've delivered consistent and profitable growth in the last 5 years. And through the pandemic, we are coming stronger, more competitive, more agile and more digital and we expect to continue to grow competitively following our consistent growth priorities, which are; get our big brands into more households every month, every year, transform our portfolio into a premium future fit portfolio and follow the shopper, which is basically go where people go that in terms of growth in China is digital and in the lower tier cities, which we all go deep. Let me give you a sense of how I would like to tell the story today. I'll talk of Unilever China in 3 broad segments. First, a bit of context on the consumer just to get us grounded on who we are serving. Take a closer look on our business in China and what we've built over the last 3.5 decades that we've been in China and then took a double-click on growth priorities and give you a sense of how we're landing them in the market, and then I'll close with a summary. Let's first start with the first segment, which is on the consumers. Let me first start by a story of China's economy, which I'm sure all of you are familiar with. It's really been the most exciting economic miracle of the last century. It's also been the most exciting consumer story. Already, China is the second largest economy and most likely will be the largest economy in the years to come. It has really been a market which is now -- in terms of size, it's panel to all the big markets such as U.S. and Japan. But importantly, the per capita consumption in our categories at least is still quite low compared to the reference markets of U.S. and Japan. So we expect many, many more years of growth through upgradation from market development. And that's the role we've got to play is to ride the growth that comes from the growth in middle class in China, which with the whole focus in common prosperity really means that consumption will become the main driver of growth in China, we want to clear our more than fair share of parts in that story in the future. Going forwards, let me just talk a little bit first about who we are serving. Now China is a very complex in a vast market, 1.4 billion consumers. And really, it's not possible to generalize. But for the sake of entering our discussion, I'd like to simplify the Chinese consumers to how we see that in really 2 kinds of broad meta segments, for the sake of really starting the right place. On one end, you've got the top 30 cities that are what we call high-speed China. These are cities that are really very developed. These cities there is a lot of fragmentation pressure to compete. Consumers are looking for experiences, they are looking for change, they follow a trend and upgradation really is the primary growth hypothesis. This is indeed a very, very competitive market, but lots of players are all very excited and a very, very hot market, very much biased on e-commerce and on the big stores. Whereas on the other side, we have the normal speed China. This is the China that exists in the low-tier cities in the Tier 3, 4, 5, 6, the towns that are -- there are 2,000 odd cities below the big cities and 40,000-odd tons in rural areas that are really what we call normal-speed China. This is a place where, unlike the cash-rich and time-poor consumers of the big cities, consumers do have time they have more leisure. They are more family-oriented, more community-orientated and value for money is very, very important. They do have aspirations to grow, but there is -- and they discovered the e-commerce.There's a lot more growth here in terms of penetration of internet,penetration of e-commerce. And in a sense, off-line stores and the traditional channels like mom & pop & grocery still play a very, very important part. And these 2 China -- Speed Chinas really require 2 different kind of marketing models on one end, very digital, very fast, very innovation orientated and on the other hand, a lot more consistency, mental availability, physical availability, memory structures, sort of trying to get into more outlets, more stores and more households all the time. And these are 2 different jobs to be done that we must be mindful of as we try and compete and build a bigger business in China. Going forwards, I'd also like to touch upon a little bit about the trends. And clearly, through the COVID, some trends have remained consistent and strong and will remain securely there in China. And some new trends have become stronger and become more consolidated. First of all, I'd like to touch again on the lower-tier cities. 70-odd percent of population is in the lower-tier cities and close to almost -- in our categories, half of the off-line market and a quarter of the online market is in this segment. This is growing faster before COVID and after COVID than the big cities, up to 15% to 20% on the average, very broadly speaking. So we've got to partake in this exciting segment and build the brand there. And digitization of everything continues to be a mega trend that has only accelerated with the COVID in 2020, and it's continuing to grow in 2021 and consumers in China consume everything on the mobile phone, whether it's media, the entire life, shopping -- their entire life rewards around the mobile phone, and it's only getting deeper and bigger and wider. Please note that still only 70% of China has gone into that penetration. So there's a lot more -- a few hundred more million people who will be coming on. So it's not that this is the end of the digitization story in China. It's going to keep getting stronger and bigger. And operationally, continues to be a very, very important growth hypotheses. There's a 400 million strong middle class, the upper affluent -- the upper class, the mass affluent. These consumers want a better quality of life. And as the focus of the government goes more and more towards consumption as a driver of growth and growing the middle class, the markets that we operate in will keep getting bigger and the opportunity is quite immense, certainly for our brands that partake with the average middle-class consumer in China. In addition to these secular trends, we also see some other trends becoming stronger. One is, of course, with the whole sensitivity towards hygiene with the COVID and the COVID not having gone away and it still puts the focus on hygiene, and we see the categories like this affect in sanitizers, et cetera, is still growing at a rate of 30% CAGR, if you take some up and down between the 2 years. And this will remain a very, very important segment to play in. There's also -- while consumers have gone back to leaving the normal lives after the being cocooned for a short period of time, but the lure of the home -- 1/3 of consumer time is currently being spent in home and it's driving consumption like for food, like ice cream at home, it's driving things like in-home exercises, in-home education, in-home shopping. So the role of home in people's lives has increased, and it's going to stay, not entirely go back to the completely old way. And finally, health, which is always very high on the values of the Chinese consumers is becoming even stronger, and people want to consume products or do things that give them protection, give them well-being, whether it's mental or physical and therefore playing a part in the emotional and the physical wellbeing of our consumers will be an important stage to plan as well. Going forward, I'd like to touch upon now really what has really been built in this exciting market that I have just painted the picture of. Let's start with Unilever in China. And I'm going to first start with really our belief and our mission. We know that this is a very exciting market for global and local players alike. That's not a secret. But to win in China, we've got to really be a company, and that's locally tuned and extremely agile, extremely fast, very digital but leverages the Unilever's best of technology, brands and standards. We want to bring these 2 things together and become the best global company with amazing global average in China. We feel this really can be done in 4 ways. One is a design for China, which is now 100% of our formulations are designed or adapted in China. We have a big army center, I'll speak a lot about that as we go forwards. Decision-making in China is very important to be close to the consumer, decide because you need really people understand the front end in China. It cannot be done from miles away. So most of our key decision-makers are based and will be progressively based in China. And moving at the China speed. I mentioned the motion of speed, but it's really important, especially in the big cities. You've got to move really fast and bring things, then try them out and really either pivot, scale or kill, but keep moving and expecting. Now 75% of innovations, we have the capability of launching within 6 months of the project being kicked off in the market. And this is a muscle that we want to keep building on. And finally, being digital in China. I mean it's no secret that you -- and you've got to be fully digital, 80% of our investments in media and marketing are digital and already 40% of our business is digital commerce based. We call this China for China, and that's really been a strategy that we deliver this, as I will show you in the next chart. Go to the next chart. This shows you our track record in the last decade. Over the last decade, we have more than doubled our business. And over the last 5 years, we have accelerated our growth and significantly stepped up our profitability by actually trying to be a China to China company with the best global leverage. We've already something like EUR 2.5 billion in scale, and we think there's a lot more potential for us to grow bigger in this country in the years to come. We are already 6% of Unilever, and we expect this will continue to become higher and higher as we have much more runway for growth in this exciting market. Through the COVID time in the next chart, I'd like to talk upon how we have not just taken this growth track record to granted. But also when we faced of the COVID crisis, we decided we're not just going to be -- we will first, of course, priority will be on our people but we also will use this opportunity to become a stronger company, a more agile company, a more digital company, a more dynamic company and a better one-team. And I feel we have all come through stronger in this period. As you can see, by looking at the market shares on our -- some of our big categories, our competitiveness has increased across both online and offline. We have sort of bottled this dynamism of resource allocation, better agility in our innovations and a stronger ability to basically get to the market much high speed and basically also trying new things and scaling them quite fast, and we want to keep this capability bottled in one of the genetic makeups of the company going forwards. And we feel that this competitiveness is very important trend that we found and discovered in this period. And over the last 2 years, in 2020 and 2021, we continue to have business in share -- of share, which is well above the 60% mark in China. Going forwards, I'd like to talk about a little bit about really our brand portfolio. We're blessed with an amazing brand portfolio. Not only are we diversified across all our broad businesses, foods and refreshment, beauty, personal Care, Home Care amongst our 20 main brands today, or 65% of the business that we played, we are #3 in the top 2 or 3 players. Of the 20-odd brands that we are marketing in China, 10 of them then exceed RMB 1 billion or CNY in size. Anything that's about RMB 1 billion of Chinese yuan size broadly means that it's a big brand in China. Half of these 10 brands actually closed a little well above the RMB 2 billion mark. And we feel this is a very powerful portfolio that we need to stretch. And we're also very fortunate that we've been able to over the last 3.5 years build a strong franchise as 80% of the urban households are reached now by one or more Unilever brands. And that gives an immense reach to be, in fact, amongst the top 5 largest CPG reach companies, global and local players alike in China. And that's a really strong position to build the next stage of our growth journey from. Not just that, when it comes to our capability in the next chart, I'd like to talk about what we have built in terms of what we are capable of doing. We have now built a very strong scale of manufacturing. We have manufacturing hubs North, East, South and West. In fact, our South hub is being announced almost as we speak. We'll be making a well over [ 100 million ] investment in Guangzhou and in Guangdong province, and this is going to be our fourth big site. We already have one of the leading Smart Logistics campuses in Hefei. Our South Campus or South Hub will be carbon neutral. That's our plan. And 2 of our factories that we're very proud to say, are already amongst the world economic forum, light-house factories. These are factories that are amongst the very few in the world that have shown that they are differently advanced and capable of delivering a growth while improving sustainability in the sort of context of fourth industrial revolution. Not just the manufacturing side of it, but on the distribution side of it, we are well networked. We have 26 logistics centers, ambient and cold. We have also been able to deepen our network in China and a consequence of which is that not only have we doubled our presence in especially smaller cities, we are now seeing the benefits of that, with most of our categories growing share in the low tier cities. We've also -- were present in -- that in 2009, we built a global R&D center in Shanghai, which is in fact, co-located with the company. It's something I'm really proud of. We have 350 of scientists and professionals in the Army center. We're focused on China and the Chinese consumer, and Chinese technology and leveraging the global best and exporting some of the patents, we have well over 100 patents that originated from this excellent facility that we leverage. In the last 3 or 4 years, we have not just taken all of these benefits for granted. We've also built a strong robust digital infrastructure. Today, we have close to almost 100 digital specialists. These are people who have skill sets that are quite specialized like machine learning and business intelligence and so what have you. We also have the ability to do analytic support for consumer and the business side of it and build tools, some that are proprietary in nature that actually give us competitive advantage. And very importantly, in the present day and age with data privacy and cybersecurity have very strong one-bearer governance and being very, very much aligned with the regulatory context of China. We're using this entire capability that's in-house, along with our dedicated partners like WPP Unite. That's a dedicated Unilever platform that helps us -- by WPP that helps us deliver upward to north on the integrated data-driven communication, optimization of our marketing plans, and this is a really very super force to be with. And not only that, we've also built now a scaling in-house partnership with U-Studios, which is basically announced U-Studio that normally gives us the ability to create content very, very quickly, different types of content is in China, we have very large variation and platforms, but importantly, also use technology to really scale content sometimes across a lot of our platforms. We are, at the end, driven by the quality of our people. In the next chart, I'd like to talk about really what's the soul of the company beyond all of the hardware that we've touched, it's really our people. We think we are a Chinese company. Most of our people, say 99% are local. We have gender balanced between men and women. We also have in our top team, a large majority of our leaders that run various parts of our business out of Chinese in the city. And that gives them the ability to sell, be very close to the market and basically do what's right for the consumer in the market. We've also been very proud that for the last 4 years, we've been #1 employer of choice for the undergraduate that gives us a really good crop of the entry-level graduates. And in fact, many of the leadership team started off as management trainings in Unilever China, and that's paying off now. We're also progressively building an agile organization, an organization that balances focus and scale. To simplify, we call it the grow, power, run, make. We have essentially created a platform of making, which is manufacturing sourcing, standardized operations. We're building that order to cash run digitally and a set of sensitive expertise, capability hubs like digital analytics, like customer operations and regulatory affairs, et cetera that service the business unit -- units, channels end customer. These business units are dedicated to the channels in the categories and the customers and leverage basically the scale of the Unilever platform by being really focused on winning in the markets that used to play in. And given that we are in a wide range of categories, it's very important that the people who do the front end really live and breath the category that they're running, while leveraging the best of scale economies and investments of Unilever's capability in China. So that really brings me to the next chapter, which is very -- our growth priorities. These are growth priorities that probably some of you may have seen in a few years ago when I spoke about China as well in a similar forum. I have remained consistent. These are really 3: growing our core brands penetration, which is getting into more households. These 10 brands are most of our sales, 70%, 80%. And if we can get them to more households, that drives the base of the business. Transforming our portfolio, very important in China to be constantly evolving our portfolio, and that really means 2 things: more premium or being in really tail-wind segments. And finally, going where people go which, in our case, means going digital because digital commerce is really growing very fast and going deep in lower-tier where we have certainly has a lot of ad space and white space of growth. And we see 3 key enablers, and I will touch upon them here in the end is digitization because no company can succeed in China unless it's digitized. And we're progressively digitizing making investments, some that we've already made, many that we will make in the future as well to transform the entire company in a digital, capable manner, which is appropriate for China. It still leverages the best scale. Productivity, very important because we have -- we spend a lot of money in China on brand marketing investment, and we've been able to get continuous improvement in our productivity and use that room to fuel our new growth areas and also growth and improve the shape of our portfolio -- P&L. And finally, agile organization that I touched upon are becoming really fast and flexible and subtle when it comes to China to compete. Let me now spend a little bit of time double-clicking on each of these to give you a flavor of how we're landing that in China. Let's talk about the core brands, the 10 brands that we feel really have the base of our business covered. We see first of all success in what we've done, which is that 85% of our business is actually growing penetration this year on an MAT basis, which means that we are getting into more households as we speak. It's very, really important because volume is one of the main drivers of growth and volume comes from more users and more usership. This is the primary growth hypothesis is of any FMCG company, especially in China and certainly for us. We see 3 key drivers of growth in our core brands. One is to have the strong brand power. You want consumers to pull. And that comes with meaningfulness, differentiation and scaling. And we have seen when we have leveraged the brands purpose successfully, the consumers have pulled our brands that they have been popular before they pull them even more. And a great example is what we are doing with Clear, which is one of our big hair brands with the purpose of resilience, be clear, be fearless, that's really helping a lot in terms of creating a memory structure and mental culture. Second is fetching our big brands across 2 adjacencies because once you have brand name resonance and recall, it's quite possible to stretch the brands as Dove is showing going into bath and body and skin care. And finally, for executing with discipline, which is really about landing mental and physical availability and competitive products at all times in the market. A great example in what we're doing with our Knorr Food Solutions business, which despite COVID has used digital selling as a means of getting to 3x more operators and chefs and, in fact, improved even their top chef population by 3x by this -- by digitization. A brand that really brings all of this together, these 3 forces is really Omo, which is our biggest brand. Omo is already in a third households. It's a really big brand in China. And over the last 4 years, 5 years, we've seen Omo growing in market share by more than 100 basis points in a very competitive market by being -- by following the model that I mentioned, but also growing its margin by well over 1000 basis points and a brand that has extended itself now into all forms of home and hygiene categories, and it could have not been better timed given what's happening in the market and hygiene consciousness today. This takes me to the next segment of growth, which is really transforming our portfolio. Having strong brands, base brands is very important, but getting us to the next level, you really need 2 things. One, we have to premiumize because we found that will be premiumized, premiumization is already 70% of our growth communication. And 50% of our business is what we call in the 120 index average and above now. And this was well in the 40s and below that in many years back. And this transformation is really helping us. And we see really 2 simple things. And this in a sense is sort of the goal of serving the high-tier consumer in most part is to really use digital tools to improve the speed to the market, get to the market fast by listening, prototyping and lining and testing it out and then scaling it. And we see that we can do that quite fast down in the market. And importantly, amplify really using 3 things: targeting, using our digital hub, using influencers through partnerships to engage and convert once you have the right audience and right target consumer, and then using the loyalty management tools to increase the basket size because the cost of recruitment then gets paid off with the lifetime value of the consumer. And this is being increasingly important. One brand that really sums up all of this with excellence in our portfolio is Vaseline. Vaseline started off as a very simple portfolio 3 or 4 years ago. It since then leveraged its base equity and become a really powerful brand. It's already #1 in e-commerce in terms of market share and growing. It is now covering from a simple body care to all of our body parts from tip to toe leveraging its capability in healing skin and now is available and some of the innovations like Derma series that you can see right in front has done extremely well and is getting into new segments like Babycare and Sun Care. So the 3 is -- and it's already 4x more value density than it was 4 years ago. So we -- and we see a lot of opportunity in Premiumizing our brands even further. So this is a great example of what excellence looks like when you take great equity and premiumize that in China. The second driver of transforming our portfolio really is to play in segments which are growing fast. These are, for us, we have chosen these 4 or 5 segments to play in and have launched a portfolio of brands, hygiene for obvious reasons. Now we have launched -- relaunched Lifebouy, Domestos for Home Care and stretched for existing brands like -- strong power brands like [ Oman ] Lux and a string of very good dividends. These are really all superior products, offering unique benefits to consumers at a very, very good value. In Home Foods, we have a very strong Knorr brand Food Solutions. And now we have good success, start extending that into in-home use so with great sauces and we're seeing success there, and we keep driving this forward. Health and wellbeing, we've launched 2 brands, OLLY and Smarty Pants, OLLY particularly doing quite well Smarty Pants is still down in the market but we see a very, very strong future for our health and wellbeing portfolio. And premium laundry with the launch of Laundress, which is very high priced, but it's doing quite well, getting traction we sold like a personal care product. and extending our megabrand AHC into premium space with antiaging with the launch of the youth variant that we see on the screen. All of these segments, even though they're about 1 or 2 years old already in total over CNY 1 billion or RMB sales , which is already gives you the sense of opportunity we have in extending them in many more years to come in than our future call. They're already growing very, very fast at 3x, and we see a lot of opportunity in driving this forward as we take them from e-commerce all the way expand that across offline and scale them up. Now coming to the last growth driver, which is really about going where people go, which really means 2 things. One is going digital. Let me first spend a time -- a little bit of time on digital. It's obvious that digitalization, e-commerce is roughly 30-odd percent of the CPG market in China and growing at roughly 30%. We saw massive growth in 2020 and then a bit less slowdown this year. But on the whole, if you look at the -- over 2019, the growth is still very handsome. And really, we are already -- 40% of our business, [ 3.5 billion ] is -- [ 1.3 billion ] is digital. We see this going towards 50% in not so far future. We see 3 broad drivers and pillars to succeeding and why we see success even in competitiveness in e-commerce in China today with Unilever. First is a very close partnership with our key platforms, whether it's B2C platforms like Ali, JD or Pinduoduo, or the new multi platforms like [ Bitan ] and [ why sure ], Tencent, of course, which is very, very massive in the social space or even the auto players which is basically the omnichannel, which is really growth quite -- grew quite handsomely in the last 1 year, for us, it's well in excess of the market. We have very high shares so we feel very good about that and really playing -- working very closely with the partners like [ Jerry Aja ], [ Sinton ] and [ Metro ] and others like that. On the content side, because it's very -- that's how consumers see they're not in the store, what they see is basically what they see on the phone. You've got to make sure that your content is shoppable. For that, it simply really means 4 things. One, we've got to execute well on any moment, we must be perfect. And we have a very clear strategy that we track on a real-time basis daily on how we're doing against that. But really, the key thing there is to be available online, which means in some parts, also only the key search works. It's very important to have the engaging content and short videos are really growing in popularity and gives us a great opportunity to show products we don't like, the one you see on screen right now. Live streaming, which I mentioned, has grown massively over the last year or 2 and really swap good partnerships with the top celebrity endorses, but even our own live streaming and making that big and making sure that we drive that profitably, and leveraging and harvesting the consumers that actually shop from us become members, through increasing the basket size, such as regime samples and other things that we do to really create stickiness once they are really part of our franchise. And finally, it's very important not to see this entire digital comps or even the broad platform of the customers is one big mess. They're very, very unique. We might need more novelty like the Dove formats you see here for TikTok or [indiscernible] . We might be a strong value brand like Vasoline to play indoor. And we will also need for the omnichannel platforms like Hama from Ali, a specific where exclusively designed for them for their customers. It goes with, for instance, a dish faring, which is very popular in the store. So it's really about designing for channel and be this sort of critical ingredient in our success, and I think close to almost half or more of our portfolio is already exclusive in something for the channel when it comes -- and platform and customer when it comes to e-commerce. Finally, on the point of going deep, as I mentioned to you, it's very important for us to increase our presence in the smaller cities. And what we've now started doing is after having expanded our network, for us, the next growth journey is in organizing ourselves around city clusters. We see that the cities are really the economic unit of China. And cities around the big cities tend to really become the most promising parts of the urban areas that really for a company like ours are very attractive. So we've taken the entire country, divided them 300 city clusters and chosen top 100 of those that correspond to 60-odd percent of population and 80% of the off-line business and further segmented them, depending upon our competitive position. So very, very clear in which city clusters of priority, we need to do what of importance. And we want to organize them around city cluster managers to give internal responsibility, one big city with A, B, C, D or Tier 1, 2, 3, 4 cities, it's collection cities under one person who we can actually hold accountable end to end, and organize the analytics to make sure we can track outcomes and investments on a semi cluster basis. And eventually, it's really our job and mission to create a digital platform that gives us high level of control and execution. Are we getting into more stores? Are we making it better through our range quality? And are we getting stronger engagement with the customers, especially whole sale that we'll keep playing a very important part and getting products to the gross lease along with the e-route-to-market where, again, we have got a lead by having early strategic engagement with the big platforms like Ali and JD. And finally, we are investing and upgrading our digital infrastructure for our go-to-market capability, and this is going to become an amazing force I expect that we -- our ambition is to be the best in class and do a next-generation level jump. Coming finally to a touch on the enablers. And I know that given the time, we will not be able to go deep on this, but I made a strong conciliary about digitization in transformation of our grow -- the entire layer of grow, power, make, run and make sure that all of that is digitized. Productivity, we are already delivering a strong track record, 9% to 10% of our spends every year through our global tools of NRM, 5S for materials, nonmaterial savings, our overheads, set BP for MR -- BMI we are Continuing to ride the center of opportunity that can be helped and used for our fueling the growth by reinvesting all the white spaces and opportunities mentioned. And that will continue to be a strong must we keep deploying in the future and making an organization more agile, not just balancing structurally the focus on scale, but importantly, expanding what has successfully been observed in the company on the [ indiscernible ] working across the company more widely and flexible resourcing, which is already quite skilled in Unilever China to become really a generic code of the company. So in sum, if I can conclude, what I'm really trying to do in the last 30-odd minutes or less is the following. And I just will talk through a few headlines. Again, the winning in China is absolutely a must win for Unilever and we call it as the top tier market segment in the new combo strategy. It's already our third biggest business, and there's a strong headway for growth, future growth potential at [ MES ]. And we've got to stay thick and thin through ups and downs, and this is going to really remain a very exciting growth story. And we have not -- we've delivered consistently, profitably over the last 5 years, we have credibility, and we like to continue to do that in the years to come. And we are coming out stronger through the pandemic, more competitive, more agile and more digital. And we expect to consistently remain disciplined around our 3 growth priorities and enablers; getting our core big brands into more households all the time, transforming our portfolio into future fit portfolio mainly through premiumization of our existing brands or our premium brands, getting them in more households or indeed launching premium categories of new premium brands and also getting behind categories that have got high tailwinds like hygiene and health and wellness. And finally, go where people go that for us really means really lead in digital commerce be absolutely on the top of the game. It's already going to be, I think, in the near future half of our business. And make sure we leverage the white space opportunity when it comes to lower tier cities by going deep and building a strong robust infrastructure and ability to reach more outlets better in the lower-tier cities. So that really brings me to the end of what I wanted to say, and I'll now hand over to Richard so we can take some of the Q&A at this point.

[Operator Instructions] So the first question is from David Hayes, at SocGen. We have seen renewed restrictions on travel and movement in the last few months. Have they been a setback for out-of-home recovery and reopening? Or has there been no material impact on social behaviors and out-of-home demand levels?

So to respond, I think as of half 1, we had seen a significant improvement in our Food Solutions business and our ice-cream business, which are both focused on out-of-home. And I must say that we not only -- we have exceeded both -- definitely we recovered from 2020 a drop, but also increased actually beyond 2019. So we were -- we have a good trend when it comes to food solutions, similarly, in ice cream but yet again, I would say, going from strength to strength in this year. Yes, there is some impact in the recent times because of the regional stoppages. But frankly, this does tend to be more regional in nature, and the government is pretty capable of managing it on a segmented basis, and we see basically a few weeks of closures and restrictions and then going away and it's sort of become muscle that both us or companies like us could consumers have got used to and sort of is living with COVID so to speak. And I think eventually, it is temporary up and down, but I would say that consumers are reasonably confident in China when it comes to out-of-home consumption occasions as we speak.

Thanks, Rohit. We have another question in -- which is from Eva Quiroga, Bank of America. What's the; medium-term opportunity for prestige beauty now that the regulatory environment has changed? And what are the first thoughts following the Kate Somerville launch?

Well, I think I really love our Prestige portfolio. Frankly, I've been rooting for it to be in China for many years, and we have very good reasons, and we were working very closely with the government and other players in the industry and now the animal testing regulation has been liberalized from early this year. And it's still conditional, but liberalized nevertheless. And we've been working again, very closely with regulatory affairs and being amongst the first company, actually the first company to get certification for, I think, 2 of our products, and one of them is Kate Somerville. And I am absolutely certain that when available freely in local e-commerce, the brands are very strong future -- brands like Dermalogica, Kate Somerville and many others that we have, really, many of these have very strong traction in cross-border where we have now a joint venture with another company. So we are already getting prepared. And I see increasingly more and more opportunity in this space, especially as you've known that over the last few years, and I do feel that even in the future, the premium and the prestige end of the portfolio will continue to grow, and we have a very, very strong portfolio in stable of brands and I'm very, very optimistic about their future in China.

Okay. And as a follow-up question to that, you have half answered actually, but from Gindelmaat UBS, which is what do you see as being your main competitive advantages in Prestige Beauty?

I am actually speaking for the team, I think that better capable to answer that. But just as an important stakeholder, somebody who really loves these brands, and I would love to see the business grow in China. I think at the end of the day, it's going to be really about brands. And I think some of our brands already, like I said, when we have demonstrated them executed them in like our CRE, which is importing port for exhibition that happens every year. We all this participant Prestige always has it all there. You can already see how many of them have strong social buzz and the opportunity that there is. And I think the brands and technology and what it stands for and also the fact that we have been very steadfast about our values and not testing on animals. All of that will certainly work to our advantage because consumers are getting more and more sensitive on the environment and all of these brands have very, very strong stories on that front as well.

Thanks, Rohit. Well, we've got a popular subject, a question on premiumization. Does the premiumization of Dove makes sense? Or does the move to bring in new brands such as Dermalogica, Kate Somerville, et cetera, does that introduction get Unilever bigger in prestige more quickly?

It's an and question, not nor more question because both Dove and Dermalogica have a role to play. We're talking about very large market with a huge price [ limit ]. And we -- anything I've seen, certainly in my 4.5, 5 years in China, we've done Dove to premiumize that, it's paid off for us. We have already, for instance, on scrubs that bathing scrubs, we are a very successful entry with Dove, we've had very successful entry with forms with Dove. And bath and body is an amazing opportunity for Dove as well. And I feel that Dove, as a brand in the consumer's mind is much, much bigger than our actual physical sale. And I feel that that's the job we have to do is to really fill that gap and I'm quite certain that's going to happen because every premiumization item works, that doesn't take away from the opportunity in [ messy ] prestige space because that's -- and across segments because we're talking of very, very vast. I'm talking of tens of billions of euros of market. So therefore, Dermalogica as well has a strong opportunity, and it can be and will be a very big brand in China when it's fully available.

Okay. Thank you. So let's move into a different category. It's a question from Warren Ackerman at Barclays. Can you discuss the trends of Chinese laundry? Players like Blue Moon have IPO-ed and are quite aggressive, but you have said you've grown share by 100 basis points and margins by 1,000 basis points. How have you achieved it? What can Chinese laundry grow for Unilever in the long term?

So I think that's really an excellent question. And I think Omo in a sense has been the lighthouse of many of our big brands and how we can actually learn how to grow a big brand competitively. And the heart of Omo's success is really first and most important is competitive product. We have almost universal superiority against our benchmarks in use. And that has been a big driver of growth. Second has been consistency of our proposition -- of using a proposition beyond the obvious experience and get dirty appropriate for China, so adaptive for China. And we've been consistently on that ever since and build a strong memory structure. Third really has been the fact that we focus very, very squarely on the opportunity of liquids, where we have tried to really make -- follow the tailwinds of liquids, grow the category rather than participate in the powders and the bar segment more aggressively. So we've been very focused on that. And in the recent past, we've also made a very, very clear choice in driving the growth in [ Gapsuse ], which again has paid off for us and we are the #1 brand in offline and we're doing extremely well [ Gapsuse ] as well. We have also indigenized that. We've built local capability. We've adjusted the formulation for the Chinese consumer. So it's really been China for China in action as well for Omo now the last lever of growth is that we've taken a brand that was very well known, certainly in the East, we're going deep in white, so we're taking it to West and North and South. And we have taken a very well-known brand like Omo extend up to categories beyond laundry into Home and hygiene care, and that's working very well. Dishwash, which is already a sizable business. So all of these things essentially give you -- give us a formula on how we can actually take a big brand and make it much, much bigger. For me, I think Omo has a lot of opportunity to grow in China, not just with this like said, we have 3 parts of the country that we still have huge white space from a point of view of geography. So we have a lot of distance to cover. So I see a lot of years of growth normal.

Thanks, Rohit. Now we're going to change on the question about distribution from Catherine Locket, M&G. How do you manage expansion into lower tier cities with physical distribution alongside development of group buying PDD, et cetera, what are the relative merits and drawbacks of group buying systems for Unilever?

Let me first start by giving a sense of -- so what we've done, it's obvious, like I mentioned, we have low penetration in lower-tier cities that are growing faster than large market, we'll keep going further. So we have to play. We have to play because everything we do is basically value adding for us. But of course, it's not as easy as that because we're talking a very large geography. And we've been doing that not 1 year, but over the last 4, 5 years. building deeper infrastructure distributors and making sure we don't just get distributors but also like-for-like growth, and that is paying off. That's one rule of lower tier city presence. The second has been e-route to market that has also become sizable for us. Through the Ali and JD platforms, we were early with them and the B2B now 3%, 4%, 5% of our sales, that has given us presence in grocery stores that we were not covering direct. The third rule, of course, is wholesale is that consumer play a part. So what I'm saying is that to get to the lower tier cities, we really need multiple levers and multiple routes to market not just one. So we'll keep doing that because there's no end to this process. This is a very, very large country. We have a lot of white space to cover. When it comes to Pinduoduo, Pinduoduo as a platform, though may have started with very strong value propositions and also lower tier city buyers has become pretty universal, as you have seen from their results, they said that they're already amongst the largest MAU. So they're been used by nearly everybody. And we are working very closely with them as well. We're one the top 10 strategic partners. We -- it's early years, and we have -- And in so far, as we're going to talk about how do you create the right balance, we do have very 2 conscious strategies. One is we have an omnichannel pricing strategy. So we make sure that anything we launch basically doesn't create price conflict across it. That's really very important in China being multiple channels for B2C, the B2B and O2 and then now group buying. And the second really is to have some exclusive or biased portfolios, like I mentioned, Vaseline, for instance, that is really more tuned into the shopper profile of Pinduoduo. On the other hand, we'll have something that's more suited to the [ Sogo ]. For instance, clear nail is quite big there or something that's suited to the shopper profile for Ali, for instance, our skin care brands are much more popular in Ali. So there's always a buyer that we can serve that makes us -- gives us a little bit of distance between different platforms.

Okay. I just see the time where, let's just squeeze in one last one. Can you say a bit about inflation in China and your pricing reaction to it?

Sure. I'm sure this is in the top of the mind of all the people concerned. And it's on top of our mind and one of the things that we discuss every month and every quarter in our sales and operation planning looking both outwards. In 2021, we were fortunate that we managed to through best levers. And if you look at basically margin lever, we were able to improve our margin in 2021 in the business in China because we were able to drive structurally a cost down through localization through better buying savings through longer covers and product logic, improve our mix, which has really been a very important driver of sales and growth by a significant percentage this year. And in a sense, they have to neutralize the price inflation, especially in the first half, it was not so much in the second half. We did see that coming through, but we were able to -- we think we will be able to manage that well this year. But having said that, we do know that based on the inputs -- global inputs, the inflation is likely to get even more extreme in the year to come, and we have prepared for that. We are constantly looking at our pricing analytics and what we have, what you call net revenue management muscle and we are ready and we will be designing and deploying in time. We're very, very close to what's happening in the market. In some cases, we believe, in some cases, we follow. But this is something that we do all the time. This is really -- it's a very strong muscle both on the cost end and the mix end and the price landing in designing and in the company, it's really top of the mind.

Thank you, Rohit. Right, I think we're going to have to stop there. We've run over a little bit. As I remind you, everybody that the presentation will be available on our website. Thank you, everybody, for joining and dial in and especially a big thanks to you, Rohit. Thanks for your time. Thanks for a great presentation. Thanks, everyone.

Thank you. Really happy to be here. Thank you. Thanks, Richard.