Global beauty, home and personal care
A review of purposeful branding and digital efficacy
EQUITY RESEARCH | 3 SEPTEMBER 2020 For required non-U.S. analyst and conflicts disclosures, please see page 31.
Disseminated: September 3, 2020 00:15ET; Produced: September 2, 2020 21:34ET Global Consumer Staples: a review of purposeful branding and digital efficacy
RBC Europe Limited Emma Letheren Global Consumer Staples: a review of purposeful branding and digital efficacy (Equity Analyst) +44 20 7002 2100 Beauty, home and personal care [email protected] Our view: We consider the ESG credentials and digital efficacy of 66 beauty and HPC brands in this follow up to our report Global Consumer Staples: James Edwardes Jones a review of digital efficacy which reviewed the digital capabilities of 58 food brands. We have looked at the use of purposeful marketing at the brand (Equity Analyst) level and used Refinitiv for company-level judgements. Our conclusions: 1) a brand’s online ‘buzz’ seems minimally correlated to its purposefulness, +44 20 7002 2101 [email protected] at least for now; 2) with the exception of Unilever, high corporate ESG scores are not reflected in positioning at the brand level. We believe that it will take time for purposeful marketing to influence brand equity and expect to see brand purpose become increasingly relevant to consumers as we RBC Capital Markets, LLC carry out further iterations of this analysis. We think our coverage companies’ failure to extend corporate-level ESG efforts to positioning and Nik Modi marketing of individual brands presents a potential opportunity for those so inclined. (Equity Analyst) (212) 905-5993 [email protected] The online consumer isn’t recognising ongoing ESG efforts. - Unilever has found evidence that Digital Leaders Digital Laggards Steven Shemesh purposeful communication leads to better growth. However, we have found little evidence that Avon Air Wick (Equity Associate) brand purposefulness boosts online consumer sentiment and only some to say it results in ‘buzz’ (a Dermalogica Ariel (212) 428-2390 high volume of social media posts about the brand). This link may become more evident over time Estée Lauder Banana Boat [email protected] as purposefulness drives brand equity and consumers increasingly appreciate ESG. Fenty Beauty Cascade Mehra Romezi With the exception of Unilever, corporates scoring well in terms of ESG are not using purposeful Kylie Cosmetics Cillit Bang (Equity Associate) marketing consistently at brand level. – There is a disconnect between investor and consumer MAC Domestos (212) 266-4099 NYX Downy/Lenor [email protected] communication. This could be an opportunity: we have not found evidence that consumers are Olay Mr Muscle recognising brands’ purposefulness but expect this to change over time given the importance of ESG Sara Mahaffy Seventh Generation Oral-B (US Equity Strategist) considerations to many consumers. Tarte Rexona/Degree (212) 618-7507 Disruptors are showing the way. As we found in our food edition, the smaller, more agile disruptors Urban Decay [email protected] are significantly more digitally competent than their incumbent peers. These include Dermalogica, Seventh Generation and Kylie Cosmetics. Little correlation between purposeful branding and online strength Priced as of market close on 1 September 2020 Acquiring the winners: expensive and not necessarily replicable. - (unless otherwise stated). Many of the digitally impressive disruptors have been acquired by All values in EUR unless otherwise noted. the larger companies we cover. We see little evidence that the incumbents have managed to extend these capabilities to the rest of their business with the exception of L’Oréal and Estée Lauder. Lockdown woes. Buzz and sentiment fell during lockdown. We haven’t found any correlation between brand performance in lockdown and digital capabilities pre-lockdown. We infer that consumers were too distracted for existing digital marketing and e- Purpose rankings commerce efforts to pay off. 1 – low purpose 2 – moderate 3 – strong purpose Cosmetics brands enjoy the best digital capabilities. Sources: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets
3 September 2020 2 Global Consumer Staples: a review of purposeful branding and digital efficacy
Table of contents Acceleration in the shift to digital ...... 4 ESG factors rising in importance ...... 5 Methodology ...... 6 Does purposeful marketing matter? ...... 7 Category summary ...... 8 Cosmetics ...... 9 Skincare ...... 10 Hair Care ...... 11 Personal Care ...... 12 Oral Care ...... 13 Home Care (1) ...... 14 Home Care (2) ...... 15 Company analysis ...... 16 Beiersdorf (Sector Perform, price target EUR 98) ...... 17 Edgewell Personal Care (Outperform, price target USD 36) ...... 18 Estée Lauder (Outperform, price target USD 240) ...... 19 L’Oréal (Sector Perform, price target EUR 203) ...... 20 Procter & Gamble (Sector Perform, price target USD 128) ...... 21 Reckitt Benckiser (Underperform, price target GBP 64) ...... 22 Unilever (Underperform, price target EUR 42/GBP 37) ...... 23 Henkel, Church & Dwight, Clorox and Colgate-Palmolive ...... 24 Valuation summary ...... 25 Appendix: Methodology ...... 26 Appendix: Purpose rankings I ...... 27 Appendix: Purpose rankings II ...... 28 Elements ...... 29 Required disclosures ...... 30
3 September 2020 3 Global Consumer Staples: a review of purposeful branding and digital efficacy
Acceleration in the shift to digital It is no secret that technology has dramatically changed the way we select, purchase Exhibit 1: Worldwide marketing spend is shifting to digital from traditional and consume goods. According to eMarketer, digital advertising now represents 50% 70% 600 of total media spending and is projected to reach 61% by 2023. E-commerce is also Digital ad spending (USDbn) 550 becoming increasingly prevalent and represented 16% of US retail sales in 2019. % of total media spending 65% The COVID-19 pandemic has accelerated this shift to digital. Not only were many 500 traditional methods of advertising limited in lockdown (billboards aren’t too 60% 450 effective if no one walks past them) but many traditional points-of-sale were closed. 400 In the UK, online sales rose 18% in April according to ONS, sending the proportion spent online to its highest on record. In the US the e-commerce channel experienced 55% 350 the same amount of growth over 10 weeks of lockdown that it had enjoyed over the % of total media spend media total of % 300 previous 10 years (L’Oréal CEO, Deutsche Bank Consumer Conference, 9 June 2020). 50% 250 Although this shift should partially reverse as retailers re-open and safety concerns (USDbn) spend advertising digital Global are alleviated, we think it is unlikely that this recent shift will ever completely 45% 200 2019 2020E 2021E 2022E 2023E 2024E unwind. Consumers new to e-commerce have been exposed to its convenience and choice. Those trying new brands due to strong online advertising during lockdown Source: eMarketer June 2020 report, RBC Capital Markets may never revert back to their old choices.
Our first edition in this series endeavoured to gain insight into 58 food brands’ digital Exhibit 2: E-commerce penetration of the retail channel has accelerated due to lockdown capabilities. The conclusion was clear - the smaller, more agile disruptors were significantly more digitally advanced than their incumbent peers. In this edition, we 30% have focused on 66 beauty, home and personal care brands. These categories have been particularly affected by the ongoing pandemic due to: 1) accelerated focus on 25% hygiene, and 2) temporary closure of the physical retail channel. In this report, we not only draw a similar conclusion to our food edition, namely that many of our 20% covered companies have lots of catching up to do, but also that the store closures and marketing cuts during lockdown materially affected sentiment and buzz online, 15% even when a brand had strong digital capabilities pre-lockdown. Lastly, relative 10%
positioning stayed pretty much constant – digital winners pre-lockdown also had penetratoion commerce - strong sentiment and buzz during lockdown. % channel, retail of the
US e US 5%
0% 2012 2013 2014 2015 2016 2017 2018 2019 Apr-20
Source: L’Oréal Group, RBC Capital Markets
3 September 2020 4 Global Consumer Staples: a review of purposeful branding and digital efficacy
ESG factors rising in importance It is well documented that ESG has become increasingly important to investors in Exhibit 3: Sustainable investing has increased significantly over the last 12 months recent years. Our ESG Strategist, Sara Mahaffy, notes that inflows into her universe of dedicated ESG funds (Morningstar tracked global, US, and sector-focused equity 25,000 funds with >20% of their holdings invested in US stocks, that have a clear & heavy emphasis on sustainable investing practices) have been picking up over the last few 20,000 years. Inflows have been strong for both actively and passively managed ESG funds. 15,000 In 2Q20 inflows reached new highs. Performance has been an important driver of (USDm) this - actively managed ESG funds have posted better relative fund performance than 10,000 traditional actively managed equity funds in 2019 and 2020 YTD. This has repercussions for our consumer staples coverage – US consumer staples with higher 5,000 ESG scores have been outperforming since 2014.
Quarterly Net Flows Quarterly 0 Universe of Sustainable Equity Funds: Equity of Sustainable Universe “Talking is not enough, it is critical that brands take action and demonstrate their -5,000 commitment to making a difference.” – Alan Jope, Unilever CEO, Deutsche Bank Global Consumer Conference, 11 June 2019.
Source: RBC US Equity Strategy, Morningstar We think ESG factors are also increasingly relevant to the consumer. Unilever claims to have collected “extremely strong data on the link between both purposeful communication and short- and long-term growth” (Unilever CEO Alan Jope, FY19 Exhibit 4: Sustainable funds have outperformed traditional funds results call). Indeed in 2018 its Sustainable Living brands (‘those taking action to support positive change for people and the planet’) grew 70% faster than the rest of 60% Unilever’s business. Others are also waking up to the opportunity – according to 50% Colgate’s CEO, “consumers continue to be extremely interested in purpose-driven brands, particularly brands with a strong sustainability profile” (2Q20 call, 31 Jul ‘20). 40%
To gain some insight into each brand’s ESG capabilities we have ranked each brand 30% on how “purposeful” their marketing is (see Appendix). We stress that this was based on our assessment of the brands’ positioning; as financial analysts we don’t claim to 20% be experts in purposeful marketing. We were surprised to find that those of our coverage companies which score highly on ESG (according to Refinitiv) do not also 10% have consistent purposeful marketing across their brands (except for Unilever). In benchmark the beating funds of % addition, we found limited correlation between purpose and popularity with the 0% 2017 2018 2019 2020 YTD online audience. We expect this link to grow over time. Active Sustainable Equity Funds Active Traditional Equity Funds
Source: RBC US Equity Strategy, Morningstar
3 September 2020 5 Global Consumer Staples: a review of purposeful branding and digital efficacy
Methodology We set out to assess the digital marketing efficacy, online presence and purposeful Exhibit 5: The data sources used by Crimson Hexagon branding power of key beauty, home care and personal care brands. Doubtless our data is less comprehensive than that which the brand owners themselves have Reviews access to. However, we do think that it has enabled us to draw some interesting 4% conclusions. If the brand owners disagree, we hope they will let us know. Reddit Youtube 5% 1% We have selected 66 brands, a mixture of incumbent leaders and Forums disruptive/emerging brands. We avoided selecting brands with names that have 10% multiple meanings in order to ensure an accurate analysis. For example, we did not include P&G’s Tide brand as the results would have included many irrelevant posts relating to the sea. Tumblr 11% In partnership with our data science team, RBC Elements, we have considered online Twitter consumer sentiment and brand buzz using social media data vendor 58% Crimson Hexagon. To get an understanding of purely consumer interest we only News included social media posts made by individuals in this analysis and removed 11% company channels. We were also restricted to English-language posts so that we could check our findings. E1 Source: Crimson Hexagon, RBC Elements, RBC Capital Markets Crimson Hexagon labelled each social media post as positive, neutral or negative sentiment. To understand online brand popularity, we calculated net consumer sentiment: % of positive posts – % of negative posts. In an effort to sense check our results, we have compared them with Gartner’s Digital IQ 2019 We measured ‘brand buzz’ by the overall volume of social media posts. To make US Indices (and 2020 where possible). Gartner is a business intelligence firm which ranks brands the data comparable we weighted our volume data by brand size which we based on their digital competence in e-commerce, social media marketing and mobile platforms. obtained from Euromonitor. For a normalised result, we looked at sentiment and post volume over the 12 In order to gain some understanding of how each brand’s engagement is influenced by months pre-lockdown: 1 April 2019 - 31 March 2020. We also looked at consumers’ increasing ESG focus, we have also given each brand a ‘purpose’ score: 1, 2 or 3 (3 lockdown sentiment, which we assume is the period 1 April – 30 June 2020. being the highest purpose ranking). We determined this simply by reviewing their websites and In addition, we considered year-on-year momentum. Lockdown momentum is looking for emphasis of environmental or social/charitable purpose (our analysis doesn’t reach the change in sentiment/ buzz from Apr-June 2019 to Apr-June 2020. the “G” in ESG). This may seem simplistic, but replicates the way a consumer would get an impression of a brand’s ‘purpose’ in our view (assuming any purpose highlighted on the website Our Digital Leaders (and Laggards) as presented on the front page have to screen is mirrored in its other social media channels). From page 16 on we look at our results by well (or badly) on both consumer sentiment and brand buzz. Sentiment must be company and compare our purpose scores to Refinitiv’s overall corporate ESG scores. We have above 15 (below 5) and weighted volume of posts over 120 (below 50). organised the 16 public companies in our analysis into quartiles by their ESG score to get an idea The data generated by Crimson Hexagon was mainly from Twitter, Tumblr and of their relative positioning (see Exhibit 7). Please see the Appendix for further detail on our News sites, as demonstrated in Exhibit 5. methodology or reach out if you have any queries.
E Learn more about RBC Elements on page 29. 3 September 2020 6 Global Consumer Staples: a review of purposeful branding and digital efficacy
Does purposeful marketing matter? Given the growing importance of ESG factors to investors, we thought it would be Exhibit 6: Consumer sentiment and buzz by purpose ranking (April 2019 – March 2020) interesting to see whether this was reflected at the consumer level. We introduce 50 the purpose rankings: we’ve ranked each brand between 1 and 3 depending on how 12 months pre-lockdown purposeful a brand’s marketing is. For example, we rank Colgate with the highest 40
purpose score of 3 due to involvement in charitable campaigns such as ‘Bright Smiles, % N),
- 30
Bright Futures’ which has given over 850 million children free dental screening and 20 education. 10 Weighted volume of posts Of course, this does not encompass everything – we haven’t looked at the “G” in ESG 0 or the top sustainability issues for consumer goods according to SASB (product 0 100 200 300 400 500 -10 quality, design and supply chain management). This is merely our first tentative step -20 towards understanding our coverage companies’ ESG capabilities. Our conclusions Purpose rankings Net consumer sentiment (P sentiment consumer Net Click on the relevant data are as follows: -30 1 – low purpose points to go to an overview 2 – moderate -40 of that category 3 – strong purpose Brands with strong to moderate purpose had a slightly better buzz on average:
174 vs 158 (average weighted volume of posts for our analysis excluding Lysol Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets and Fenty Beauty whose >1000 scores distort the average). Most brands which had really strong buzz are also purposeful. Eight brands Given this is our first look at the ESG capabilities were off the chart (Exhibit 6) and five of these ranked moderate or strong. Exhibit 7: Corporate ESG scores of our coverage, we have taken Refinitiv’s We didn’t find a link between brand purposefulness and online sentiment. Top corporate-level ESG scores for comparison. We Colgate-Palmolive Co Quartile We didn’t find correlation between lockdown momentum and purpose score. have access to ESG scores for the 16 public GlaxoSmithKline PLC Reckitt Benckiser Group PLC companies in our analysis and organised these Unilever NV Either consumers don’t significantly favour brands with a strong purpose or the into quartiles. 2nd L'Oreal SA existing purposeful positioning is yet to register with them. We think the latter is Quartile Out of our coverage, Colgate-Palmolive, Procter & Gamble Co more likely given some purposeful brands did rank very strongly in sentiment and Johnson & Johnson buzz – we can assume these brands have made a big enough deal of their efforts to Unilever and Reckitt Benckiser came out top. Yet Henkel AG & Co KGaA the consumer. For example, Tarte cosmetics (one of our Digital Leaders) has a well- at the brand level, we only found consistent 3rd LVMH Quartile publicised reputation for using sustainable, vegan-friendly ingredients and purposeful marketing for Unilever –although we The Clorox Company processes. On the other hand, is Colgate viewed as an ethical toothpaste brand? We maintain our Underperform rating, this definitely Church & Dwight Co Inc Shiseido Co Ltd think it takes time and effort for purposefulness to be widely appreciated by gives us food for thought. Colgate scored well Bottom consumers and inform part of a brand’s equity. but we only looked at one brand. We think there Beiersdorf AG Quartile is an opportunity here for our coverage to better Edgewell Personal Care Co We also conclude that purposeful marketing does not directly result in strong online Kosé Corp reflect their ESG efforts at the brand level as we Estee Lauder Companies Inc sentiment and buzz - there are other factors at play. For example, Dollar Shave Club do think it matters to consumers, and lies off the chart in Exhibit 6 with a weighted volume of posts of 609. We found little increasingly so. Source: Refinitiv purposeful marketing however its strong digital capabilities are well-documented. 3 September 2020 7 Global Consumer Staples: a review of purposeful branding and digital efficacy
Category summary Cosmetics was the clear overall category winner. In the 12 months preceding Exhibit 8: Consumer sentiment and brand buzz (April 2019 – March 2020) lockdown it had the strongest average buzz and sentiment around its brands. We think this makes sense – companies like L’Oréal and Estée Lauder are 40 amongst the biggest spenders in marketing in our global coverage and have Click on the relevant data points to go to an 12 months pre-lockdown invested heavily behind their digital capabilities. It is also an exciting, colourful, overview of that category
varied category, so creating a buzz amongst consumers is easier in our opinion. % N),
- 30 The more staple-like categories of Oral Care, Home Care and Personal Care Cosmetics screened relatively poorly. 20 During lockdown, all categories saw a reduction in consumer sentiment relative Hair Care to the same period 12 months before. For the 66 brands covered, consumer Skincare sentiment declined 6 percentage points yoy on average. Is this due to mentions of COVID-19 skewing sentiment? With the exception of Home Care, we don’t 10 Oral Care Home Care think so - we scanned through some of the negative posts and rarely found a Personal Care Net consumer sentiment (P sentiment consumer Net Weighted volume of posts COVID-19 mention. We wonder if lockdown had a general negative impact on 0 people’s mood and this had repercussions for brand sentiment. 0 100 200 300 400 500 Home Care is very different. The huge uptick in post volume and deterioration Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets in sentiment found was very much linked to COVID-19. For example, jokes about President Trump’s comments on injecting disinfectant and fears over stockpiling. We suspect that Crimson Hexagon has overstated negativity here and that the Exhibit 9: Lockdown momentum (April - June 2019 to April - June 2020) overall momentum for Home Care was positive given elevated attention on cleaning products during lockdown to prevent contagion of the virus. That said, 5 we’re unsure this momentum is sustainable long term. Lockdown Change in weighted volume of posts For most categories, brand buzz declined yoy during lockdown. This makes sense 0 as, although consumers had more time to use social media whilst stuck at home, -40% -20% 0% 20% 40% 60% 80% 100% brand owners were making significant cuts in marketing, many points of sale Oral Care Personal Care -5 Hair Care were closed and consumers had other things on their mind. Skincare
As well as Home Care, Hair Care brands saw much more positive momentum in -10 Home Care post volume. Scanning through posts, it seems the closure of hair salons revived Cosmetics Net consumer sentiment: -5 interest in, or at least conversation relating to, the consumer hair care category. -15 Weighted volume of posts: 537% Absolute change in So, what does our analysis tell us about the demand outlook for the HPC net consumer industry? We found 16m posts about 66 HPC brands in the 12 months preceding -20 sentiment (P-N), % lockdown. During the 3-month lockdown period we found 7m. The posting rate almost doubled. We think we can infer that interest in HPC brands held up. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets
3 September 2020 8 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Avon (Avon Products) Estée Lauder (Estée Lauder) Fenty Beauty (Fenty Corp/LVMH) Kylie Cosmetics (Kylie Jenner Inc/Coty) 1 – low purpose Lancôme (L’Oréal Group) L’Oréal Paris (L’Oréal Group) MAC (Estée Lauder) Maybelline (L’Oréal Group) 2 – moderate NYX (L’Oréal Group) Tarte (Kosé Corp) Urban Decay (L’Oréal Group) 3 – strong purpose Cosmetics Exhibit 10: Consumer sentiment and brand buzz (April 2019 – March 2020) As already mentioned, Cosmetics was the category winner by far in terms of relative digital capabilities in the 12 months pre lockdown. In fact, 8 out of 11 50 12 months pre-lockdown Tarte of our overall “Digital Leaders” are in this category. Cosmetics continued to MAC Kylie Cosmetics
lead throughout lockdown as well with the category enjoying the best 40 N), % N), consumer sentiment and second best buzz out of all the categories. - Fenty Beauty Net consumer sentiment: 31 In terms of overall digital prowess pre-lockdown (Exhibit 8) Kylie Cosmetics, 30 Lancôme Avon Urban Decay Weighted volume of posts: 1286 Fenty Beauty and NYX looked particularly impressive, however Tarte, Urban NYX Decay, Avon and Maybelline as well all had above average brand buzz. In 20 L'Oréal Paris addition, every Cosmetics brand we looked at enjoyed above average Estée Lauder consumer sentiment. 10 Maybelline
Generally the newer, disruptive brands Tarte, Fenty Beauty and Kylie (P sentiment consumer Net Weighted volume of posts Cosmetics screened particularly favourably in this analysis relative to legacy 0 0 200 400 600 800 1000 brands owned by consumer staples incumbents (although Kosé Corp, LVMH and Coty have now grabbed a piece of the action with the acquisition of Tarte Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets and stakes in Fenty Beauty and Kylie respectively). These brands have
exceptionally strong digital marketing – Fenty Beauty and Tarte scored joint Exhibit 11: Lockdown momentum (April – June 2019 to April - June 2020) third in Garner’s Digital IQ 2019 Beauty Index and Kylie Cosmetics is marketed by Kylie Jenner, a top Instagram influencer. We also note Tarte and Fenty Absolute change in 20 Lockdown Beauty’s strong purpose scores – both have strong cruelty-free branding and Kylie Cosmetics net consumer are sponsors of various charitable causes. sentiment (P-N), % 10 Change in weighted Lancôme volume of posts We think there is some correlation between our purpose rankings and 0 consumer sentiment in this category with top scoring purposeful brands MAC, -60% Tarte -40% -20% Avon 0% 20% 40% Urban Decay -10 Lancôme, Tarte and Fenty Beauty all having really strong consumer sentiment NYX Estée Lauder scores. -20 MAC Maybelline L'Oréal Paris During lockdown, the relative positioning of the brands did not vary much. The -30 Net consumer sentiment: -44 buzz around L’Oréal Paris increased significantly versus the period 12 months Weighted volume of posts: 117% before however this was mostly reflected in negative press comments around -40 the time of the #Blacklivesmatter protests and disappointment with its new Fenty Beauty -50 anti-aging products. Lancôme held up best. Our results for Fenty Beauty have been distorted by #Blacklivesmatter posts Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets (numerous angry posts showed up as negative) however also include some poor product reviews.
3 September 2020 9 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Banana Boat (Edgewell Personal Care) Clinique (Estée Lauder) Coppertone (Beiersdorf) Dermalogica (Unilever) 1 – low purpose Eucerin (Beiersdorf) Garnier (L’Oréal Group) Hawaiian Tropic (Edgewell Personal Care) Kiehl’s (L’Oréal Group) 2 – moderate La Prairie (Beiersdorf) La Roche-Posay (L’Oréal Group) Nivea (Beiersdorf) Olay (P&G) Shiseido (Shiseido) 3 – strong purpose
Skincare Exhibit 12: Pre-lockdown consumer sentiment and brand buzz (April 2019 – March 2020) Skincare had the next best overall category performance pre- and during lockdown. Brands such as Dermalogica and Olay performed the best but 30 12 months pre-lockdown Shiseido and Clinique also had healthy sentiment and buzz over both periods. Kiehl's 25
Clinique and Olay also scored well in Garner’s Digital IQ 2019 Beauty Index. This Nivea Olay
N), % N), - is impressive for such big, established brands. 20 Shiseido Dermalogica Estée Lauder and L’Oréal’s peer-leading investments behind digital have paid Net consumer sentiment: 16 15 off – their brands screened relatively well. We also think they have successfully Clinique Weighted volume of posts: 776 Garnier managed to extend acquired brands’ digital capabilities. 10 Coppertone La Roche-Posay We can’t say the same for Edgewell Personal Care and Beiersdorf however. It 5 Hawaiian Tropic La Prairie seems that Beiersdorf is yet to revive recently acquired brand Coppertone. Eucerin Edgewell’s Banana Boat looked particularly weak – the only skincare brand to
Net consumer sentiment (P sentiment consumer Net 0 have negative sentiment over the period. During lockdown, things continued to 0 50 100 150 200 250 decline for both these brands. Both brands also scored poorly in Garner’s Digital -5 Banana Boat Weighted volume of posts IQ 2019 Personal Care Index: Banana Boat was ranked 68th and Coppertone 66th. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets We find some correlation between purposeful rankings and relative digital winners. We found strong consumer sentiment for highly ranked Dermalogica, Kiehl’s and Dermalogica. Banana Boat and La Prairie were the exceptions here. Exhibit 13: Lockdown momentum (April – June 2019 to April - June 2020) Lockdown momentum in Skincare was more mixed than it has been for other Dermalogica 10 Lockdown categories (for example Cosmetics where most brands had a negative Clinique trajectory). It seems the category has been more resilient to the cuts in Olay 5 marketing and store closures. Given the Cosmetics occasion is usually for those Shiseido Change in weighted Nivea volume of posts leaving the house, it makes sense Skincare performed better here. We note 0 those with relatively strong digital capabilities pre-lockdown managed to -70% -50% -30% -10% 10% 30% 50% 70% maintain this in lockdown. -5 La Roche-Posay Eucerin Nivea managed to remain stable during lockdown in terms of momentum – a Banana Boat Garnier feat only 10% of brands in our analysis managed. -10 Hawaiian Tropic Prestige beauty particularly suffered due to department store, travel retail and La Prairie Coppertone -15 Absolute change in beauty store closures. La Prairie and Kiehl’s saw strong negative momentum yoy net consumer despite okay online positions prior to lockdown. Kiehl's -20 sentiment (P-N), %
Sun care names were particularly affected during lockdown due to travel Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets restrictions whilst the dermocosmetics names have held up.
3 September 2020 10 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Elsève/Elvive (L’Oréal Group) Head and Shoulders (P&G) Kérastase (L’Oréal Groupe) Pantene (P&G) 1 – low purpose Schwarzkopf (Henkel) Sunsilk (Unilever) TREsemmé (Unilever) 2 – moderate 3 – strong purpose Hair Care Within Hair Care, digital capabilities were not as strong as in other categories. Exhibit 14: Consumer sentiment and brand buzz (April 2019 – March 2020) All brands apart from Schwarzkopf exhibited below average brand buzz (and for 40 Schwarzkopf the additional buzz was tempered by a slightly negative brand Kérastase 12 months pre-lockdown sentiment score). We think there’s room to generate more excitement around 35 30 the brands with additional digital marketing given most brands have healthy % N), - Pantene sentiment scores. 25 20 Elsève/Elvive Pantene was the relative digital winner with both strong sentiment and brand Sunsilk buzz. We also note especially strong buzz and a healthy sentiment score for 15 TRESemmé TRESemmé. Both brands maintained a positive consumer sentiment trajectory 10 Head and Shoulders during lockdown although any buzz was materially diminished. In addition, of 5 Weighted volume of posts the brands we looked at, Pantene and TRESemmé scored the highest in 0
Gartner’s Digital IQ 2019 Hair Care & Colour Index. (P sentiment consumer Net 0 50 100 150 200 250 300 -5 Schwarzkopf As we found in Skincare, the brands which enjoyed strong digital capabilities -10 pre-lockdown were able to maintain positive sentiment momentum during lockdown – Pantene and TRESemmé here. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets Schwarzkopf comes across as the relative digital loser. Whilst we found a lot of posts about the brand, the tone behind these posts was mostly negative. Exhibit 15: Lockdown momentum (April – June 2019 to April - June 2020) Sentiment further deteriorated under lockdown. We think this brand would benefit from a portion of the increased investment set out by Henkel. Absolute change in 40 Lockdown net consumer sentiment (P-N), % Head and Shoulders Despite being a digital laggard in the 12 months pre-lockdown, Head and 20 Net consumer sentiment: 31 Shoulders gained significant momentum during lockdown. Marketing in markets TRESemmé Weighted volume of posts: 655% Pantene Sunsilk such as the Philippines and favourable product reviews seem to have driven this. 0 Despite this momentum however, we note that its overall relative positioning in -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% lockdown remained weak with brand buzz remaining behind the others. Schwarzkopf Change in weighted volume of posts -20 Kérastase We found a distinct lack of correlation between purpose rankings and digital capabilities here. Nor was there a link between each brand’s purpose rankings -40 and lockdown momentum - highly scored Sunsilk and TRESemmé (note both Elsève/Elvive -60 Unilever brands) have opposite directions of momentum. We note that none of the brands we looked at made the top ten for Gartner’s Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets Digital IQ 2019 Hair Care & Colour Index. Schwarzkopf, Kérastase and Head and Shoulders screened particularly poorly in the index at 57, 41 and 36 respectively. We note Sunsilk and Elsève/Elvive were not featured.
3 September 2020 11 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Axe/Lynx (Unilever) Bath & Body Works (L Brands) Dollar Shave Club (Unilever) Durex (Reckitt Benckiser) 1 – low purpose Gillette (P&G) Harry’s (Edgewell Personal Care) Johnson’s (Johnson & Johnson) Old Spice (P&G) 2 – moderate Rexona/Degree (Unilever) Schick (Edgewell Personal Care) Veet (Reckitt Benckiser) 3 – strong purpose Personal Care Exhibit 16: Pre-lockdown consumer sentiment and brand buzz (April 2019 – March 2020) We found strong buzz within the Personal Care category – we had to extend the axis further given multiple brands were ‘off the chart’ (>300 weighted volume). 30 12 months pre-lockdown We only had to do this for 3 categories. 20% of all ‘off the chart’ brands were in Durex
personal care. 20 N), % N),
- Bath & Body Works Harry's That said, net consumer sentiment was relatively low for the category - only 1% 10 Schick on average (vs 11% for the total analysis). It seems that interest is easily Johnson's Dollar Shave Club Veet Weighted volume of posts generated, but enthusiasm is harder to come by. 0 Old Spice Relative digital winners pre-lockdown include Harry’s, Bath and Body Works 0 100 200 300 400 500 600 700 800 900 and Schick which had both strong buzz and relatively good sentiment. Unilever’s -10 Gillette Rexona/Degree and Axe/Lynx were the category’s digital laggards. -20 Rexona/Degree We were surprised not to find better sentiment around Dollar Shave Club (P sentiment consumer Net however it is positive to see the brand continue to generate a strong buzz -30 Axe/Lynx (although we do note that compared to the previous 12 months, post volume has deteriorated by 40%). Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets With the exception of Old Spice, the most interest and noise was for the male grooming brands: Gillette, Dollar Shave Club, Schick and Harry’s. This was Exhibit 17: Lockdown momentum (April – June 2019 to April - June 2020) maintained throughout lockdown as well with the male grooming brands exhibiting double or triple the weighted post volume of the other brands. In 30 Absolute change in Lockdown Rexona/Degree net consumer regards to Gartner’s Digital IQ 2019 Personal Care Index, Gillette was the highest sentiment (P-N), % ranked brand we looked at coming in 2nd (Garner does not take online sentiment 20 Dollar Shave Club into account). Gillette 10 We found no correlation between online strength and our purpose rankings in Bath & Old Spice Body Works Personal Care. In fact, all the brands that exhibited overall negative sentiment 0 in the 12 months pre-lockdown had really strong purpose rankings. Either, -100% -75% -50% -25% 0% 25% 50% Change in weighted Axe/Lynx Schick consumers don’t care (we think this is unlikely) or any purposeful marketing and -10 charitable efforts aren’t reaching consumers attention yet. volume of posts Veet Harry's Johnson's Durex -20 Durex was the worst performer during lockdown in terms of buzz and
sentiment. This came across in terms of sales according to Reckitt Benckiser in Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets its HY20 results.
3 September 2020 12 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Colgate (Colgate-Palmolive) Crest (P&G) 1 – low purpose Listerine (Johnson & Johnson) Oral-B (P&G) 2 – moderate Sensodyne (GlaxoSmithKline) 3 – strong purpose Oral Care Exhibit 18: Consumer sentiment and brand buzz (April 2019 – March 2020) We didn’t find much buzz around Oral Care, as we might have expected from such a staple-like category. Consumer sentiment was also below average 20 (Oral Care scored 8% on average vs 11% for all 66 brands). This is in stark 12 months pre-lockdown contrast to Gartner’s Digital IQ 2020 Personal Care Index which ranked most of
15 N), % N), the brands in its top 10. We think the brands have developed strong capabilities - Colgate in terms of e-commerce and digital marketing, but getting consumers Sensodyne sufficiently excited about toothpaste to write on social media is a challenge. 10 Listerine No Oral Care brands made it onto our front page Digital Leaders list. However Crest 5 in relative terms, we think Colgate screened okay. Gartner’s Digital IQ 2020 Personal Care Index also ranked it highly, in 6th place (up from 9th in 2019). 0 Oral-B
We note that Colgate was also the only brand within Oral Care to which we (P sentiment Netconsumer 0 10 20 30 40 50 attributed a purposeful branding score. It is involved in charitable campaigns Weighted volume of posts -5 such as ‘Bright Smiles, Bright Futures’ which has helped over 850 million children with free dental screening and education. We gave Colgate the highest purpose Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets ranking of 3. Colgate was able to maintain relatively strong sentiment throughout lockdown. Exhibit 19: Lockdown momentum (April – June 2019 to April - June 2020) As with most of the HPC brands we surveyed, brand buzz declined during
lockdown in Oral Care. On average, weighted volume was 25% below what it 5 Lockdown was a year earlier. Crest had particularly poor momentum and declined strongly in terms of sentiment and buzz. The other P&G brand that we surveyed, Oral-B, Oral-B Sensodyne also saw a large decline in brand buzz. Given a positive share performance in the th 0 period (as P&G reported on 30 July) this relative positioning surprised us. -80% -70% -60% -50% -40% -30% -20% -10% 0% 10% 20% Change in weighted volume of posts Colgate At first glance, Sensodyne managed to maintain the most stability under lockdown. However, it started from a weak position and had the second lowest Crest -5 sentiment and buzz during lockdown of its oral care peers. Gartner’s Digital IQ Listerine
2020 Personal Care Index also ranked it the lowest out of all the oral care brands Absolute change in we looked at. net consumer sentiment (P-N), % -10 Listerine was the only oral care brand surveyed to see positive momentum in brand buzz during lockdown. However, importantly, posts were largely negative. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets Net consumer sentiment over lockdown period was -12%, significantly below average lockdown sentiment of all the brands surveyed of 6%.
3 September 2020 13 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Ariel (P&G) Bounty (P&G) Cascade (P&G) Charmin (P&G) 1 – low purpose Domestos (Unilever) Downy/ Lenor (P&G) Mr Muscle (SC Johnson & Son) Omo (Unilever) 2 – moderate Persil (Unilever/Henkel) Seventh Generation (Unilever) 3 – strong purpose Home Care (1) Exhibit 20: Consumer sentiment and brand buzz (April 2019 – March 2020) Overall, the category’s consumer sentiment was weaker than we found elsewhere. The Home Care brands (including those on the next page) held an 30 12 months pre-lockdown average net sentiment of 3% for the 12 months before lockdown and -2% during Persil (vs 11% and 6% on average for all brands surveyed). We reviewed many of the 20
N), % N), Seventh Generation posts labelled ‘negative’ by Crimson Hexagon and suggest treating these results - Net consumer sentiment: 37 with caution. We found several posts with exclamations about stains or spills, Weighted volume of posts: 186 10 expressions of fear about COVID-19 or concerns about stockpiling that, although Ariel Omo Downy/Lenor of negative sentiment, were not talking negatively about the brand. We think Cascade Domestos Weighted volume of posts overall sentiment was actually more positive given greater focus on hygiene. 0 0 10 20 30 40 50 60 70 80 90 100 Buzz around Home Care was poor: 8 out of 10 of our overall Digital Laggards are Charmin Bounty
in this category. If we pushed up sentiment a bit, this would still be the case. -10 Net consumer sentiment (P sentiment Netconsumer There was one stand-out digital capability. In the 12 months pre-lockdown Mr Muscle -20 Unilever’s Seventh Generation, one of the overall Digital Leaders in our analysis, had impressive sentiment as well as brand buzz. Out of all the home care brands Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets that also scored positively in terms of sentiment, it had the strongest buzz. It also scored a high purpose ranking. The other high scorers in terms of purpose, Cascade, Omo and Domestos (the latter two also owned by Unilever) didn’t fare Exhibit 21: Lockdown momentum (April – June 2019 to April - June 2020) as well as Seventh Generation. 50 Absolute change in Lockdown Buzz around Home Care increased significantly under lockdown thanks to 40 net consumer Downy/Lenor 30 sentiment (P-N), % Domestos increased attention on cleanliness in the home to reduce the spread of Net consumer sentiment: 42 COVID-19. In fact, only 13 brands saw a > 50% rise in weighted volume of posts 20 Weighted volume of posts: 518% Change in weighted 10 and 9 of these were in Home Care. Dettol, Domestos, Clorox, Lysol and Mr volume of posts Persil 0 Muscle saw particularly strong momentum, exacerbated by President Trump’s Bounty -100% -10 0% 100% 200% comments about injecting disinfectant to cure COVID-19. We expect the buzz Charmin Mr Muscle Cascade -20 Omo around these brands to moderate from such high levels although we expect Seventh Generation -30 elevated attention around Home Care to continue in the near term. We note Ariel this momentum was not due to any improvement in brand digital capabilities. -40 Net consumer sentiment: -41 -50 Weighted volume of posts: 1380% -60 Domestos’ positive trajectory in consumer sentiment under lockdown was particularly impressive given (as explained earlier) the category’s sentiment has Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets been dragged down by non-brand specific factors. Ariel scored particularly badly pre-lockdown and we note particularly dramatic moves under lockdown. We found very few posts for Ariel.
3 September 2020 14 Global Consumer Staples: a review of purposeful branding and digital efficacy
Brand ownership Purpose rankings Air Wick (Reckitt Benckiser) Arm & Hammer (Church & Dwight) Bref (Henkel) 1 – low purpose Cif/Jif (Unilever) Cillit Bang (Reckitt Benckiser) Clorox (Clorox) 2 – moderate Dettol (Reckitt Benckiser) Febreze (P&G) Lysol (Reckitt Benckiser) 3 – strong purpose Home Care (2) Exhibit 22: Consumer sentiment and brand buzz (April 2019 – March 2020) Only a few Home Care brands showed any sort of buzz in the 12 months before lockdown. We’ve already mentioned Seventh Generation, but Lysol and Clorox 50 Bref 12 months pre-lockdown also looked impressive. Given our pre-lockdown period does include March (so 40 some COVID-19 noise), we had a look at each brand’s buzz in the period
N), % N), 30 February 2019 – January 2020 to try to exclude the impact of President Trump’s - comments and COVID-19. We still found very strong brand buzz for Clorox, Lysol 20 and Seventh Generation. We don’t think it’s irrelevant that these three brands 10 Arm & Hammer also scored highly in terms of purposeful branding. Clorox also scored the top Air Wick Dettol Weighted volume of posts 0 spot in Gartner’s Digital IQ 2019 Home Care Index. Cillit Bang 0 100Cif/Jif 200 300 400 500 600 700 -10 Clorox As well as Ariel, the relative laggards in terms of digital capabilities pre-lockdown Febreze seem to be Cillit Bang, Air Wick, Arm & Hammer. -20 Lysol
Net consumer sentiment (P sentiment consumer Net Net consumer sentiment: -16 -30 We also found hardly any buzz around Bref. This is partly a geographical problem Weighted volume of posts: 1386 -40 – Bref’s top markets do not include the US or UK (markets that our analysis of English-language posts is skewed to). This is also the case with Omo. That said, Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets we think Henkel has been underinvesting in its brands for a long time so would have been surprised to find anything but poor results in our analysis. Exhibit 23: Lockdown momentum (April – June 2019 to April - June 2020) Momentum under lockdown was much more positive in Home Care than in other categories. As well as the factors already mentioned, we think lockdown 30 Absolute change in Lockdown store closures were a relative advantage for the category given most Home Care net consumer sentiment (P-N), % Cillit Bang brands can be purchased in supermarkets, which were kept open. 20 Net consumer sentiment: 4 Weighted volume of posts: 3836% Cillit Bang and Lysol’s lockdown momentum were the highest out of all 66 brands. Dettol and Clorox also screened very highly. All have benefited from 10 Lysol Febreze increased attention to cleanliness in the period and this has been confirmed by Air Wick Change in weighted volume of posts the respective brand owners in terms of sales performance. Given all would have 0 been affected by the exaggerated negative skew to posts as a result of -200% 200% 600% 1000% 1400% 1800% 2200% 2600% 3000% -10 Arm & Hammer COVID-19 noise, we think the relative positioning in terms of sentiment is Dettol interesting. Reckitt Benckiser’s Lysol and Cillit Bang came out the most Cif/Jif Bref Clorox -20 favoured brands. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets
3 September 2020 15 Global Consumer Staples: a review of purposeful branding and digital efficacy
Company analysis Exhibit 24: Consumer sentiment and brand buzz by company (April 2019 – March 2020)
Unilever Edgewell Personal Care Colgate-Palmolive 50 Reckitts Estée Lauder Church and Dwight P&G Beiersdorf Clorox 40 L'Oréal Henkel Other N), % N),
- 30
20
10 Weighted volume of posts 0 0 100 200 300 400 500 600 700 800 -10
-20 Net consumer sentiment (P sentiment consumer Net
-30 12 months pre-lockdown -40
Click on the relevant data points to go to an overview of that company
Notes: Fenty Beauty, Kylie Cosmetics, NYX (L’Oréal) and Lysol (Reckitt Benckiser) are off the chart as all enjoy weighted volume of posts of over 800. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets
3 September 2020 16 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate Beiersdorf (Sector Perform, price target EUR 98) 3 – strong purpose Beiersdorf spends about 25% of its trade and advertising spend on digital, Exhibit 25: Beiersdorf consumer sentiment and brand buzz (April 2019 – March 2020) significantly less than the likes of Unilever and L’Oréal. We do think this percentage 30 is higher however when just looking at its Consumer division (and excluding its 12 months pre-lockdown adhesives business Tesa) given marketing spend is skewed towards the beauty 25
business. Nivea
N), % N), - 20 That said, Beiersdorf screened poorly relative to many of L’Oréal, Estée Lauder and P&G’s beauty brands. None of its brands screened well on both consumer sentiment 15 and brand buzz in the 12 months pre lockdown or saw overall positive momentum during lockdown. Post a margin reset in early 2019 where Beiersdorf committed to 10 Coppertone €70-80m additional investment per annum into “new markets, innovation, Eucerin La Prairie digitalization and up-skilling” (FY18 press release) we expected Beiersdorf to perform 5 a bit better in our analysis. It also set up a Venture Capital fund of €50m to invest in (P sentiment consumer Net Weighted volume of posts skin care technology, new business models and digital platforms. 0 0 50 100 150 200 250 300
We note that Nivea held up relatively well during lockdown – one of only a few Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets brands in our analysis to avoid a decline in its buzz and sentiment during the period. We think its availability during lockdown helped here. La Prairie was particularly affected due to its exposure to travel retail, department store and beauty store Exhibit 26: Lockdown momentum (April – June 2019 to April - June 2020) closures. 10 Lockdown Beiersdorf’s recent acquisition of Coppertone hasn’t revived the brand. Its pre- lockdown scores were below average. It deteriorated significantly over lockdown, Nivea Change in weighted volume of posts however global travel restrictions hit all the sun care brands in our analysis. 0 -60% -40% -20% 0% 20% 40% 60% 80% 100% In terms of purposeful marketing, we gave both Nivea and La Prairie high purpose Eucerin scores. Given Nivea is 50-60% of the business, we think this reflects positively on Beiersdorf. This is in contrast to the company’s overall ESG score calculated by La Prairie -10 Refinitiv. Beiersdorf was placed in the bottom quartile of the companies for which Coppertone we have looked at ranked ESG scores (we note we didn’t have any access to ESG Absolute change in net consumer scores for private companies therefore this just includes the 16 companies presented -20 sentiment (P-N), % on page 7). Beiersdorf’s Environmental score compared reasonably but it was dragged down by its Governance score which is not reflected in our consideration of Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets its brands’ purpose.
3 September 2020 17 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate Edgewell Personal Care (Outperform, price target USD 36) 3 – strong purpose In 2018, Edgewell Personal Care began the implementation of Project Fuel – a 3-year Exhibit 27: Consumer sentiment and brand buzz (Apr 2019 – Mar 2020) cost savings initiative intended to deliver $225-$240M of gross annual savings through FY21. While part of these savings are meant to overcome rising inflation and 20 12 months pre-lockdown other commodity costs, a good portion will be reinvested behind brands to drive
top-line growth – more specifically the management has called out recent 15 N), % N), investments in e-commerce, R&D, and optimization of media mix to prioritize - Harry's investments with the highest potential for return. It’s also worth noting that 10 Schick Hawaiian Tropic Edgewell Personal Care recently announced the hire of Eric O’Toole as the new President of North America. Mr. O’Toole has extensive experience in digital, so we 5 would expect continued progress going forward. Weighted volume of posts 0 While Edgewell Personal Care’s digital efforts span all brands across their portfolio, 0 Banana Boat 100 200 300 it seems there is a particular focus on wet shave (mainly Schick). Management has -5 recently suggested that they are moving to a new direct-to-consumer platform that (P sentiment consumer Net has more functionality and is easier to use from a consumer standpoint. They also -10 mentioned they are building out a new omni channel marketing structure and are making significant talent upgrades within that structure. Therefore we are Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets unsurprised to see Schick and Harry’s came out very well in our analysis with strong consumer sentiment and brand buzz for both brands over the 12 months prior to Exhibit 28: Lockdown momentum (April – June 2019 to April - June 2020) lockdown. 0 From an ESG perspective, Banana Boat had purposeful branding on its website -50% -30% -10% 10% 30% 50% Change in weighted volume of posts (notably a partnership with the Skin Cancer Foundation) so we gave it a high purpose Schick ranking of 3. The rest of Edgewell’s brands had made limited effort however. We are -5 therefore unsurprised that Edgewell‘s Refinitiv ESG score is in the bottom quartile. Edgewell and Estée Lauder scored the worst in terms of ESG out of our US coverage. -10 Banana Boat Hawaiian Tropic -15 Absolute change in Harry's net consumer Lockdown -20 sentiment (P-N), %
Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets
3 September 2020 18 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate Estée Lauder (Outperform, price target USD 240) 3 – strong purpose We think Estée Lauder’s Leading Beauty Forward cost-savings initiative is ramping Exhibit 29: Estée Lauder consumer sentiment and brand buzz (April 2019 – March 2020) up nicely and the company is reinvesting a significant portion of these savings into 50 brand spend, including ad/promotional investment, data analytics capabilities, 12 months pre-lockdown digital marketing, talent acquisition and IT support for consumer-facing activities. MAC 40
These investments help bring brands that are traditionally not advertised on social % N), - media up to speed with where the consumer is. 30 We are therefore unsurprised that Estée Lauder’s brands screened so well in this analysis - all enjoyed healthy sentiment and brand buzz. Even during lockdown, when 20 Estée Lauder overall consumer sentiment fell dramatically in our analysis (consumer sentiment Clinique almost halved on average) Estée Lauder stood out with an average lockdown 10 sentiment for its brands of 19%, triple the average. We think this is a testament to the company’s culture of reinvestment/brand-building. MAC looked particularly (P sentiment consumer Net Weighted volume of posts impressive and we think it’s no coincidence that this is also the brand to score the 0 0 50 100 150 200 best in terms of purposeful marketing. Post-lockdown consumer interaction fell quite dramatically, but we view that as a function of the overall environment – more Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets a category issue than brand specific issues.
COVID-19 has accelerated several trends that were already taking place, the most Exhibit 30: Lockdown momentum (April – June 2019 to April - June 2020) important being the migration to online. In 2014, we estimated that e-commerce 10 would represent 13% of Estée Lauder’s sales by 2025; in FY20, this has already Clinique Absolute change in Lockdown net consumer 5 reached 22%. Key to this has been older consumers participating in the online sentiment (P-N), % channel for the first time and/or more frequently. The shift to online includes several 0 benefits that should be sustainable for the long term at Estée Lauder: higher margins -60% -50% -40% -30% -20% -10% 0% 10% 20% Change in weighted volume of posts -5 and data. Online sales are markedly higher margin than department store sales as Estée Lauder they don’t require the cost of the beauty counter worker (Estée Lauder has -10 significantly higher SG&A margins (~60%) vs HPC (~22%) and luxury peers (~36%)). Online sales also provide more valuable insights for the company and should help -15 MAC the company more effectively engage its consumers. -20
Specifically as it relates to ESG, Estée Lauder has made contributions to support the -25 well-being of communities, including monetary and in-kind donations, hand sanitizer -30 produced at the Company’s facilities and the establishment of the ELC Cares Employee Relief Fund. That said, relative to its peers this is not yet enough – it was Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets put into the bottom quartile of Refinitiv’s ESG data for our coverage.
3 September 2020 19 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate L’Oréal (Sector Perform, price target EUR 203) 3 – strong purpose In our opinion, L’Oréal is at the forefront of digital marketing, social media and Exhibit 31: Consumer sentiment and brand buzz (April 2019 – March 2020) influencer use and technological investment within beauty. It spends 40% of its 40 media spend on digital and has racked up some impressive statistics: it reaches an 12 months pre-lockdown audience of 1 billion on its websites, has 250m social media followers on its various Kérastase Urban Decay
pages and received over 170m reviews on e-commerce platforms (according to % N),
- 30 Marketing Week). Kiehl's Lancôme
NYX We are therefore not surprised to see its brands came out favourably in our analysis. 20 L'Oréal Paris Net consumer sentiment: 26 On average, its brands’ online consumer sentiment was double that of the other Elsève/Elvive Garnier Weighted volume of posts: 850 brands. Kérastase, Urban Decay, Lancôme and Kiehl’s all screened particularly well. 10 La Roche-Posay Maybelline Many of its brands also had very strong online buzz with both NYX and Urban Decay
making it into the overall Digital Leaders in our analysis. These brands are both (P sentiment consumer Net Weighted volume of posts sizeable and material to the group. 0 0 100 200 300 400
During lockdown, buzz was mixed. Considering weighted volume declined in lockdown for over half of the brands in our analysis, negative volume momentum for Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets only 4 out of 10 brands for L’Oréal doesn’t look so bad. And this is despite aggressive cost cutting and most points of sale being closed during lockdown (we think L’Oréal Exhibit 32: Lockdown momentum (April – June 2019 to April - June 2020) was more exposed to store closures than those in oral care, personal care and home 10 Lockdown care). Lancôme Change in weighted volume of posts We highlight Lancôme which screened well in all areas - the only brand to achieve 0 -60% -40% -20% 0% 20% 40% 60% La Roche-Posay positive momentum in both buzz and sentiment during lockdown with also strong Urban Decay NYX -10 digital capabilities in the 12 months pre-lockdown and a good purpose ranking to Garnier boot. -20 Kérastase Kiehl's Maybelline L'Oréal Paris We do think we see a correlation between L’Oréal’s strongest performing brands in -30 Net consumer sentiment: -44 Exhibit 31 and its purpose rankings – NYX, Lancôme and Kiehl’s were all ranked Weighted volume of posts: 117% highly and had good online sentiment and engagement. However, these make up Absolute change in -40 only 30% of the L’Oréal brands we surveyed. For the other brands, we were unable net consumer sentiment (P-N), % -50 Elsève/Elvive to find any significant ethical purpose or charitable efforts. Refinitiv’s ESG score for L’Oréal resulted in the company placed in the 2nd quartile – this is a good score, but Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets we think there is scope for L’Oréal to cascade down its corporate ESG efforts to the brand level.
3 September 2020 20 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate Procter & Gamble (Sector Perform, price target USD 128) 3 – strong purpose Procter & Gamble is amongst the leaders in CPG when it comes to digital. It has been Exhibit 33: Consumer sentiment and brand buzz (April 2019 – March 2020) reinventing brand building from wasteful mass marketing to mass one-to-one brand 30 building fueled by data and technology with a propensity focus. This effort is driving 12 months pre-lockdown Pantene growth for the company while delivering savings and efficiencies to reinvest for more Olay 20 growth and profit. To be more specific, P&G’s consumer database enables advanced % N),
- Head and programmatic media buying that finds people with the highest propensity to buy and Shoulders reaches them without the unwelcomed ad frequency. China is P&G’s most 10 Crest sophisticated market in this regard, with 80% of digital media bought this way (for context, last fiscal year, they reduced media digital waste by 30% and increased the Ariel Downy/Lenor Cascade Old Spice Weighted volume of posts 0 number of people that they reached by 50%). 0 Oral-B 50 100 150 200 250 300 Charmin Bounty P&G’s individual brand performance from a consumer engagement perspective was -10 Gillette Net consumer sentiment: -10
Net consumer sentiment (P sentiment consumer Net Febreze weak during the lockdown period, but this does not coincide with the company’s Weighted volume of posts: 635 growth and/or share status. We anticipate overall interaction was weaker than the -20 period pre-lockdown because consumer demand for P&G’s categories was so strong that P&G did not have to spend as much on marketing/advertising to drive top-line. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets We point out that nearly all of P&G’s categories have experienced a sharp increase in consumption since lockdown began. Exhibit 34: Lockdown momentum (April – June 2019 to April - June 2020) Its most impressive brands in terms of our analysis were Pantene and Olay. Both Downy/Lenor 40 Absolute change in Lockdown secured strong sentiment and buzz with the online consumer before and during net consumer lockdown (not withstanding some decline in buzz from Pantene). Ariel, Oral-B & 30 sentiment (P-N), %
Downy/Lenor all looked rather lacklustre. We found little purposeful marketing. 20 Head and Shoulders Gillette Net consumer sentiment: 31 Weighted volume of posts: 655% P&G deserves more than a few points in the corporate responsibility domain for Change in weighted 10 Febreze Olay volume of posts Oral-B Pantene Old Spice repurposing manufacturing/packaging equipment to produce and donate hand 0 sanitizer and 'hundreds of thousands' of face shields. It’s also making strides in -120% -100% -80% -60% -40% -20% 0% 20% 40% 60% Crest Bounty Charmin -10 making production more eco-friendly (until now, the low quality and high cost of Cascade Ariel Net consumer sentiment: -41 recycled polypropylene has created barriers to its use). It recently invented a -20 Weighted volume of posts: 1380% breakthrough technology that removes the color, odor and contaminants from used -30 polypropylene to restore it to virgin-like resin quality. This process fully closes the loop in the reuse of recycled plastics while making it more affordable and accessible. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets This is a material benefit to P&G, but also a potentially even bigger benefit to society. We think there’s significant scope for P&G to highlight these ESG efforts at brand level. It lies in the second quartile of Refinitiv’s ESG scores.
3 September 2020 21 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate Reckitt Benckiser (Underperform, price target GBP 64) 3 – strong purpose Over the last decade, Reckitt Benckiser has cut costs too far in our opinion in terms Exhibit 35: Reckitt Benckiser consumer sentiment and brand buzz (April 2019 – March 2020) of marketing, R&D and infrastructure. Its digitalisation efforts prove no exception 30 - about 30% of its FY19 marketing spend related to digital media, well below the likes 12 months pre-lockdown Durex of L’Oréal and Unilever.
20 N), % N), Prior to lockdown, Reckitt Benckiser’s brands looked lacklustre in our analysis, - particularly in terms of consumer sentiment with only Durex enjoying strong positive 10 sentiment. The brands held an average sentiment of 3% well below the overall Cillit Bang average of our analysis: 11%. We note that numerous posts about the Home Care Air Wick Veet Dettol brands in our analysis were mislabelled as negative due to exclamations about stains 0 or spills, expressions of fear about COVID-19 or concerns about stockpiling. We think 0 50 100 Weighted volume of posts 150 Lysol, Cillit Bang and Dettol actually screened more positively than it first seems due -10 Lysol Net consumer sentiment: -16 to elevated attention on hygiene. However there is no excuse for Air Wick and Veet. (P sentiment consumer Net Weighted volume of posts: 1386 -20 During lockdown, several of Reckitt’s brands gained significant momentum. Cillit
Bang and Lysol’s buzz accelerated the most out of all 66 brands in our analysis. Buzz Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets around Dettol also increased by nearly 1000%. This increased attention on hygiene is supportive for Reckitt and we have already seen this reflected in a strong HY20 sales performance. That said, this is not down to anything Reckitt Benckiser has done Exhibit 36: Lockdown momentum (April – June 2019 to April - June 2020) itself and we are unsure about the sustainability of this momentum. Lockdown momentum was nothing special for Reckitt Benckiser’s other brands and actually 10 Absolute change in Lockdown net consumer Lysol very poor for Durex. Given continued social restrictions, we expect the Durex brand 5 sentiment (P-N), % Cillit Bang to recover only slowly. Air Wick 0 Reckitt Benckiser sits in the top quartile of Refinitiv’s ESG scores – something we are -500% 0% 500% 1000% 1500% 2000% 2500% 3000% 3500% 4000% relatively surprised about given its reputation for aggressive cost cutting, links to Change in weighted volume of posts -5 Indivior’s false marketing scandal and its 2011 incident in Korea involving poisonous humidifiers. Indeed, whilst it has a healthy Environmental and Social score, it holds -10 one of the lower Governance scores. That said, half of its brands screen favourably Veet in terms of purposeful branding at the moment– Durex, Lysol and Dettol. The two -15 Dettol latter have been particularly prominent recently, sponsoring various COVID-19 Durex efforts. Durex, Dettol and Lysol all have a relatively higher buzz about them online -20 than the other Reckitt Benckiser brands – potentially thanks to this purposeful marketing. As with L’Oréal, we think there’s scope for Reckitt Benckiser to make Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets more of its ESG credentials at brand level.
3 September 2020 22 Global Consumer Staples: a review of purposeful branding and digital efficacy
Purpose rankings 1 – low purpose 2 – moderate Unilever (Underperform, price target EUR 42/GBP 37) 3 – strong purpose According to Unilever, 40% of its media spend goes on digital, 85% of its marketers Exhibit 37: Consumer sentiment and brand buzz (April 2019 – March 2020) are digitally trained and its largest digital agency is its in-house content creator 40 12 months pre-lockdown U-Studios. It is also launching more brands than ever before and has acquired Seventh Generation on-trend brands with strong digital capabilities. In HPC, this has included 30 Persil
Dermalogica and Seventh Generation, for which we have found strong consumer % N), - engagement and digital presence. We found similar results for its acquisitions such 20 Dermalogica Sunsilk as Graze in our Food, Bottled Water and Hot Drinks edition. TRESemmé 10 Omo Dollar Shave Club In the 12 months pre-lockdown, the results were very mixed – acquired brands had Domestos a strong online presence however Unilever’s legacy brands looked relatively 0 0 100 200 300 400 500 600 700 800 lacklustre. It doesn’t seem like Unilever has manage to extend the acquired digital Cif/Jif -10 Weighted volume of posts capabilities of brands such as Dermalogica and Seventh Generation to the rest of its business (we note these two are only a small portion of Unilever’s sales). Legacy Rexona/Degree Net consumer sentiment (P sentiment consumer Net -20 brands such as Persil, Rexona, Omo, Domestos, Axe/Lynx and Cif/Jif had low sentiment and/or brand buzz. Dollar Shave Club had weak sentiment and brand buzz -30 Axe/Lynx deteriorated 60% from April 2018 - March 2019 to April 2019 – March 2020. Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets Lockdown momentum was mixed for Unilever. Given the categories all seem to have behaved this way on average, we don’t think this is a Unilever problem. One thing Exhibit 38: Lockdown momentum (April – June 2019 to April - June 2020) we do think is a Unilever problem however, is why Seventh Generation was unable to benefit from the same momentum boost from COVID-19 that the rest of the home 30 Lockdown care category enjoyed. On the other hand, it is clear Domestos benefited and also Rexona/Degree Cif/Jif to some extent. Domestos 20 Net consumer sentiment: 42 Weighted volume of posts: 518% We can’t ignore Unilever’s strong purposeful marketing here – we gave high purpose Dollar Shave Club 10 scores to all but one of its brands. This is unlike anything we have seen in the rest of Persil TRESemmé Dermalogica our analysis and tempers our Underperform rating. We think this helped brand Change in weighted volume of posts 0 sentiment and indeed over 70% of Unilever’s brands had positive online sentiment -100% -50% 0% 50% 100% pre-lockdown. This is in line with Refinitiv’s ESG scoring: it placed Unilever in the Axe/Lynx Sunsilk -10 Cif/Jif highest quartile when compared against its peers. Seventh Generation -20 In conjunction with our Food edition, we have now surveyed the online sentiment Absolute change in net and buzz around 18 Unilever brands. We think we can draw the conclusions that: consumer sentiment Omo -30 (P-N), % 1) Unilever has failed to extend the digital capabilities of its acquired brands to its legacy brands; Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets 2) Unilever has made a lot of effort around ESG and is well ahead of peers in this respect.
3 September 2020 23 RBC ratings and price targets Global Consumer Staples: a review of purposeful branding and digital efficacy Church & Dwight (Sector Perform, PT USD 99) Henkel (Outperform, PT EUR 99) Colgate-Palmolive (Outperform, PT USD 88) The Clorox Company (Sector Perform, PT USD 218) Purpose rankings 1 – low purpose 2 – moderate Henkel, Church & Dwight, Clorox and Colgate-Palmolive 3 – strong purpose Henkel: We only surveyed two of Henkel’s brands but found weak digital capabilities Exhibit 39: Consumer sentiment and brand buzz (April 2019 – March 2020) for both. Schwarzkopf’s buzz slightly improved in lockdown however we think this 50 was a response to the closure of salons rather than anything Henkel-specific. Its 12 months pre-lockdown Colgate (Colgate-Palmolive) digital investments have been lacklustre so far with digital comprising only 20% of 40
marketing spend. That said, we think that is subject to change with the digital % N), - investments proposed as part of last year’s margin reset. We didn’t find any 30 purposeful marketing for Bref or Schwarzkopf despite Henkel sitting in the second 20 quartile of Refinitiv’s ESG scores – there is an opportunity for Henkel to highlight its Bref (Henkel) existing ESG efforts at brand level here and potentially generate some excitement 10 Schwarzkopf (Henkel) around its brands. Weighted volume of posts 0 Church & Dwight: We view Church & Dwight as one of the best managed companies 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 in the consumer packaged goods industry, and as such it’s no surprise that the name Net consumer sentiment (P sentiment consumer Net -10 Arm & Hammer has generated a strong buzz around Arm & Hammer online. Last quarter, online sales (Church & Dwight) Clorox (Clorox) increased by 75% and now account for 13% of total sales. Importantly, management -20 intends to step up investments in 2H20 and shared that they are conducting research Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets on purchasing habits to maximize efficiency. We find some evidence for purposeful marketing and hopefully as this embeds, Church & Dwight can generate some better consumer sentiment around this brand. Exhibit 40: Lockdown momentum (April – June 2019 to April - June 2020)
Clorox: We would characterize Clorox as the poster child for lockdown beneficiaries. Even so, management continues to reinvest behind e-commerce and digital Absolute change in 5 Lockdown advertising. This is consistent with the consumer sentiment analysis, which suggests net consumer sentiment (P-N), % Change in weighted volume of posts a material increase in engagement since lockdown. We anticipate consumption 0 across Clorox’s categories will remain robust for the foreseeable future but looking -40% -30% -20% -10% 0% 10% 20% 30% 40% more long term, we are not so sure. We found some purposeful branding around Bref (Henkel) -5 Clorox however the company lies in the third quartile according to Refinitiv’s ESG Clorox (Clorox) scores. Net consumer sentiment: -16 Schwarzkopf Weighted volume of posts: 1053% -10 (Henkel) Colgate-Palmolive: One of its key priorities for 2020 was to launch more premium innovation to drive growth, accelerate market share, and become more digital/data Arm & Hammer driven across all efforts at the organization. We think management has made solid (Church & Dwight) -15 Colgate (Colgate-Palmolive) progress against this initiative as exemplified by the recent acceleration in organic sales growth. We also point out Colgate-Palmolive was the only company in our US -20
HPC coverage to make it into the top quartile of Refinitiv’s ESG scores. We are not Source: Crimson Hexagon, RBC Elements, Euromonitor, RBC Capital Markets surprised it’s among the most popular S&P 500 names in both passive and active sustainable equity funds. 3 September 2020 24 Global Consumer Staples: a review of purposeful branding and digital efficacy
Valuation summary
Price Year P/E EV/EBITDA Divi yield (%) EV/NOPAT FCF yield (%) European Companies Share price Rating Target end 2020 E 2021 E 2020 E 2021 E 2020 E 2021 E 2020 E 2021 E 2020 E 2021 E Danone † € 55.8 Sector Perform 70 Dec 17.8 15.4 11.0 10.1 3.8 3.8 20.7 18.6 5.6 6.0 Nestlé † CHF 110 Underperform 95 Dec 26.7 26.0 16.1 16.0 2.5 2.5 25.0 24.3 5.0 3.8 Unilever NV † € 49.8 Underperform 42 Dec 22.0 21.5 15.1 14.6 3.3 3.3 24.6 23.8 4.9 4.8 Unilever plc † £ 45.1 Underperform 37 Dec 22.4 21.4 15.3 14.5 3.2 3.3 23.8 23.0 4.9 4.8 L'Oréal † € 282 Sector Perform 203 Dec 41.1 37.3 25.0 21.9 1.5 1.7 42.2 36.7 2.5 2.9 Reckitt Benckiser † £ 75.5 Underperform 64 Dec 23.6 25.0 17.7 18.8 2.3 2.3 25.1 26.9 3.6 3.6 Henkel † € 87.0 Outperform 99 Dec 24.7 20.1 14.2 12.0 2.1 2.1 24.7 20.2 3.9 5.0 Beiersdorf † € 99.0 Sector Perform 98 Dec 36.9 30.5 17.5 14.9 0.7 0.7 29.0 24.3 3.5 3.3 Food & HPC average 27.6 25.1 16.7 15.5 2.3 2.3 27.3 25.0 4.1 4.2 Anheuser-Busch InBev † € 49.9 Outperform 71 Dec 54.7 18.2 15.7 12.2 2.1 2.1 28.2 21.2 2.7 6.8 Britvic ~ £ 8.6 Outperform 10.5 Sep 22.5 15.7 12.6 10.3 2.7 3.8 26.3 17.3 3.0 5.4 Campari † € 9.0 Underperform 6.8 Dec 59.7 38.8 31.4 23.1 0.6 0.6 55.4 37.6 1.4 2.5 Carlsberg † DKK 870 Outperform 960 Dec 24.6 21.9 12.6 11.6 2.4 2.4 24.9 22.1 4.7 5.0 Diageo † £ 24.8 Sector Perform 24 June 20.0 20.0 14.5 16.2 2.8 2.8 22.4 23.6 2.8 3.3 Fever-Tree ~ £ 20.8 Outperform** 25 Dec 62.1 36.8 46.0 28.2 0.8 1.3 62.5 36.9 1.9 2.7 Heineken † € 77.6 Sector Perform 83 Dec 43.6 22.9 16.9 13.1 2.2 2.2 41.2 25.5 0.7 3.7 Pernod Ricard † € 145 Sector Perform 145 June 28.7 24.3 19.7 17.2 2.1 2.2 33.5 26.9 2.4 3.3 Beverages average 36.3 23.1 17.6 14.8 2.1 2.3 33.1 24.9 2.5 4.3 BAT † £ 25.4 Sector Perform 27 Dec 7.9 7.7 7.9 7.7 8.3 8.3 11.0 10.7 12.4 12.5 Imperial Brands † £ 12.5 Sector Perform 18 Sep 5.1 5.1 6.9 6.7 11.1 11.1 9.3 9.2 18.0 17.7 Tobacco average 6.5 6.4 7.4 7.2 9.7 9.7 10.1 9.9 15.2 15.1 US companies General Mills § US$ 63.1 Sector Perform 64 May 17.4 17.1 14.1 13.8 3.5 3.7 20.7 20.5 Mondelez § US$ 58.2 Outperfom 66 Dec 22.4 20.8 19.1 17.8 1.0 2.3 29.8 28.0 Food average 17.8 17.1 14.9 14.3 2.9 3.3 25.2 24.3 Clorox § US$ 220.1 Sector Perform 218 June 29.8 29.6 20.8 20.6 1.9 1.9 30.0 29.9 Colgate Palmolive § US$ 78.1 Outperform 88 Dec 26.6 25.3 17.6 17.4 2.3 2.4 25.8 25.5 Estee Lauder § US$ 221.0 Outperform 240 June 40.2 31.9 25.7 21.7 0.6 0.8 40.5 33.5 P&G § US$ 138.2 Sector Perform 128 June 26.4 25.0 18.8 17.9 2.2 2.4 27.1 26.1 HPC average 29.2 28.0 19.6 19.4 1.9 1.9 29.6 28.7 Coca-Cola § US$ 49.1 Outperform 55 Dec 27.7 24.3 23.6 20.9 3.4 3.5 34.4 30.5 PepsiCo § US$ 139.2 Outperform 153 Dec 26.0 23.6 17.8 16.5 2.9 2.8 Molson Coors * US$ 37.0 Dec 9.6 9.3 7.7 7.6 5.4 5.8 Constellation Brands § US$ 185.9 Outperform 216 Feb 20.5 18.3 16.2 15.6 1.7 1.9 21.0 20.5 AmBev * BRL 12.7 Dec 18.8 16.8 9.2 8.4 4.7 5.1 Brown-Forman § US$ 72.6 Sector Perform 51 Apr 43.7 42.8 31.4 30.5 1.0 1.0 41.3 40.5 Beverages average 24.4 22.5 17.6 16.6 3.2 3.4 32.3 30.5 Altria § US$ 43.1 Outperform 68 Dec 9.9 9.4 9.1 8.8 7.9 8.3 12.3 11.8 PMI * US$ 79.0 Dec 14.1 13.0 11.0 10.3 6.1 6.3 Tobacco average 12.0 11.2 10.1 9.5 7.0 7.3 12.3 11.8 Unilever's Price Target in GBP is converted from our EUR price target at EUR/GBP 0.88 * Based on Bloomberg Consensus estimates † Covered by RBC Europe Limited analyst James Edwardes Jones (+44 207 002 2101) **Fever-Tree is Speculative Risk ~ Covered by RBC Europe Limited analyst Emma Letheren (+44 207 002 2100) All figures are time weighted to calendar year end § Covered by RBC Capital Markets LLC analyst Nik Modi (+1 212 905 5993)
Source: Bloomberg, RBC Capital Markets estimates Prices at 12.30 BST, 2 September 2020
3 September 2020 25 Global Consumer Staples: a review of purposeful branding and digital efficacy
Appendix: Methodology Crimson Hexagon Crimson Hexagon is a social media data vendor. We used it to analyse over 41m social media posts on 66 beauty, home and personal care brands. It had access to various social media platforms. However due to data availability, around 60% of posts analysed came from Twitter. Please see Exhibit 5 for the data source split. In order to limit the issue of Crimson Hexagon identifying posts that were irrelevant to the brand, we selected brands with names that did not have multiple meanings. For example, we did not include P&G’s Tide brand as the results would have included many irrelevant posts relating to the ocean in addition to posts about the detergent brand. RBC Elements were able to exclude posts made by each brands’ own channels. Therefore we could get good insight into the consumers’ own sentiment and interest in each brand. Crimson Hexagon labelled each post either positive, negative or neutral. We calculated net consumer sentiment for each brand by calculating the percentage of positive posts minus the percentage of negative posts. Crimson Hexagon calculated the total number of social media posts posted on the platforms it had access to. In terms of languages, it could only access posts made in the English language therefore our analysis is skewed to developed markets such as the UK and USA. To make this number comparable across brands we weighted it by brand size in USD millions (according to Euromonitor). Where we didn’t have access to Euromonitor brand data (for example Durex, Bounty and Charmin), we estimated brand size using our conversations with Investor Relations and online reports. We looked at a pre-lockdown period to get a cleaner impression of a brand’s digital capabilities in a ‘normal’ world: 1 April 2019 to 31 March 2020. We looked at the momentum of the brand pre-lockdown: change in sentiment or buzz from 1 April 2018 – 31 March 2019 to 1 April 2019 – 31 March 2020. We also looked at the brand during lockdown from 1 April 2020 to 30 June 2020 as well as momentum of lockdown: change in sentiment or buzz from 1 April 2019 – 30 June 2019 to 1 April 2020 – 30 June 2020. For our category summary, we calculated the average consumer sentiment and average weighted volume for all the brands in each category. Gartner A business intelligence firm that benchmarks the digital competence of consumer brands. Its rankings are based on: - Site & e-commerce: looks at every touchpoint of the customer journey from brand site load times, search & navigation efficiency, e-tailor hand off and performance on 3rd party sites - Digital marketing: measures online visibility, email campaigns, display advertising strategies, organic and paid search effectiveness - Social media: presence and engagement relative to peers on established and emerging social platforms - Mobile & tablets: how brands are using them and whether they are seeing increased consumer sales conversion We looked at Gartner’s Digital IQ US Indices for 2019 Beauty, 2019 and 2020 Personal Care and 2019 Hair Care & Color. Some of the brands we analysed have not been ranked by Gartner. We note that the higher the ranking, the better.
Purpose rankings / ESG Scores from Refinitiv
We looked at each brand’s websites for mentions of charity work, sustainability and environmental protection initiatives. We checked purposeful marketing was consistent across platforms by looking at each brand’s Instagram pages. We compiled Refinitiv’s corporate ESG scores for the 16 public companies in our analysis into quartiles to get an idea of their relative positioning (see Exhibit 7).
3 September 2020 26 Global Consumer Staples: a review of purposeful branding and digital efficacy
Appendix: Purpose rankings I
Brand Company Purpose score Evidence Air Wick Reckitt Benckiser Group Plc (RB) 1 Small evidence of purpose beyond direct brand marketing on the website Ariel Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Arm & Hammer Church & Dwight 3 Arbor day foundation Avon Avon Products Inc 1 Small evidence of purpose beyond direct brand marketing on the website Axe/Lynx Unilever Group 3 Anti-bullying … ditch the label Banana Boat Edgewell Personal Care Brands LLC 3 Partner with Skin Cancer Foundation Bath & Body Works L Brands Inc 3 Commitment to fighting social injustice prominent on website Bounty Procter & Gamble Co, The 1 Plenty in the US Bref Henkel AG & Co KGaA 1 Small evidence of purpose beyond direct brand marketing on the website Cascade Procter & Gamble Co, The 2 A bit about water conservation Charmin Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Cif/Jif Unilever Group 3 Projects to clean up the community: Cillit Bang Reckitt Benckiser Group Plc (RB) 1 Small evidence of purpose beyond direct brand marketing on the website Clinique Estée Lauder 1 Small evidence of purpose beyond direct brand marketing on the website Clorox Clorox 2 Clorox company: Supporting Youth Education, Health and Well-Being Colgate Colgate-Palmolive 3 Bright Smniles, Bright Future education and dental screening Coppertone Beiersdorf AG 1 Small evidence of purpose beyond direct brand marketing on the website Crest Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Dermalogica Unilever Group 3 Developing womens skills Dettol Reckitt Benckiser Group Plc (RB) 3 COVID-19 and Trigger project (cleaning up the planet) Dollar Shave Club Unilever Group 1 Small evidence of purpose beyond direct brand marketing on the website Domestos Unilever Group 3 COVID-19 and sanitation projects partnered with Unicef Downy/Lenor Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Durex Reckitt Benckiser Group Plc (RB) 2 Plenty around sex education Elsève/Elvive L'Oréal Groupe 1 Sub-brand of L'Oréal Paris: website all about advertising/buying products Estée Lauder Estée Lauder 1 Small evidence of purpose beyond direct brand marketing on the website Eucerin Beiersdorf AG 1 Small evidence of purpose beyond direct brand marketing on the website Febreze Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Fenty Beauty Fenty Corp/LVMH 3 CLF foundation established by Rhianna Garnier L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website Gillette Procter & Gamble Co, The 3 Distributing $1m to non-profit organisations to help men achieve their personal best Harry's Edgewell Personal Care Brands LLC 1 Small evidence of purpose beyond direct brand marketing on the website Hawaiian Tropic Edgewell Personal Care Brands LLC 1 Small evidence of purpose beyond direct brand marketing on the website Head and Shoulders Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Johnson's Johnson & Johnson Inc 3 Prominent 'Products with a purpose'; donating to American Nurses Foundation Kérastase L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website
Source: RBC Capital Markets
3 September 2020 27 Global Consumer Staples: a review of purposeful branding and digital efficacy
Appendix: Purpose rankings II
Brand Company Purpose score Evidence Kiehl's L'Oréal Groupe 3 Skin Care with a misswion. Various charitable causes Kylie Cosmetics Kylie Jenner Inc 1 Small evidence of purpose beyond direct brand marketing on the website La Prairie Beiersdorf AG 3 Art sponsorship La Roche-Posay L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website Lancôme L'Oréal Groupe 2 Educate, empower, employed Listerine Johnson & Johnson Inc 1 Small evidence of purpose beyond direct brand marketing on the website L'Oréal Paris L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website Lysol Reckitt Benckiser Group Plc (RB) 3 Lots around COVID-19, healthy habits and schools MAC Estée Lauder 2 Viva Glam fund and AIDS Maybelline L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website Mr Muscle SC Johnson & Son Inc 1 Small evidence of purpose beyond direct brand marketing on the website Nivea Beiersdorf AG 3 Various COVID-19 initiatives prominent NYX L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website Olay Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Old Spice Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Omo Unilever Group 3 Outdoor classroom day in 50 countries Oral-B Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Pantene Procter & Gamble Co, The 1 Small evidence of purpose beyond direct brand marketing on the website Persil Unilever Group 2 Home is good Rexona Unilever Group 3 Freedom of movement Schick Edgewell Personal Care Brands LLC 1 Small evidence of purpose beyond direct brand marketing on the website Schwarzkopf Henkel AG & Co KGaA 1 Small evidence of purpose beyond direct brand marketing on the website Sensodyne GlaxoSmithKline Plc 1 Small evidence of purpose beyond direct brand marketing on the website Seventh Generation Unilever Group 3 Loads of stuff Shiseido Shiseido 1 Small evidence of purpose beyond direct brand marketing on the website Sunsilk Unilever Group 2 Global brand site: talks about Brazilian women expanding horizons, but nothing on local country websites Tarte KOSÉ Corp. 2 Tarte gives back TRESemmé Unilever Group 3 Supporting women in the workplace: Levo foundation Urban Decay L'Oréal Groupe 1 Small evidence of purpose beyond direct brand marketing on the website Veet Reckitt Benckiser Group Plc (RB) 1 Small evidence of purpose beyond direct brand marketing on the website
Source: RBC Capital Markets
3 September 2020 28 Global Consumer Staples: a review of purposeful branding and digital efficacy
Elements Description RBC Elements is a primary research and data science team embedded within RBC’s Global Research division. The main focus of RBC Elements is to use scientific methods, algorithms and systems to analyze vast amounts of structured and unstructured data, to obtain insights that are inputs into RBC’s Fundamental Global Research teams.
Objective The team is involved in creating various machine learning and predictive modeling tools and processes, helping RBC Research discover the information hidden in big data, and allowing the Research division to make smarter decisions and deliver differentiated products to our clients. RBC Elements strives to augment the already available industry data with different alternative data sources, and enhance data collection procedures to include information that is relevant.
Methods The team is implementing different machine learning and data mining algorithms using state-of-the-art methods. Examples include:
• Machine learning techniques and algorithms, such as k-NN, Naive Bayes, SVM, Decision Forests, Clustering, Artificial Neural Networks, and Natural Language Processing to find patterns in the past, and to predict the future. • Feature selection techniques to find what matters most in the data. • Statistical modeling and analysis, and statistical tests such as distributions, and regression/GLM. • Developing hypotheses and making inferences using large amounts of data.
3 September 2020 29 Global Consumer Staples: a review of purposeful branding and digital efficacy
Required disclosures Non-U.S. analyst disclosure Emma Letheren and James Edwardes Jones (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to provide specific disclosures for the subject companies by reference. To access conflict of interest and other disclosures for the subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M 5J 2W7 or an email to [email protected].
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis.
Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
3 September 2020 30 Global Consumer Staples: a review of purposeful branding and digital efficacy
Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm’s proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long- term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research.
For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the following link: https://rbcnew.bluematrix.com/sellside/MAR.action
The 12 month history of SPARCs can be viewed at https://www.rbcinsightresearch.com/. Analyst certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. Third-party-disclaimers The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
RBC Capital Markets disclaims all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any statements made to the media or via social media that are in turn quoted in this report, or otherwise reproduced graphically for informational purposes.
References herein to “LIBOR”, “LIBO Rate”, “L” or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other person that takes over the administration of such rate).
3 September 2020 31 Global Consumer Staples: a review of purposeful branding and digital efficacy
Disclaimer RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/ or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct, indirect or consequential loss arising from, or in connection with, any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior written consent of RBC Capital Markets in each instance. Additional information is available on request. To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc. (member IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FCA. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To German Residents: This material is distributed in Germany by RBC Europe Limited, Frankfurt Branch which is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada, Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section 761G of the Corporations Act. To Hong Kong Residents: This publication is distributed in Hong Kong by Royal Bank of Canada, Hong Kong Branch, which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission (SFC) in Hong Kong, RBC Investment Services (Asia) Limited and RBC Global Asset Management (Asia) Limited, both entities are regulated by the SFC. This material is not for general distribution in Hong Kong to persons who are not professional investors (as defined in the Securities and Futures Ordinance of Hong Kong (Cap. 571) and any rules made thereunder. To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity licensed by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination in Singapore. To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd. which is a Financial Instruments Firm registered with the Kanto Local Financial Bureau (Registered number 203) and a member of the Japan Securities Dealers Association (“JSDA”) and the Financial Futures Association of Japan (“FFAJ”). ® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright © RBC Capital Markets, LLC 2020 - Member SIPC Copyright © RBC Dominion Securities Inc. 2020 - Member Canadian Investor Protection Fund Copyright © RBC Europe Limited 2020 Copyright © Royal Bank of Canada 2020 All rights reserved 3 September 2020 32