Why Unilever is a good example of a traditional company that is thriving in a digital economy.
Unilever is changing with the times
Technology is undermining business models, good old traditional companies are no longer safe bets. Maybe a good investment strategy is to find traditional companies that get the new way of doing things.
I know some people might be cynical about the claim I am about to make, but technology is destroying business models, companies that once seemed as solid as rock are about to turn into investment quicksand. Let me illustrate this with a cold, hard, fact. Back in 1965, the average tenure on the S&P 500 was 33 years. This had fallen to 20 years by 1990.
It has been predicted that this will fall to just 14 years by 2026.
The reason is technology; it is changing so fast that old traditional business models, often based on a way of doing something that is decades old, no longer work.
Obvious examples are retail, publishing and travel.
We are seeing the car industry experience the early stages of similar disruption right now.
Energy, banks and logistics companies are coming under similar pressure. Take banks as an example: Monzo bank offers a magnificent service. Now central bankers are fretting that Facebook’s plan to launch a currency called Libra threatens to turn the banking world upside down. Yes, that’s right, regulators are worrying about how poor little banks can compete with the Facebook giant.
Never has it been easier (although it is far from easy) to take a startup and turn it into a company that successfully competes with some of the world’s largest companies.
How can traditional companies respond? Answer: they are trying to adopt a startup mentality. With technology at the core, they are creating new products as quickly as possible, testing them, and either adapting them or ditching them. It is an approach known as lean startup. You create what is called a minimum viable product as quickly as you can. Test it against customers. Respond to feedback, if appropriate develop some more and test again.
Central to this is a process called digital transformation and what is being referred to as an agile culture. AI/machine learning, data, and technologies such as RPA are central to this. Other technologies such as blockchain and augmented reality will become crucial. “If you don’t have AI in your product in the next five years, you will not be around,” or so Falon Fatemi, the founder of a US AI/deep learning company Node, recently told me. It is hard to disagree.
So what can investor’s do?
One solution is look at the techs which are making this possible. If you are a regular reader you will know I am a fan of tech investing, but it does come with one drawback. The giant techs, perhaps with the exception of Apple, have whopping great P/E ratios.
An alternative approach is to look at traditional companies, the type that under different times would be a staple part of any investment portfolio, but which are also enthusiastically adopting tech, AI and digital transformation.
That is all very well, but how do you spot these companies? Actually, it is very easy. Take a company you like, but are unsure of how they are adopting tech and Google their name along side certain words, such as digital transformation, AI, agile, or machine learning. To really test how far ahead they are thinking, Google their name next to an emerging tech such as augmented reality or blockchain, and look at the results of your search.
Now, as it happens, I already knew that Unilever are one of the more forward looking British (and Dutch) corporate giants; they are known for their approach to tech.
But a quick Google confirms this.
This is an impressive company by normal matrixes. Shares are up 15 per cent over the last year, by just over a quarter over the last five years, and by two/three fold (depending on whether you measure from 1999 peak or the nadir set in 2000) over the last twenty years.
Yield is not amazing — 3.68, but given the growth in the share price, that represents an exceptional yield for an investor who has held shares in the company for an extended timeframe. Most brokers seem to like the stock. But, most brokers are not fully taking into account the technology implications.
Back in January, the company announced how it was engaging in digital transformation and AI, and plans were impressive — not bad for a 90 year old company. Its new-ish boss, Alan Jope said: “It's about digitizing all of the aspects of Unilever's business so that we can leverage the world of data and increase our digital capability in everything we do.”
Google search Unilever and blockchain and you immediately discover the company is working on an ambitious blockchain project with IBM, and has been looking at augmented reality.
Need I say more?
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees