Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

The downturn in emerging markets is hitting makers of food and toiletries.

Diverging Fortunes
Unilever shares have outperformed Nestle since the start of this year
Source: Bloomberg data

With demand from China and Brazil slowing, Unilever and Nestle have had to focus on wringing growth out of their operations in developed markets. Both appear to be adapting to this new, more difficult, environment.

Emerging Pain
Annual sales growth in emerging markets is slowing for both Unilever and Nestle
Sources: Nestle, Unilever
* Sales exclude impact of acquisitions, divestments and currency swings

On Thursday, Nestle posted better-than-expected first quarter sales. The volume of goods it shifted grew 3 percent in the period, better than the 2.5 percent increase analysts had predicted. The company expects sales growth to accelerate in the second half.

Unilever, while it was stung by falling prices and unfavorable exchange rates, said the volume of products it sold rose 2.6 percent in the fiscal first quarter, more than analysts had expected.

Global Reach
Unilever generated 57% of its sales from emerging markets in 2015
Source: Bloomberg Intelligence

For both Nestle and Unilever, some of that growth has come from putting new twists on successful brands.

At Nestle, that means selling coffee that comes with take-away cups so it looks like you just went to a hipster coffee shop rather than made a coffee in your kitchen. It's also been overhauling its frozen food products in the U.S., refreshing brands such Lean Cuisine.

Unilever, meanwhile, has been pushing innovations in its home and personal care division: encouraging consumers to put its conditioners on first before shampoo. It's also making its Lynx deodorants more metrosexual than lad, and has added more hair products to tap into the fast growing male grooming market.

Where Unilever could do with some fresh thinking is in its foods business, which accounts for about a quarter of sales. It was the only division where volumes fell -- by 0.2 percent -- dragged down by a poor performance in its spreads operation, which includes Flora margarine. Gadfly has previously argued Unilever should sell this division.

But there were some encouraging signs in emerging markets too.

Unilever said underlying sales in emerging markets grew 8.3 percent, a slight improvement on the previous quarter. The company generates about 57 percent of sales from these markets. Volumes, the number of bottles and tins actually sold, climbed 3.7 percent, up from 2.4 percent in the previous three months.

Investors shouldn't get too carried away by one quarter of progress. Emerging markets remain volatile, and subject to wide variations between regions.

Reckitt's Premium
The stock trades at a bigger multiple of earnings than either Nestle or Unilever
Source: Bloomberg

Unilever shares have gained 12 percent so far this year, while Nestle's have dropped 1.2 percent. The company is reaping the rewards of being on the foot when controlling costs: it introduced a 1 billion-euro cost-reduction program late last year.

Both Unilever and Nestle now trade on about 21 times the next 12 months earnings. That's still a discount to Reckitt Benckiser, which trades at more than 24. That shortfall will continue until they can match Reckitt's mastery of developed markets, where it's aggressively expanded into faster growing markets such as over-the-counter medicines.

Unilever's valuation is now being held back by the lackluster spreads business. The company has already shown how it can cut costs. Thursday's results add to the case that it should go further and offload its spreads arm so it can go after that growth.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andrea Felsted in London at

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Edward Evans at