Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
2010
Joshua J. Berk
Overview
Unilever Group (comprised of U.K.-based Unilever PLC and Netherlands-based Unilever NV) is a diversified packaged food and household/personal product company. Given the nature of Unilevers business and the enormous breadth of its 400+ product portfolio, the firm has many opponents in the marketplace. Its main international competitors include Nestl and Procter & Gamble but it also faces competition in local markets or product ranges from companies such as ConAgra, Danone, General Mills, Henkel, Kraft Foods, Mars Inc., PepsiCo/Coca-Cola, Reckitt Benckiser, Sara Lee and S. C. Johnson & Son (for financial comparison of primary competitors, refer to Exhibit D). Consumers throughout the world trust Unilevers strong portfolio of foods, home and personal care brands. The firms top 13 brands (by revenues) include: Axe/Lynx, Blue Band, Dove, Flora/Becel, Heartbrand, Hellmanns, Knorr, Lipton, Lux, Omo, Rexona, Sunsilk, and Surf (for other prominent brands, please see Exhibit C). These brands account for total sales of over 23 billion, and the top 25 brands account for nearly 75% of sales.i The scale and brand strength of Unilevers portfolio enable it to withstand competitive pressures. Third-quarter sales increased 3.6% year-over-year as higher volume (up 4.8%) offset lower prices (down 1.2%). Emerging markets were again a standout, as underlying sales in the segment (40% of consolidated sales) rose 6.8%, reflecting higher volume (up 8.8%). There are several areas in which Unilever can make progress within the short term. In two of Unilevers biggest categories, hair and spreads, the need remains to build share consistently everywhere. Product quality is improving, but products must begin to show superiority, and there is ample scope to sharpen communication efforts. Customer service levels and the on-shelf availability of products could improve as well. Faced with growing competitive pressures, the firm must continue to drive out all non value-added costs, building on the progress made in the last few years. Unilever sells its products directly, as well as through independent brokers, agents, and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors, and institutions; and through a network of distribution centers, satellite warehouses, company-operated and public storage facilities, depots, and other facilities.ii The company offers food products in various segments, including: spreads, soups, bouillons, sauces, snacks, mayonnaise, dressings, solid/liquid margarines, ice creams, tea-based beverages, as well as weight management and nutritionally-enhanced products. In addition, it provides items for personal care including: deodorants, skin care, hair care, and oral care. Further, the company offers a range of home care products comprising laundry products, powders, liquids, soap bars, surface cleaners, and bleach. The firm has leading global positions in seven product categories, which are sold in more than 170 countries. The company spent 891m on R&D worldwide in 2009, and anticipates to consistently increase that number. It has over 163,000 employees, with 20 nationalities among top tier managers.iii For Unilever, economies of scope and scale are incredibly important. Companies like Unilever and Proctor & Gamble have high advertising expenditures for many reasons, but primarily it creates an insurmountable barrier to entry (Porters 5 Forces: Exhibit E). A new firm would likely be forced to match those fixed/sunk costs, which is impractical. As a result, the large marketing covers a greater set of products (economies of scope) and has a sizeable impact on underlying sales growth. Economies of scope refers to the reduction of average cost for a firm in producing multiple products, which makes diversification efficient if the case of common/recurrent use of proprietary knowledge or indivisible physical assets (e.g. distribution efficiencies, product bundling, product lining, and family branding). In the case of Unilever, it is a company that sells many differentiated products, sells the same product in many countries, and sells many product lines in many countries that helps it benefit from reduced risk levels as a result of economies of scope.
improve efficiency, however, seem to be gaining traction, despite various external challenges. Unilevers current market position partly resulted from its foresight to secure a first-mover advantage in international markets, particularly in developing and emerging markets. However, because of its use of a local go-to-market strategy, these efforts failed to generate a clear global strategy, while concurrently bloating the organizations brands, facilities, and employees. Aside from its internal challenges, there are numerous external factors that occupy the attention of Unilevers management team, such as elevated commodity costs and weak consumer spending (which means the firm may be unable to offset cost pressures with higher prices). Volatile input costs have disrupted consumer product firms recently, and input costs will continue to increase due to growing demand for commodities in emerging markets. Furthermore, since consumers remain selective in their purchase decisions, setting higher prices to offset rising costs may damage sales volume. Increased promotional spending is conditioning consumers to expect lower prices; weaning them from these prices may prove difficult. Given that roughly half of total sales are derived from developing and emerging markets, the firm is exposed to changes in foreign exchange rates, as well as political and economic risk. Despite numerous pressures, Unilever should be able to navigate through this difficult environment. Presently, Unilever is recovering from its long-term neglect of scale and efficiency advantages that potentially exist for a firm of its size. Managements focus is now on sales growth and operating-margin improvement, and the firms latest restructuring plan is an example of those efforts (as it assertively condenses itself). The results of this major restructuring initiative arent certain, however, and may cause operational instability. In 2009, Unilever began realizing the benefits of its efforts to reduce the complexity of its supply chain through inventory reductions and improved cashflow generation. Operating margins have suffered due to Unilevers failure to produce a clear global strategy (primarily due to growth of overhead costs). Even with marketing, promotions, and lower price points, sales continue to languish in Western Europe, which comprise approximately one third of Unilevers total revenue. Efforts to shrink the product portfolio from 1,600 items to less than 400 over the last five years have failed to generate consistent sales growth. However, with minimal long-term debt (total debt of 13.6B USD, debt/equity ratio of 0.58) on its balance sheet and interest coverage in double-digits, Unilever should be able to service its debt without financial strain. For more information on selected financials, refer to Exhibit B. Paul Polman has been at the helm of Unilever since January of 2009, after most recently working at Nestle and P&G. With nearly 30-years of experience, Polman seems to be the right person to cause the necessary organizational change. Unilever operates with two different individuals holding the positions of chairman and CEO, which should result in greater accountability. However, the compensation structure is severely flawed. More than 50% of the CEOs total annual compensation is base pay, and directors of the board are paid primarily in cash. It seems that their interests could be better aligned with shareholders if equity represented a larger portion of total compensation. Unilever claims that corporate social responsibility is at the heart of its business. However, the transition to a responsible and sustainable company is ongoing and Unilever has attracted a variety of criticisms from political, environmental and human rights activists for not achieving the high aims it communicates. In May 2007 it became the first company to commit to sourcing all its tea in a sustainable manner, employing the Rainforest Alliance to certify its tea estates in East Africa, as well as third-party suppliers. It declared its aim to have all Lipton Yellow Label and PG Tips tea bags sold in Western Europe certified by 2010, followed by all Lipton tea bags globally by 2015. Unilever is using phosphates, and when post-consumer waste is not carefully managed, these heavy metals will be absorbed by plants and marine life, which can lead to toxicity in food products. Greenpeace has criticized Unilever for causing deforestation (specifically, for purchasing palm oil from suppliers that are damaging Indonesia's rainforests) but Unilever (as a founding member of the Roundtable on Sustainable Palm Oil) responded by publicizing a plan to obtain palm oil from certified (as denoted by GreenPalm) sustainable sources by 2015. In November 2010, the global firm announced plans to halve the environmental footprint of its products, help 1 billion people improve their health and wellbeing, and source 100% of its agricultural raw materials sustainably. For further details on Unilevers sustainability initiatives, refer to Exhibit F. Unilever has also encountered controversy about advertisements involving issues on race (Fair and Lovely), sexuality (Axe), and political extremism (BNP Marmite). In response to this criticism, the firm has launched injunctions and
counter-advertising campaigns like the Dove Real Beauty campaign, which encouraged women to reject the underfed/hyper-sexualized images of modern advertising. It has also faced accusations of unlawful animal testing and child labor.
General Mills sales. The additional bargaining power gained over retailers to carry products is incredibly important as well. An acquisition of General Mills would include great brands with Cheerios cereal, Yoplait yogurt, and Progresso soups. The companies have generally complementary portfolios, reducing risk of a prolonged scrutiny by antitrust authorities and minimizing after-deal reorganization/integration costs. Additionally, Nestle and General Mills already have a history of successful partnerships with the operation of Cereal Partners Worldwide.iv
Unilever Annual Report and Accounts 2009. 2009. Unilever. 12 December 2010. <http://unilever.com/images/ir_Unilever_AR09_tcm13-208066.pdf> ii Yahoo Finance! 2010. Yahoo Inc. 12 December 2010. <http://finance.yahoo.com/> iii Unilever Annual Report and Accounts 2009. iv Bhatia, Sameer. "Why Nestle Should Recruit the General (Mills)." Wall Street Journal, Deal Journal. 6 January 2010. <http://blogs.wsj.com/deals/2010/01/06/why-nestle-should-recruit-the-general-mills/> v Company Spotlight: Unilever." MarketWatch: Personal Care 9.8 (2010): 16-24. Business Source Complete. EBSCO. 12 Dec. 2010 UL Unilever PLC ADR 2010. Morningstar, Inc. 12 December 2010. <http://quote.morningstar.com/stock/s.aspx?t=ul> Investor Centre: Unilever Global 2010. Unilever PLC. 12 December 2010. <http://unilever.com/investorrelations/?WT.GNAV=Investor_centre> viii Yahoo Finance! ix Sustainability: Unilever 2010. Unilever PLC. 13 December 2010. <http://unilever.com/sustainability/?WT.GNAV=Sustainability>
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