Name of the Company: Unilever
Business Sector: FMCG - Fast Moving Consumer Goods
Operating Geography: Europe, Global
About the Company: Unilever Plc. is an Anglo-Dutch multinational consumer goods company founded in 1930, by the merger of Dutch firm, Margarine Unie and British firm, Lever Brothers. Unilever has over 400 brands across food, personal care and household cleaning segments and is co-headquartered in Rotterdam, Netherlands and London, U.K. It has around 170,000 employees as of 2015.
Revenue: €53.272 billion – FY ending Dec 2015
SWOT & PESTLE Analysis
|1. Strong financial performance and strategy|
2. Strong Popular Brands
3. Evolving Portfolio and Developing Channels
4. Substantial Strategic Investments to Drive Growth
5. R&D Focus and Integrated Supply Chain
|1. Decline in grocery segment
2. Dependence on distributors and retailers
|1. Potential in emerging markets|
2. Growing demand for premium and specialized high-end products in skin care segment
|1. Global and regional competitors
2. Private label brands from retailers
3. Divergent global market environment
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1) Strong Financial Performance and Strategy: Unilever has delivered a sustainable high Return on invested capital (ROIC) in the range of 17-19% over the past few years. Its Free cash Flow as % of Core Net Profit stood at 80% in 2016 and the organization aims to increase it further to 90% by 2019. It declared a heathy dividend of €1.19 in 2015 and dividend has been growing by 8% since the last five years. The company has also significantly improved upon the working capital and fixed assets efficiency. The investments made over the years in Advertising, Supply Chain and IT are also helping the company in higher savings retention. Unilever also stood at #147 in the Fortune Global 500 for the year 2016.
2) Strong Popular Brands: Unilever has strong brands across the major FMCG segments. It has 13 core brands which sales of €1 billion or above as of 2016. Its Sustainable Living brands like Dove, Lifebuoy and Knorr aim at delivering social and environmental impacts and accounted for half of the organizations growth.
3) Evolving Portfolio and Developing Channels: Unilever has invested in evolving and diversifying is portfolio of products. The acquisition of Dollar Shave Club, the online men's razor seller which sells blades per months subscription. This sets up Unilevers entry into men’s shaving segment which is currently dominated by P&G’s Gilette. This also develops and strengthens Unilever e-commerce channels. The acquisition of Blueair marks Unilevers entry in indoor air purification technology extending Unilever’s water purification business and strengthens its Home Care portfolio.
In a strategic move to strengthen its presence in the Chinese market, Unilever is using the online channel, Alimama - Alibaba’s ad network and marketing services platform. Alimama’s Taobao Affiliate Network helps position Unilever as a unique seller, advertiser and sponsor in the online market.
4) Substantial Strategic Investments to Drive Growth: Unilever has made substantial business investments in past seven years in strategic areas. Unilever has invested an additional +€10 bn cumulative (2009-16) in additional brand & marketing and an additional +€5 bn cumulative (2009-16) in Supply Chain and Information Technology. Merger & Acquisitions is another key area where Unilever has invested substantially, with +€10 bn cumulative (2009-16) spending. These investments have resulted in considerable growth and Unilever will continue to derive growth from these investments backed by additional spending in the coming years.
5) R&D Focus and Integrated Supply Chain: Unilever spends over €1 billion a year on Research and Development in order to build and improvise brands through innovation leveraged by science and technology. It has six R&D centers globally with over 6,000 R&D experts. It also recently established as Strategic Science Group which works on long term scientific solutions and complements the R&D division. According to global research and advisory firm Gartner, Unilever’s integrated supply chain is one of the best across FMCG companies globally. Unilever has over 300 factories as of 2015 and has significantly invested in efficiency and eco-production. It’s UltraLogistik network helps it to reduce costs and emissions impact of its supply chain on the environment. UltraLogistik operations has helped Unilever reduce CO2 emissions by around 21% in more than 14 countries over the last 5 years.
1) Decline in Grocery Segment: Unilever's sare in the grocery segment has significantly declined over the past decade. The grocery segment performed poorly in the competitive European market declining from 25% in 2008 to 12% in 2015. One of the primary reasons was the gradual divestment of major food brands by the company and the other being that grocery segment becoming highly commoditised. In the Asian and African markets Unilever is facing tough competition from mass-market and local players. Also with global grocery sales moving online, Unilever has not been able to preserve its share in the grocery segment.
2) Dependence on Distributors and Retailers: Unilever does not directly sell its products except for some specific brands in beauty and skin care and men’s grooming portal- Dollar Shave Club. It majorly depends on distributors and retailers who are part of its supply chain and help in reaching the products to the end-consumer. Any conflict with the distributors or retailers can impact its sales in the market. A recent instance of the above was the dispute with UK retailer Tesco in October 2016 over the pricing of some brands including Marmite and Ben & Jerry’s. tesco had apparently refused to hike up the prices of Unilever’s brands by 10% as directed by the company. This had affected supply of Unilever’;s products across Tesco’s stores across UK and Irish markets.
1) Potential in Emerging Markets: Emerging markets are the key to growth for FMCG companies like Unilever. Unilever has set itself a target of doubling its sales by 2020 and this can be achieved by aggressive expansion in markets across Asian Subcontinent, ASEAN region, Africa and Latin America. Developed markets are expected to deliver a growth of only 1-2% over the next five years due to market saturation. Unilever currently generates 55% of the sales from developing markets which it aims to account to 70% of of its total sales by 2020.
2) Growing Demand for Premium and Specialized High-End Products in Skin Care Segment: There is a strong growing demand for premium skin care products across markets. The global skin care market was US $121 billion as of 2016 and is expected to reach US $196 billion by 2024 according to Grand View Research, Inc and premium segment occupies about 30% of the size which comes to US $37 billion in 2016. In developed markets such as North America and Western Europe despite slowdown in consumer spending, there is a growing demand for premium products despite sluggishness in the mass products segments. In developing and emerging markets like the Indian-subcontinent and Middle East, demand for premium personal care products is set to increase according to Trefis Research as there is growing disposable income and greater awareness. Further the natural skin care segment is expected to grow by a CAGR of 10% through 2019. Thus premium skin and personal care segment has good potential for Unilever, a segment in which it already has a strong footprint.
1) Global and Regional Competititors: Unilever faces tough competition across its business segments from gobal and regional competitors. Consumer products giants like Colgate Plamolive and P&G are pursuing aggressive growth and expansion strategies in personal care segments and pose a direct challenge to Unilever. Reckitt Benckiser is also a major competitor in Asian and European markets.
2) Private Label Brands from Retailers: Private label brands from top retailers pose diect threat to FMCG companies like Unilever who are majorly dependent on these retailers for sale of their products. Costco uses Kirkland Signature as its private brand whilst Walmart own house brands include Sam’s Choice, Equate and Great Value that directly compete against Unilever’s products. Online retailer Amazon has come up with its own range of private brands like Amazon Elements and Bama Bear in personal and baby care segment and Happy Belly and Wickedly Prime in the foods segment which have gained popularity over the past year.
3) Divergent Global Market Environment: Unilever is facing a divergent environment across its major markets. In India, one of Unilever’s major markets, the demonetization initiative announced by the government in November 2016, is expected to have a considerable lasting impact on the business and economy and may result in a slowdown, affecting sales of its subsidiary, Hindustan Unilever. Further, the introduction of Goods and Services Tax (GST) in later part of 2017, is expected to change the market dynamics. In Latin Americas (LATAM region), there has been significant cost rise due to the impact of currency devaluations. Volatile political and economic climate in major markets like Russia and Turkey also pose significant threats to Unilever. Other Asian markets, particulary the South-East Asia is experiencing subdued pricing, impacting margins of FMCG companies.Unilever, Inc. SWOT analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
1. Unilever Annual Report 2015: https://www.unilever.com/Images/annual_report_and_accounts_ar15_tcm244-478426_en.pdf
2. Unilever Investor Presentation Nov 2016: https://www.unilever.com/Images/2016-unilever-investor-event-graeme-pitkethly-unlocking-value_tcm244-496165_en.pdf
3. Why is Unilever Rushing Towards Premium Personal Care Brands?: http://www.forbes.com/sites/greatspeculations/2015/08/18/why-is-unilever-rushing-towards-premium-personal-care-brands/#28db0de4688d
4. Size of the global skin care market from 2012 to 2021: https://www.statista.com/statistics/254612/global-skin-care-market-size/
5. Skin Care Products Market Size Is Projected To Reach USD 196.67 Billion By 2024: Grand View Research, Inc: https://globenewswire.com/news-release/2016/07/11/854902/0/en/Skin-Care-Products-Market-Size-Is-Projected-To-Reach-USD-196-67-Billion-By-2024-Grand-View-Research-Inc.html
6. Unilever to acquire Blueair: https://www.unilever.com/news/press-releases/2016/unilever-to-acquire-Blueair.html
7. Alibaba Group and Unilever Sign Strategic Partnership Agreement: http://www.businesswire.com/news/home/20150719005029/en/Alibaba-Group-Unilever-Sign-Strategic-Partnership-Agreement
8. UltraLogistik manages Unilever’s huge European project: http://www.katowicethecity.com/ultralogistik-manages-unilever%E2%80%99s-huge-european-project/
9. Tesco and Unilever end price dispute: http://www.bbc.com/news/business-37650234
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