Keep it simple
From margarine to Marmite, chicken stock to shampoo, Unilever produces many successful fast-moving consumer goods. And despite the volatile economy, the company is still expanding. The first half of 2011 saw underlying sales up 5.7%.
However, with growth now harder to achieve, where does Unilever go from here?
Rapidly developing markets such as Indonesia and Nigeria are very much in its sights.
Unilever’s aim is to draw three quarters of its turnover from developing economies in the next 10 years or so, a target that CFO Jean Marc Huët believes is “highly ambitious, but it’s also highly realistic.”
“Around 54% of our business comes from emerging regions, and we expect that to increase,” he says. “We’ve been active in these areas for far longer than our competitors, but with each of them contributing not more than 7%-8% of our turnover, we have a great goal for further expansion.
Longevity in Indonesia pays off
Fresh from a trip to Indonesia, Huët explains that, in these fast-growing markets, a longstanding presence on the ground (the company has been in Indonesia since 1933) needs to be backed with consistent investment.
“We’ve recently invested €90m in our personal care and ice cream operations in Indonesia as part of a €550m three-year investment program,” says Huët. “With a population of 240m people and GDP growth of 6%-7% over the past few years, the potential of this market is huge.”
Unilever’s longevity in Indonesia has helped the company achieve the levels of scale and penetration it has. But being well established is no guarantee of an easy ride in rapid-growth economies. In some of these countries, Unilever’s cost to compete is escalating as other multinationals eye the potential market and as astute local manufacturers start to raise their game.
Organic growth in new markets
However, Unilever is comfortably positioned in these territories. In general, it favors organic growth over acquisitions, building its business instead through “white spaces” — i.e. deploying existing brands in new areas. While acquisitions are possible, the overwhelming majority of Unilever’s current growth comes from its own brands.
Huët says that the company has yet to leverage its large portfolio of products fully across all its geographies. “Unilever used to act like a very regional business, with little innovation being driven throughout the global structure. However, we’ve worked to create a much better balance between global reach and local proximity.”
It has recently rolled out its Axe/Lynx deodorants and Pond’s Men facial cleansers in China — taking advantage of the rise of the men’s beauty product market in the country. Data from Euromonitor International showed that the Chinese men’s skincare market will increase by 24.4% next year. Retaining this focus on how trends are changing and how different sectors are moving is crucial to increasing sales in these fast-growth markets.
Urbanization of Chinese population means growth for Unilever
Staying in China, Huët sees the huge potential in its consumer economy. “By the end of 2015, 51.5% of the population is expected to live in its cities. Just imagine the number of kitchens and bathrooms that will be created to meet this demand, and the amount of household products that will be needed. Population increases and urbanization represent huge opportunities for us.”
Huët is also keen to drive growth by developing a market and a desire for a product. One example of this is in the deodorant market in Latin America. There is a low per capita consumption of deodorants across the region but, as Huët says, “this was not based on unpopularity of the deodorant as a product but the category itself.”
Huët states that Unilever concentrated on developing the category to open up the full potential of the Latin American market. To that end, Unilever invested capital to open a state-of-the-art deodorant factory in Mexico this year. The new facility is intended to double the national production of deodorants and will supply markets across the Americas. Unilever intends to apply the same process to other low-penetration deodorant markets such as the Middle East and Asian countries in which it’s already making strides to develop the category.
Engaging with employees and consumers
Huët also believes that becoming an “employer of choice” is key to success in fast-growing economies. “In Indonesia, for example, people want to work for us because they see us as a local company — not a faceless multinational. We’ve achieved that level of loyalty through a consistent presence and consistent investment.”
Equally as important is engaging with consumers through brands that speak to them and address their needs.
Unilever’s Sustainable Living Plan, launched a year ago, spells out a number of ambitious targets that will greatly benefit people locally:
• Working with smallholder farmers
• Providing access to safe drinking water
• Designing products for water-stressed areas
• Delivering nutrition and health to save children’s lives
All these are part of a business strategy that will deliver sales and ensure longevity.
Developed markets offer stable growth over the long term
But does this focus on rapid-growth markets come at the expense of sectors such as Europe? Unilever’s first half results for 2011 showed that Western Europe’s sales only grew by 1.3% — this is compared to double-digit increases in developing markets.
Huët believes it’s dangerous to write off Europe as a low-growth area for Unilever. “We know that Europe won’t deliver most of our growth,” he says. “What it will deliver is stable, consistent performance over the long term. It’s perfectly possible to grow in Europe through innovation, superior execution and calculated risk.”
And innovation is a crucial part of that equation. He describes Unilever’s global business as a pyramid, with the apex representing its premium products and the base representing its lower-priced brands. With European consumers unlikely to get much richer in the next decade, Huët highlights a clear imperative for greater product innovation in this bottom part of the pyramid.
“There’s a real opportunity for us to replicate our success in emerging markets in developed economies,” says Huët. “Years ago, people would have laughed if you’d said that a shampoo sachet could work as well in Europe as it does in Indonesia. But it has: it’s as feasible to have big volume products and high price points as low-priced sachets.
The virtuous circle of growth
With a business of Unilever’s scale, one of Huët’s aims is to “keep things simple”.
“We have a model that works very well for us: the virtuous circle of growth. In this industry, if you don’t grow, you won’t succeed. Once you gain profitable volume increases, you start generating cost efficiencies and cost leverage. You then reinvest that profitability and cost saving into advertising and promotion and research and development, which drives profitable volume growth, and so the cycle continues. As long as we keep investing in our brands, this is a model that will deliver for Unilever.”
Unilever’s business is inherently a very simple one, says Huët. It’s the organization that can be complex. When he joined the company, his first task was to acknowledge this.
“As a relative newcomer to Unilever, I had to look beyond risk management, frameworks and structures to the people behind the organization. I started unraveling that complexity by surrounding myself with people with real institutional experience, plus the up-and-coming talent that will drive Unilever forward.
“We’re now going through a period of positive organizational change that’s all about speed and simplification. What we’ve gained is the power to define our business in a very straightforward, intuitive way.”
What the future holds
So with nearly two years under his belt, what’s next for Huët? “Year one was about putting together the right team and restoring some crucial clarity to the role of finance. Year two is all about bringing up talent and kick-starting high-impact organizational change initiatives to drive speed, simplification and resource allocation across our business. Year three will be about implementing all those ambitious projects and helping our business to get closer to the consumer.”
Finally, Huët believes there is one key to growth — consumers. “It’s surprisingly easy to lose sight of what your business is really about. I believe everything we do should be about the consumer. If it’s not, we shouldn’t be doing it.”
Unilever’s steps to success in rapid-growth markets
- Concentrating on customers
- Becoming an employer of choice in the local market
- Maintaining longevity in a region with continuing investment
- Creating a balance between global reach and local proximity
- Driving growth by developing specific categories and creating a market
- Continuing to innovate to build growth in more volatile markets
Jean Marc Huët
Born: UK, 1969
Appointed CFO at Unilever: February 2010
Educated: Dartmouth, USAMBA, INSEAD, France
Previous positions: Executive Vice President and Chief Financial Officer, Bristol-Myers Squibb Company 2008-2009. Non-Executive Director Mead Johnson Nutrition 2009. Chief Financial Officer Royal Numico NV 2003-2007. Investment Banking, Goldman Sachs International 1993-2003. Clement Trading 1991-1993.
Market capitalization: US$90b
M&A deals/value (2011): 2/US$1b
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