The Legacy That Got Left on the Shelf - Unilever and Emerging Markets

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  • Published : November 7, 2008
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The world's second-biggest consumer-goods firm is finally beginning to make the most of the advantage it was handed in emerging economies WHEN a consumer-goods company casts around for the best growth prospects, rarely does anything look more promising than emerging economies. These markets are growing so rapidly that within just two years they will account for half of all the world's consumer spending, estimates Harish Manwani, head of the Asian and African businesses of Unilever, a giant of the world's consumer-goods industries. But even with more than a century of experience in some of these countries, Unilever tripped up. Few companies have had the head start in places like Africa, China, India and Latin America that Unilever enjoyed. Yet despite the Anglo-Dutch giant's formidable range of products and unprecedented depth of local knowledge, when rivals began to push harder its empire came under threat. Unilever was forced to re-examine its legacy and to act on what it found. Now the results are coming through. Unilever's low point came in September 2004, when its share price slumped after it shocked investors with a profits warning. Just four months later its prospects dimmed further when its arch-rival, Procter & Gamble (P&G), agreed to buy Gillette for $57 billion. The deal greatly bolstered the American company's formidable arsenal of global brands. Unilever needed to change urgently. That would involve removing unnecessary complexity and bureaucracy, much of it accumulated over decades of operating in almost every country in the world. But change had to begin at the top. Listed on both the London and Amsterdam stock exchanges, Unilever used to be run almost by committee, with two joint chairmen, one appointed from Britain and the other from the Netherlands. In February 2005 its management structure was altered: Patrick Cescau, the joint chairman from the British side, became the sole chief executive. Mr Cescau, a soft-spoken Frenchman, is a Unilever veteran and may seem an unlikely revolutionary. Nevertheless, under him a more unified company has been taking shape. And it seems all the better for it. In 2006 sales grew by 3.2% to euro39.6 billion ($49.7 billion) with net profits of euro5 billion. The trend is continuing. Analysts estimate that sales rose by more than 5% last year (the company is due to report its annual results on February 7th), which would be Unilever's best performance for years. The company's improvement "shows that our business model has integrity", says Mr Cescau in his unflorid way. So Unilever seems to have got itself back on course. But the battle for the emerging-market consumer remains far from straightforward. And it is far from over. Setting sail for distant markets

Unilever was born in 1930 in one of the largest mergers of its time, between Margarine Unie, a Dutch producer of margarine, and Lever Brothers, a British soapmaker. There was industrial logic in this because both businesses shared a common ingredient, palm oil: growing it in overseas plantations and importing it would benefit from economies of scale. Yet the histories of both firms stretch back into the 19th century, to when they dispatched young men on ships from Liverpool and Rotterdam to faraway places. The young men were under instruction to build businesses. They set up plantations, built factories and established distribution and supply systems. With long lines of communication, these ventures invariably developed as and how they could, often with great independence. The modern Unilever that eventually emerged carried with it strands of its ad hoc evolution. It is unique among big consumer-products companies in that it makes and sells food, household goods and personal-care products. Its rivals tend to do just one or two of these things: for instance, Switzerland's Nestle, the world's biggest food firm, does not sell household goods or personal products. And P&G does not sell food, but sales of more than $75 billion...
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