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Unilever Company

By viv111 May 20, 2013 1240 Words
The following report pertains to Unilever Company. This report is an analysis of the internal and external factors of Unilever. This analysis will give an overview of the industry intensity and the profitability by using The Porter’s Five Forces approach. Overview

Unilever was created in 1930 through the merger of Margarine Unie, a Dutch margarine company and British based Lever Brothers, a soap and detergent company. Over the next decades, Unilever continued acquiring companies and brands, gradually moving into more food and household products categories in more and more countries.

Strengths:

Unilever possesses a competitive advantage as one of the largest consumer products company. It has some of the most well known and traditional brands such as Ben & Jerry, Lipton, I Can’t Believe it’s Not Butter and Knorr. Because of its size and dominance in the market, Unilever has developed strong distribution links with retailers over the years Therefore they have very strong supplier and buyer power. Unilever’s co-chairmen, Niall FitzGerald and Antony Burgmans had formed a five year strategy plan in early 2000, the Path to Growth strategy. Retrenchment was one of the first key elements of Unilever’s Path to Growth strategy. The strategy involved cutting the size of the company’s portfolio from 1,600 brands down to 400 core brands. Also require closing or selling 100 factories and laying off 25,000 employees so as to combine production at fewer plants to operate more efficiently by reducing their production cost. Down sizing the company, Unilever was able to generate annual savings of €3.9 billion with this advantage, they are capable to market the demand of consumers’ needs and have enough capitals to focus in R & D and advertising on the company’s leading brands. The second strength is divesting underperforming brands and businesses. Narrowing down some of the products would not only allow them to allocate their resources efficiently but would also enable them to concentrate on best sellers and increased quality possible and economies of scale. The last strength is acquisition. Acquiring reputable companies and companies with a strong market position would not only allow them to strengthen their brand image and broaden their consumerism but also provide them a better sense of community. Exhibit 1 shows the operating profit margins by product area is increasing at a steady rate. The food products have increase 6.1%, personal care products have increase 8.3% and the home care and cleaning products have increased 3.3% from 1992-2002. Exhibit 2 shows the operating profit margins by geographic area is also increasing at a steady rate. It shows that Europe had grown 6.4%, North America at 8.1%, Africa & Middle East at .5%, Asia & Pacific at 4.8% and Latin America at 3.9% from 1992-2002. This indicates that the company is still growing steadily. Weakness:

Unilever’s primary weakness is having too many unrelated products therefore there is some business risks involved because products are so scatter in the diverse industry as a result there is no synergy. In addition, less focus would be given to the best selling products when their main focus is to increase their operating profit margin. The second weakness is the down performance in the Prestige Product group and Health & Wellness. Exhibit 3 shows a tremendous decline in growth in sales in the Health and Wellness group such as Slim Fast, etc… and also the Fragrance group. (Calvin Klein, Escape, Eternity, etc…) This clearly indicates that these two groups are at a maturing stage because the rate of growth is apparently declining at a rapid rate; buyers are more sophisticated, increased competitive intensity and profitability also declining. Evidently the Paths to Growth strategy have failed referring to exhibit 4, it shows Unilever's Sales revenue & Operating Profit in 1992-2002 is declining. The third weakness is advertisement. Most companies advertise heavily to create the perception of product differentiation and to announce new product innovation. Unilever doesn’t have enough advertisement than the other companies and relatively little product innovation. Lastly, management is slow to market emerging country where there was the greatest potential to grow sales of food and household products. Threats:

The most significant threat to Unilever is its competitors such as Nestle, Procter & Gamble and Krafts Food. Exhibit 5 shows, Nestlé’s sales has been increasing rapidly in contrast to Unilever. Unilever is also showing a sign of declining; as a result it put Unilever at a riskier position. With high threats of newer entrant and high threats of substitution, private labels such as store discount brand can be easily substitutes for Unilever’s products. With the constant changes in the economy market and changes in buyers’ preference can be a threat as well, since Unilever is already operating in a difficult environment. As buyers are more sophisticated in quality, taste, innovativeness and price are the main factor to differentiate their products form its competitors. The second threat is because Unilever has started to show a decline in sales and management’s inability to reach their goal might change the perceptions of investors, lenders and vendors. Thus, stock prices may decrease; as a result a decline in the shareholders’ wealth may occur.

Opportunities:

There are only a few brands that had global standing or qualified as “power” brands. Therefore, Unilever still has room for geographic expansion. Second, lower their product prices to attract consumers. Not only it will increase sales growth but also broaden the brand image. Third is advertising to increase consumer confidence. Lastly, abandon products in their maturing stage to cut cost and concentrate on best selling products. Conclusions:

Unilever was showing sign of success during the first two years with the Paths to Growth strategy. However, they were not able to achieve their goal and evidently failed. The reason to that is mainly because of the management. The management main concern was to increase their sales growth but neglecting the internal factors such as marketing, advertising and also R& D. By constantly focusing on their sales growth, it hasn’t been able to allocate their resources efficiently by promoting slow selling items and develop new products. In addition, the management has also ignored the external factors such as new geographic markets, change drivers and competitive environment. Therefore, it leads to the decreased in sales because of their slow reaction in buyers’ preference and the constant changes in the consumer products market. Furthermore, Unilever offer a wide range of products from food to fragrance because the products are so unrelated therefore, there is no synergy.

Alternative:

Size and present in the market.
Management: marketing/ads.
New image.
Better products.
Low cost provider.
Geographic expansion.
Modified status quo.

Recommendation:

First thing I would recommend Unilever is to reorganize their task of the management. Know their purpose and strategies that will lead them to achieve their goal. I would suggest strategic vision. Learn the reason why their sales have been declining by considering both the internal and external factors. Unilever may try to conglomerate diversifying their products to reduce risks and attracting greater sales opportunity but they need to focus on where the synergy is and also when to abandon slow selling products. By eliminating underperformance product would help cutting down the operating expenses it would allow the company to have more capital on hand to restructure or focus on products lines with greater profit. Lastly, since Unilever possesses competitive advantage, I would recommend them to increased quality possible and economies of scale.

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