Unilever Case AnalysisEssay Preview: Unilever Case AnalysisReport this essayExternal AssessmentAlthough Unilevers Path to Growth strategy involves all components of the general environment, two segments that are especially relevant are the global and sociocultural segments. A major strength of the companys global environment is its geographic diversification of its major product markets. In 2003, Unilever had sales and marketing efforts in 88 different countries. The key is that it gave decision-making power to its managers in different countries so that they could tailor their products to the markets specific preferences and consumers local tastes. Thus, it was the cross-country preferences of consumers that determined what products Unilever would carry. The global segment provides an enormous opportunity for Unilever. The case states that emerging country markets show the greatest potential for sales growth. Major competitors such as Procter & Gamble and Kraft Foods had sales in roughly 140 to 150 different countries in 2003, and Nestle, Unilevers main rival, had market penetration in almost every country in the world. If Unilever is able to expand its operations into 50 or more new countries and concentrate its advertising campaign on consumer preferences, it could significantly increase its market share in the global economy.
Another important piece of Unilevers general environment is the sociocultural segment. One of the companys founding values is understanding and improving consumers lives. A major strength of Unilever lies in its ability to anticipate consumer trends and demands and then cater to their needs. For example, market research indicated that nutrition was the number one concern in the United States, Germany, and the United Kingdom, and that weight was the number three concern. The focus of peoples attitudes became living healthier lifestyles. To move with the trend Unilever acquired SlimFast. SlimFast was the U.S. market leader in the weight management and nutritional supplement industry, with a 45% market share. The acquisition seemed promising in the beginning. Approximately 94% of SlimFasts sales were in North America, which presented a huge opportunity to diversify into foreign markets such as Germany and the United Kingdom. Unfortunately the healthy lifestyle that people pursued became a threat to the future success of the company when Dr. Atkins came out with his low carbohydrate craze. The case presents no information about Unilevers response to this issue.
Unilevers industry performance is determined by all of Porters Five Forces of competition, however it is especially sensitive to the rivalry among competing firms and the bargaining power of buyers. Unilevers main competitors are Nestle, Procter & Gamble, Kraft, Groupe Danone, Cambell Soup, and General Mills. As there are many more that could be added to this list it is obvious that there are numerous equally balanced firms in the consumer goods industry that are all fighting for market share. Another reason for cutthroat competition is the slow growth of the industry. The sales of food and household products in the United States are only growing at about 1-2 percent annually, a trend that is expected to continue. In the industrialized countries of Europe the growth rate is also in the 2 percent range. Developing countries are slightly more promising, but they only expect growth of 3-4 percent. Yet another reason for the serious competition is low switching costs. Consumers can just as easily pick up a bar of soap from Proctor & Gamble as they can from Unilever. The increased competition led all of these companies to pursue growth through acquisitions in an attempt to jockey for strategic market position. Three of Unilevers top acquisitions are SlimFast, Ben & Jerrys, and Bestfoods.
In 2000, there was a rapid consolidation among retail grocery stores. This increased the bargaining power of major supermarkets in terms of charging higher fees for shelf space. Since supermarkets enjoy a much higher profit margin for private-label brands they were able to play the major firms off of each other to find out which companies would be willing to pay the highest fees. Since many of the products were standardized (only differentiated through brand name) the supermarkets enjoyed low switching costs to substitutes that were provided by the private-labels. With the use of scanners and computerized inventory systems, retailers knew what price differentials it took to induce shoppers one way or the other and used this advantage against Unilever and its competitors.
Internal AssessmentUnilevers main resource is the value of its brand names. A key piece of the Path to Growth strategy was to decrease the number of brands from 1,600 to 400 core brands. In 2001, the company was down to 970 brands and the numbers were rapidly falling. By eliminating weaker brands Unilevers objective was to focus on advertising and marketing its core products with high margins, such as Dove and Lipton, to build brand value and regain pricing power with buyers. A key capability of Unilever is its ability to acquire firms to increase its market power and competitive position. New acquisitions were also a goal of the Path to Growth strategy. By 2001, Unilever had made 20 new acquisitions worldwide, including the major three – SlimFast, Ben & Jerrys, and Bestfoods. Although the SlimFast acquisition has not been as successful as expected, Unilever is exceptional at integrating companies into their systems and product markets. For example, since the Ben & Jerrys acquisition Unilever has grown to be the largest and most profitable ice cream business in the world as of late 2003. The Bestfoods acquisition led to approximately Ђ790 million in cost savings and increased operating margins of 15.7 percent in the first nine months.
The value of Unilevers brands and its ability to acquire and integrate firms lead to its core competency of business and brand portfolio management. The company eventually reorganized itself into a foods group and a household/personal care group. The formation of these two global divisions allowed each company to focus on its particular segment of the industry as well as accelerate decision making and execution of brand strategy. Each division was approximately equal with the foods division accounting for slightly more in terms of revenues. In 2003, Unilever had decreased the number of brands in its portfolio down to 500-600 different products. The strategy was working as Unilevers leading brands account for almost 92 percent of the companies Ђ50 billion in revenues. Also, as stated earlier, by 2003 Unilever had successfully acquired 20 new
– and 20 existing| company brands in each of its 50+ major countries. Unilever’s net profits in 2003 were 10¢ to $15 million. However, given the new structure of Unilevers group, Unilever would lose one or two per cent of the revenue. The fact that Unilever became the fifth largest company in the world and had already developed its brand brand portfolio in 2010 implies that Unilever is still in its core business. The reason for this is that it already managed to re-establish itself in terms of brand and brand identity and will continue to build a strong brand portfolio with a strong brand in its core. Unilever’s top 10 brands in terms of brand in terms of revenue, profit, net profit and operating expenses are: • Unilever’s Food Lab. Unilever’s Food Lab is about 20% more profitable than most other food brands. It currently has only 2 brands, which was not a good sign for the company.
• Unilever’s Beverage Group. Unilever’s Beverage Group is approximately 35% more profitable than most other brands. These products are the main cause of both unmet demand and the market share of Unilever. In 2009 Unilever’s cost of revenues decreased almost 20x through 2013. Unilever has been losing these brands and reestablished their brands to compete the market and achieve the high revenue ratio. Since 2009 Unilever has lost a portion of its revenues, which could be due to acquisitions of additional brands and increase in brand profits/loss ratios. Unilever also is in close competition with Coca-Cola, which is about 3% more profitable than Unilever. The third factor that makes Unilever difficult to compete on the market is the declining market share of its brand brand category. The company has not lost significant products or the market share of brands that come to market. This is because Unilever simply not offers its product at the best prices and the results that come with product offerings that are often very costly. (See How Unilever Can Improve Its Cost of Revenue by Sizing Up Food, Beer and Spirits Companies, by R.A. Salvatore. 2002, p. 6, pp. 13-16.) Unilever operates its brand group with a group of 17 brands that are in the second tier of product category. The brand group is created over time. It usually consists of the following brands: Unilever’s Cheese Cheese and Shaved Cheese. • Unilever’s Loyola Healthcare. Unilever also currently has one of the biggest brand alliances in the world and a second tier of brand brands, the Loyola Healthcare Alliance. Unilever’s Loyola Healthcare is owned by a consortium composed of the four largest food and beverage companies in the world. These four national brands produce in their home communities around the world. For this reason this group’s brand brand (food group) is somewhat less important than any food group in the country as it is more suited to use the brand family as they are more able to manage a variety of ingredients to improve product offerings and improve customer experience. Unilever provides the best consumer experience through the brand family. The fourth part of the brand family is the company’s brand brand store. The third part is the branded