uni lever report

8/8/2019 Uni Lever Report

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STRATEGIC MANAGEMENT

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1. INTRODUCTION OF UNILEVER PAKISTAN Ltd.

Unilever is one of the world's leading suppliers of fast moving consumer goods across

Foods and Home and Personal Care categories. Unilever's portfolio includes some of the

world's best known and most loved brands.

Unilever Pakistan Ltd:

Unilever Pakistan (70.4% Unilever equity) is the largest FMCG company in Pakistan, as

well as one of the largest multinationals operating in the country. Unilever Pakistan Ltd.,

a subsidiary of the Unilever Group is operating in Pakistan since 1948. The Companys

main business lines are Soaps and Detergents, Personal Products, Cooking Oils and Fats,

Packed Teas, and Ice Creams. Unilever has a long list of brands such as Surf, Vim, Rin,

Lifebuoy, Sunlight, Lux, Rexona, Sunsilk, Close-Up, Blue-Band, Dalda, Planta, Liptons

Yellow Label, Taaza and Richbru, Brook Bonds Supreme and Kenya Mixture etc. which

are common household names in Pakistan.

The Companys factory at Rahim Yar Khan was one of the first industrial units to be

constructed after the creation of Pakistan. As the consumer base expanded over the years

and the Company entered into new product lines like Personal Products and Margarine, it

invested further in the installation of modern manufacturing facilities including a factory

at Karachi. Today, the Company is using latest state-of-the-art technology for producing

high quality products.

In 1995, the Company established a new factory near Lahore to manufacture the Walls

range of ice creams, which have become popular within a short time. In 1996, the presentgroup Unilever UK acquired the Polka Group that produced ice creams. In 1999,

Pakistan industrial promoters (Private) Limited, owners of Polka brands of Ice Cream

were merged with Lever.

In order to leverage the synergies of Unilevers international brand strength, market edge

and corporate image, Lever Brothers Pakistan Ltd. changed its name to Unilever Pakistan

Ltd., in August 2002.


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Overview of Unilever Pakistan Ltd.

The company had a turnover of Rs. 23.3 bn (Euro 309 mn) in 2007, and enjoys a leading

position in most of its core Home and Personal Care and Foods categories, e.g. Personal

Wash, Personal Care, Laundry, Beverages (Tea) and Ice Cream. The company operates

through 5 regional offices, 4 wholly owned and 6 third party manufacturing sites across

Pakistan.

Accountable to our stakeholders

Since the time Unilever Pakistan began its operations in 1948, the Company has been

closely connected to the Pakistani people and its brands have been an integral feature in

their daily lives. In fact, the nature of our business enables our brands to be the pulse and

heartbeat of the 164 million people in Pakistan.

This is a huge commitment, which makes us responsible and accountable to all ourstakeholders and society as a whole and strengthens our resolve to:

y Make a positive difference to the lives of low income consumersy Create new opportunities for growthy Improve the overall quality of life in Pakistan, by promoting education, nutrition,

health and hygiene


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2. COMPANY SUMMARY

VISION STATEMENT

Unilever products touch the lives of over 2 billion people every day

whether that's through feeling great because they've got shiny hair and a

brilliant smile, keeping their homes fresh and clean, or by enjoying a great

cup of tea, satisfying meal or healthy snack.

MISSION STATEMENT

Mission Is To Add Vitality To Life. We Meet Everyday Needs For Nutrition,

Hygiene and Personal Care With Brands That Help People Feel Good, Look

Good and Get More Out Of Life.

Adding Vitality to life:

150 million times a day, in 150 countries, people use our products at key moments of

their day. In the future, our brands will do even more to add vitality to life. Our vitality

mission will focus our brands on meeting consumer needs arising from the biggest issues

around the world today ageing populations, urbanisation, changing diets and lifestyles.

Scale and geographic reach:

Our deep roots in local cultures and markets around the world give us our strongrelationship with consumers and are the foundation for future growth. We will bring our

wealth of knowledge and international expertise to the service of local consumers - a

truly multi-local multinational - extract from Unilevers Corporate purpose.

Strategy and long-term financial target

At the heart of Unilever's strategy is a concentration of resources on areas where we have

leading category and brand positions and which offer excellent opportunities for

profitable growth, especially in personal care, developing and emerging markets and

Vitality. The focus is primarily on developing the business organically, but acquisitions

and disposals can also play a role in accelerating the portfolio development.

To execute this strategy we have reorganised the business to simplify the organisation

and management structure and to improve capabilities in marketing, customer

management, and research and development. The result is better allocation of resources,

faster decision-making and a lower cost level. This transformation, known as the One

Unilever programme, allows us to leverage our scale both globally and locally.


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Unilever's long-term ambition is to be in the top third of our peer group in terms of total

shareholder return. We expect underlying sales growth of 3-5% per annum and an

operating margin in excess of 15% by 2010 after a normal level of restructuring charges

of 0.5 to 1 percent of turnover. Return on invested capital is targeted to increase over the

2004 base of 11%. Over the period 2005 2010, we aim to deliver ungeared free cash

flow of 25-30 billion. It should be noted that previous and planned disposals and the

additional restructuring plans will have reduced ungeared free cash flow by about 2.5

billion over this period, while enhancing the ongoing cash generating capacity of the

business.


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3. INTERNAL AND EXTERNAL AUDIT OF

UNILEVER

Strengths:

y Customers Loyalty.y Latest state of the art facilities and technology for producing high quality

products.

y International brand strength.y Committed to business ethics, safety, health, environment and community.y UNILEVERs key competitive advantage over other market participants is the

retail reach of the company. UNILEVER services 500,000 outlets with 50 %

through direct distribution and remaining via wholesalers.

y UNILEVER is enjoying market edge of 41% in FMCG industry. UNILEVER isat number one in ice cream segment and having 14% market share all over the

globe

Weakness:

y The biggest challenge in safeguarding market position is to become cost leader.y Operational complexity due to a large number of products in portfolio and due to

diverse work force.

y Strategic alliance with other small mills for manufacturing purpose is theweakness as well as a threat for UNILEVER. Although UNILEVER claims that it

is a part of its cost reduction strategy but it can not hide the reality that it shows

weakness of UNILEVER.

Opportunity:

y Markets of developing countries can be proved a profitable segment becausepeople are consumption oriented rather than saving or investment oriented.

y UNILEVER can gear up its market share in the untapped rural market.y Diversification in unrelated business.y Rapid increase in world population. World population is set to grow by 800m in

2010 and almost all increase will be in developing countries.


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Threats:

y FMCG market is highly responsive to economic conditions, inflation and socialdisruptions resulting in variations in sales revenues and demand for the

company.

y P & G is the major competitor and threat for UNILEVER. Other organized playersare Nestle and R & B.

y UNILEVER is facing intense competition from unorganized players i.e. cheapersmuggled products and Chinese products. According to industry source, 40% of

tea consumed locally and a large portion of HPC products are smuggled into the

country.

y Legal, political and regulatory factors of host country. For example, supportiveGovernment policies for attracting FDI, 1% tax rate on corporate profit and

inability ofPakistan Government to control smuggled products etc.

y Although UNILEVER has a first mover advantage in ice cream segment but Engrohas announced to enter in ice cream segment and is considering a big rival post

CY2010.

y Rapid increase in raw material cost and supply disruptions from suppliers of rawmaterial. The unprecedented surge in palm oil, tallow prices and other materials

has resulted in declining margins. Going forward, high raw material costs are a

key risk to UNILEVERs profitability.


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The comparative profile matrix (CPM):

Success factors weight rating score rating score rating score

Quality 0.13 4 0.52 3 0.39 3 0.39

Financial position 0.15 4 0.60 3 0.45 4 0.60

Market share 0.16 3 0.48 3 0.48 3 0.48

Technology/

innovation

0.12 3 0.36 4 0.48 3 0.36

Global market 0.10 3 0.30 4 0.40 3 0.30

Price

competitiveness

0.10 2 0.20 3 0.30 4 0.40

R & D 0.14 4 0.56 3 0.42 3 0.42

Customer loyalty 0.10 3 0.30 3 0.30 2 0.20

Total 1.00 3.32 3.22 3.15

Unilever P & G Kraft


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4. THE INPUT STAGE

4-1 EFE matrix:

Key external factors Weight Ratings Weighted

score

OpportunitiesMarket of developing countries due to more

tendency towards consumption

0.15 4 0.60

Rapid increase in worlds population. 0.15 3 0.45

Unrelated diversification 0.10 1 0.10

Rural area 0.05 4 0.20

Hygiene Consciousness 0.10 2 0.20

Threats

Competition from organized players,P

& G 0.15 4 0.60Inflation Rate 0.08 2 0.16

Smuggled products and local competition 0.07 2 0.14

Legal, political and regulatory factors of host

country.

0.05 2 0.10

Rapid increase in raw material cost. 0.10 4 0.40

Total Weighted Score 1.00 2.95Ratings: 1.Poor 2.below Average 3. Above Average 4.Superior

Justification of Ratings:

On opportunity side:

1. It is a general observation that people of developing countries like Pakistan aremore inclined towards consumption rather than saving and the major portion of

spending is on FMCG.

2. World population is increasing at an alarming rate. World population is set togrow by 800m in 2010 and almost all increase will be in developing countries.

And increase in population leads to increase demand of FMCG sector.

3. Like Engro, UNILEVER can enter in unrelated areas of production.4. The under penetrated rural market offers tremendous growth potential as rural

population constitutes around 60% of the total population. In the past few years,favorable structural changes, such as double digit growth in agricultural credit,

increased penetration of television cable media have boosted demand for FMCG

products. Following table shows that rural population will be almost 50% of total

population in near future.


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On Threats Side:

1. P & G with 50% market share is a big threat for UNILEVER. Nestle with roundly30% market share is also posing a threat in near future. Engro is planning to enter

in ice cream market and a future rival in ice cream as well.

2. Rapid increase in inflation rate can increase the prices of products and hence canreduce demand.

3. Smuggled products swallow a big part of profits of UNILEVER every year.Almost 40% tea and 29% shampoo used in Pakistan is smuggled from

Afghanistan and China.

4. Economic system of host country and rapid increase in raw material cost are lasttwo major threats for UNILEVER.

4-2 IFE matrix:

Key internal factors Weight Ratings Weightedscore

StrengthCustomers Loyalty. 4 0.60

Micro level retail outlets 4 0.45

Latest state of the art facilities and technology 4 0.10

International brand strength. 3 0.20

Market share of 41% 3 0.20

Committed to business ethics, safety, health,

environment and community.

3

WeaknessStrategic Alliance 1 0.60

Costly Products. 2 0.16

Operational Complexity. 1 0.14

Total Weighted Score 2.95Ratings: 1.Poor 2.below Average 3. Above Average 4.Superior

Justification of ratings:

On strength side:

1. Customers loyalty is not a hidden fact in UNILEVER case. People have developed andadopted the taste of UNILEVERs high quality products and there is no comprise on

quality. 150 million times a day, in 150 countries, people use UNILEVERs products at key

moments of their day.

2. Micro marketing in developing countries. UNILEVER services 500,000 outlets with 50 %through direct distribution and remaining via wholesalers.


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3. UNILEVERs continuous expansion and its large market share indicate theirstrength in latest facilities and quality management. UNILEVER has ISO

certification.4. Its brands are enjoying international recognition. UNILEVER is serving almost

150 countries.

5. UNILVER is concerned about its customers as well as employee. There are strictsafety standards for employees and visitors of plants too.On weakness side:

1. Although UNILEVER claims that strategic alliance with small firms formanufacturing purpose is the part of its reducing cost objective but if we look at

the other side of the picture, strategic alliance is a weakness as well as threat for

UNILEVER. For example, Asad Soap Factory is manufacturing soap for

UNILEVER Rahim Yar Khan, and now Asad soap factory is searching for buyers

of soap plant.

2. UNILEVERs products are costly as compare to local producers. Although costlygoods are not posing any big threat to UNILEVER but in long run it can be proved

harmful for company. So company is responding greatly towards covering its

weakness. For this purpose, company has adopted policy of contractual hiring,

strategic alliance etc.

3. UNILEVER has a large number of products in its portfolio. It means thatUNILEVER has a large number of SBUs to control. It adds operational

complexity to UNILEVERs operations.


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5. THE MATCHING STAGE

5-1 SWOTS / TOWS matrix

SWOT / TOWS

Matrix

Strength Weakness

y Customer loyaltyy Micro level retail outletsy Latest state of the art

facilities and technology.

y International brandstrength.

y Market share of 41%y Committed to business

ethics, safety, health,

environment andcommunity.

y Strategic Alliancey Costly Products.y Operational Complexity.

Opportunity S-W strategies W-o strategies

y Developing countries.y Rapid increase in worlds

population.

y Unrelated diversification.y Rural area.y Hygiene Consciousness

1. Discover new markets(O1,O2,O4,S4,S3)

2. New quality products(O3,O5,S3,S6)

3. Unrelateddiversification (O3, S1)

4. Market Expansion inrural areas (O4, O1,

W2)

Threats S-T strategies W-T strategies

y Competition fromorganized players, P & G

y Inflation Ratey Smuggled products and

local competition.

y Legal, political andregulatory factors of hostcountry.

y Rapid increase in rawmaterial cost

5. Vertical Integration(T1,T3,S2,S4)

6. Increase inmanufacturing capacity.

(W1, T1).

7. Cost leadership(W2,T5)


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Proposed Strategies:

1. UNILEVER can capture untapped rural markets and markets of developing nationsby using its state of the art facilities & technology. International brand strength is

plus point which will be proved helpful while positioning.

2. UNILEVERs Commitment to business ethics, safety, health, environment andcommunity can be proved helpful in order to satisfy hygiene conscious customers.

UNILEVER should focus more on quality of goods.

3. Unrelated diversification is a risky decision to be taken. Loyal customer is themajor power to cope up with after effects of this decision.

4. Customers in rural areas and in developing countries usually have low income level.UNILEVER should reduce its costs in order to capture that uncovered markets

effectively.

5. UNILEVER can use its international brand strength and wide network of retailoutlets in order to compete with organized and unorganized players of market.

6. Strategic alliance is showing the weakness of UNILEVER in particularlymanufacturing area which the competitors do not hold. UNILEVER should its

production capacity in order to compete in market and to reduce competitors threat.

7. If UNILEVER can obtain cheaper raw material, it can reduce cost of goodsmanufactured


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5-2 SPACE matrix

Financial strength (FS) Ratings

10% increase in net income in 2009 as compare to 2008 +4

Net sales were 15.7% 2009 as compare to 14% in 2008. +3Total asset turnover is 3.2times in 2009 as compare to 3.1 times in

2008

+2

ROI has declined from 87% to 86% in 2009 +2

ROA is averaged 27% which is declined to 24% in 2009. +1

Total +11

Industry strength (IS)

Consumption Oriented Culture +4

Rapid increase in raw material cost +2

Growth potential in rural and developing countries market. +4

Profit potential is reducing due to intense competition

especially from un-organized players

+1

Total +11

Competitive Advantages (CA)

Committed to business ethics, safety, health, environment

and community

-1

Customer loyalty -1

Market share of 41% -2

Control over supplies and distribution. -4

Latest state of the art facilities and technology. -1

Total -9

Environmental Stability (ES)

Demand in the retail industry is price elastic. -3

Smuggled products and local competition -5

Legal, political and regulatory factors of host country -3

High rate of inflation effects demand -4

Law and Order Situation -2

Total -17


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Average scores:

FS = 11/5 = 2.2IS = 11/4 = 2.75

CA = -9/5 = -1.8

ES = -17/5 = -3.4

X-axis = IS+CA = 2.75-1.8 = 0.95Y-axis = FS+ES = 2.2-3.4 = -1.2

FS

+0.95

CA IS

-1.2

ES

SPACE matrix indicates whether conservative, aggressive, defensive and competitive

strategies are more appropriate for given organization. UNUILEVER should pursueCompetitive Strategies that are intensive and integration strategies

We will suggest following two strategies:

1. Product development2. Market Development


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Product Development to increase sales by slightly modifying its products. Itwould eliminate its threat from unorganized market competitors which are selling

smuggled items and hurting the market of UNILEVER quite badly.

Following are some factors that prove why I choose this strategy for

UNILEVER: UNILEVERs existing products are very much successful across the

globe. Its 41% market share shows the number of satisfied customers. There are rapid technological developments in FMCD industry. FMCG is a high growth industry. High growth is characterized by rapid

increase in demand due to some factors like increase in population etc.

UNILEVER has both organized and un-organized rivals. Organized rivalsare competing by introducing comparable prices and un-organized rivals

are hurting UNILEVER by selling even at lower of the cost.

Market development is another strategy suggested for UNILEVER,

Weve seen that UNILEVER is producing high quality products and captured themaximum market share. But still lots of lower and middle income people are out of

its user for most of the products as they are highly priced. Rural area is also an

untapped market for UNILEVER. UNILEVER must consider about producing low-

priced products as well so company can earn maximum share.


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5-3 BCG matrix


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Industry Classification

Industry Industry

classification

Indicators

Tea Maturity Industry growth lagging GDP growth. Low profit margins

Reduced sales volumesIce cream Growth 0.5kg per capita yearly consumption Double digit revenue

growth Large Capex and advertising spend

Soap Maturity ULEVER Growth company within mature industry

Lux sales doubled in 3 years High profit marginsIntroduction of liquid hand wash

Detergent Growth 11% rise in Surfs market share Low penetration, 50%population uses laundry soap Double digit turnover

growth

Shampoo Growth Lowest penetration in Asia. Clear Shampoo highest

growth in comparable regions

STARS - Ice cream:

Unilever has the first mover advantage in the capital intensive ice cream segment. With

around 65% market share, ULEVER is the only major operator in the industry. The

company is in the process of increasing production capacity and strengthening its

distribution channel. In CY07, sales were restricted by lost trade confidence, delay in

factory expansion resulting in plant shutdowns, and adverse weather conditions.

However, going forward with per capita consumption at a low 0.5 liters per annum

tremendous growth potential exists in the ice cream segment. We expect segment revenuegrowth of CAGR 19% in CY08-CY12E.

QUESTION MARK Frozen foods:

According to matrix, UNILEVERs frozen foods like Knorr and some products of

household care business units like Dove are question marks as they are operating in a

growing market without high market share, thus holding the sales growth of the

companys 400 leading brands by 0.6%

Therefore it can be noticed that not the whole divisions are under performing, as a result

UNILEVER needs to invest more in these business units to keep up with the fast growing

market because they are already successful but need better performance. Brands such as

Knorr and Lipton in food and Dove in the household product sector are among the core

brands that raise concern for UNILEVER. As they operate in a growing market more

investment is needed to boost sales and margin and as it is unlikely that these units

achieve sufficient cost reduction benefits, UNILEVER may turn to its cash cow

businesses to offset such investment.


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As part of its path to growth strategy UNILEVER must build on these businesses to

improve performance as the market share must grow if they are to become stars otherwise

they may face alternative solutions that could include the sale of the business, which

should be the last alternative because of the growing divisions inside the business.

UNILEVER might be better off investing more cash in frozen foods and household care;since the market is growing it may gain more share and dominance.

CASH COWS HPC:

The HPC segment continues to drive the top-line and profitability growth, and is the key

focus of the companys growth strategy. In CY09 the company posted impressive

turnover growth of over 25% attributable to higher volumes and price increases. Among

the key brands in the HPC business Lux, Surf and Sunsilk continue to be the star

performers with market leadership positions.

DOG Beverages (Tea):

The mature tea segment continues to follow a declining trend as ULEVER faces stiff

competition in the tea market. ULEVER continues to lose sales volume to Tapal in

organized sector and to small local brands in rural areas that are using cheap smuggled

tea. Supply disruptions as a result of political turmoil and drought in Kenya ensue in

squeezed margins.

The companys strategy is to defend losing market share as no growth is expected in

beverages segment. ULEVER had two production facilities for tea located in Karachi and

Khanewal. Recently, ULEVER has closed down the Karachi tea factory in view of low

demand and sales volumes.

This is expected to result in restructuring charges in the short run, however, in the long

run the company is expected to benefit in terms of cost efficiencies and reduced

overheads.

In the backdrop of losing market share, the contribution of tea business to total turnover has

declined over the years (34% in CY09). Going forward, the tea segment is expected to remain

under pressure. It is forecasted a flat outlook for the segment with decline in turnover of 5-6%

each year.


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5-4 Internal external matrix: IFE weighted score

Strong average weak

3.0 2.0 1.0

1.0

High 4.0

3.0

Medium

2.0

Low

1.0

The IFE matrixes score for UNILEVER is2. 80 and for EFE matrix score is2 .9 5

therefore our IE matrix falls more around v cell. The company should adopt HOLD &

MAINTAIN STRATEGIES and I recommend Market Development and Product

Development for UNILEVER. UNILEVER can introduce existing products to newgeographical area that are rural markets and markets of developing nations. On the other

hand UNILEVER can also modifying its existing products and introduce variants in order

raise its market share.

i ii iii

iv v iv

vii viii ix


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5-5 GRAND matrix:

Q2 Q1

Q3 Q4

The grand matrix helps us to determine the strategy that firm must pursue, based on its

competitive position and market growth.

UNILEVER lies in Q1 which represents excellent strategic position of company. For

these firms, continued concentration on current market and products is an appropriate

strategy. UNILEVER has abundant resources so backward, forward and horizontal

integration may also prove effective.

Rapid market

Strong

competitive position

Weak

competitiveposition

Slow market growth


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6.THE DECISION STAGEThe Quantitative Strategy Planning Matrix (QSPM)

Market develop Product develop

External Factors weight AS TAS AS TAS

Untapped Rural area. 0.05 4 0.20 - -

Market of developing countries 0.15 3 0.15 - -

Rapid increase in worldspopulation

0.15 4 0.60 1 0.15

Hygiene Consciousness 0.10 - - 2 0.20

Unrelated diversification 0.10 - - - -

Legal, political and

regulatory factors of hostcountry.

0.05 4 0.20 1 0.05

Inflation Rate. 0.08 2 0.16 3 0.24

Inflation Rate. 0.15 4 0.60 3 0.45

Raw material cost increased. 0.10 3 0.30 4 0.40

Smuggled products andlocal competition.

0.07 3 0.21 4 0.28

TOTAL 1.00 2.42 1.77

Internal factors

Costly Products 0.15 - - - -

Customers Loyalty. 0.15 3 0.30 4 0.60

Micro level retail outlets 0.10 4 0.40 1 0.10

Latest state of the art

facilities and technology

0.10 3 0.30 3 0.30

Market share of 41% 0.12 4 0.48 3 0.36

Committed to business ethics,

safety, health, environmentAnd community.

0.10 - - - -

Strategic Alliance 0.15 - - - -

International brand strength. 0.08 4 0.32 3 0.24

Operational Complexity. 0.05 - - - -

TOTAL 1.8 1.6

GRAND TOTAL 4.22 3.37


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7. STRATEGIC RECOMMENDATION

Appropriate strategy for UNILEVER is Market Development. UNILEVER should

remain in the present business and should introduce present products in new geographical

area.

Following are necessary factors that must be present while choosing market development

strategy:

1. UNILEVER has its own strong distribution channel.2. UNILEVER is very successful at what it does.3. Untapped rural market and market of developing countries exist for UNILEVER

to cover.

4. UNILEVER is a strong MNE in Pakistan. It has abundant resources both financialand human, so it can easily expand geographically. Here we are not concernedabout expansion of operating activities to new geographical area. We are

particularly concerned about capturing untapped market. It is up to UNILEVER

whether it is decided to start operating in new areas too or just introduce products

by using its strong channel of distribution.

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