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Accelerating changeUnilever China
Outpacing the market
Frank BraekenGroup Vice President China, Hong Kong and Taiwan
Morgan Stanley
Investor Field Trip
Beijing
12 March 2008
• Unilever China: the context
• The opportunity
• The challenges and our responses
• The outcome
• Unilever China: the context
• The opportunity
• The challenges and our responses
• The outcome
Local roots Global scale
Local roots with global scale
Unilever’s strategic priorities
PersonalCare
Developing & Emerging
Markets (D&E)
Vitality
D&E: a major driver of Unilever’s growth
Western Europe38%
North America
23%D&E36%
% 2004 Sales % 2007 Sales
D&E44%
North America
21%
Western Europe32%
D&E underlying sales growth c. 8% p.a. since early 1990s
Other developed 3%
Other developed 3%
D&E growth is profitable
Developed D&E D&E excl.Russia & China
2007 Operating margin before RDIs*
Unileveraverage
*Restructuring, Disposals, One-off Items
Our heritage and local expertise mean that D&E is in our DNA
Unilever’s local roots
Local roots
• Understanding of the local consumer
• Brands and products across a wide range of income levels
• Critical mass on the ground
• Corporate reputation with local stakeholders and talent pool
Lever Brothers entered China in 1923
Unilever returned to China in 1986
Unilever and China -A long history
Investing to win in China
• Priority status: 5 year growth plan
• ‘One Unilever’ organisation
• New leadership team
• Increased innovation capability in Shanghai (+100 FTEs)
• Step-up in marketing investment
• Priority allocation of talent
Doubling the China business in 3 years
2004 2005 2006 2007
Unilever sales in ChinaUS$ 1 bn
US$ 0.5 bn
Unilever China by Category
Skin16%
Laundry22%
Spreads1%
Dressings3%
Savoury12%
Tea5%
Ice Cream10%
Hair19%
Oral12%
Based on 2007 turnover
• Unilever China: the context
• The opportunity
• The challenges and our responses
• The outcome
* Source: AC Nielsen# Source: Unilever estimates
The size of the prize
0123456789
10
2007* 2010#
Mar
ket s
ize
US
$ bn
Ice creamTeaSavouryFabric cleaningOralPersonal washFaceHair+0.4bn
+0.6bn
+0.1bn
+0.3bn
+0.3bn
+0.1bn
Source: AC Nielsen
HPC market still consolidating
Skin cleansing OralHair
Fabric cleaning Face care
UnileverGlobal
competitors
Localcompetitors
Others
Q. If you were buying from your usual store and the brand is not available, would you…?”
The race is still open -Brand loyalty
5 5 6 11 7 6 9 6
70 71 71 57 69 72
38
71
15 14 13 2116 12
47
12
10 10 11 11 8 10 6 11
Soft dr
inks
Ice cr
eam
Biscuit
sSha
mpoo
Deterge
nt
Snack
sCiga
rette
sIns
tant n
oodle
s
Look for the same brand but choose something different.Buy the same brand at another storeBuy an alternative brandWait until it was available
• Unilever China: the context• The opportunity • The challenges and our responses
- Understanding the Chinese consumer- Connecting with the Chinese consumer- Sustainable expansion of distribution- Building a world class supply chain- Managing complexity- War for talent
• The outcome
Source: Retail Audit Data
Key success factors
• Integrated support plan• Superior product performance
• Sharp brand position• Deep consumer understanding
Unmet consumer need
• 70 % of Chinese have dandruff concerns• Professional AD shampoos account for only 18% of the market
• 40 % of users are not satisfied with the current offering• AD needs are same cross gender.
• There is no AD brand speaking to me in my language.
Case study - Clear anti-dandruff
Bus shelterOffice LCDMetro
Airport Billboard Bus body
Magazine
Road-show
Flagship store wrap
up
Launch conference
Symposium
SamplingISA
Advertising
Promotion
Clear brand activation
Clear - Market progress
Source: Retail Audit Data
Value market share
01234567
Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan
Weighted
distribution: 43% 51% 53% 55%
Share in handler
Total share
%
Consumer insights:
• 99.9% of all soup consumption in China is in-home
• Knorr Thick Soup Treasure produces the taste and nutrition of thick soup in instant soup time.
Case study –Knorr convenient thick soup
Fact File
TV Penetration 96%TV Stations 302Satellite TV Channels 94Cable TV Channels 663Cable Subscribers 128m
• 4 MUNICIPALITIES• 23 PROVINCES• 2 ADMIN REGIONS • 5 AUTON. ZONES• 259 CITIES• 400 COUNTY CITIES
660+ DIFFERENT MARKETS
LOCAL APPROACH
PROVINCIALAPPROACH
NATIONALAPPROACH
• Highly complex media environment segmented nationally, provincially and locally (660 discrete markets)
• Top 10 TV stations account for 30% of national audience
Source: ACNielsen Media Monitoring
Challenge –Connect with the Chinese consumer
Response –Micromarketing
The ‘Heat cube’ –Prioritisation across geography, category and channel
1 2 3 41 2 3 4
Category
Cha
nnel
sGeo
graph
y
Source:A.C. Nielsen / CSM 2006
OMOOMO
HuB
HLJ
JL
LN
SD
HN
GXYN
XZ
XJ
QH
CQHuN
GuZJX
AHHeN
SX
SaX
GS
NM
TJNX
JSSH
FJ
GD
SC
BJ
ZJ
TW
CD
Competitor
HuB
HLJ
JL
LN
SD
HN
GXYN
XZ
XJ
QH
CQHuN
GuZJX
AHHeN
SX
SaX
GS
NM
TJHeBNX
JSSH
FJ
GD
SC
BJ
ZJ
TW
CD
Micromarketing –Laundry
High SOV: >30%
Medium SOV: 20-30%
Low SOV < 20%
ZhonghuaZhonghua CrestCrestHLJ
JL
LN
SD
HN
GXYN
XZ
XJ
QH
CQHuN
GuZJX
AHHeN
SX
SaX
GS
NM
TJHeBNX
JSSH
FJ
GD
SC
BJ
ZJ
TW
CDHuB
HLJ
JLLN
SD
HN
GXYN
XZ
XJ
QH
CQHuN
GuZJX
AHHeN
SX
SaX
GS
NM
TJHeBNX
JSSH
FJ
GD
SC
BJ
ZJ
TW
CDHuB
HLJ
JL
LN
SD
HN
GXYN
XZ
XJ
QH
CQHuN
GuZJX
AHHeN
SX
SaX
GS
NM
TJHeBNX
JSSH
FJ
GD
SC
BJ
ZJ
TW
CDHuB
HLJ
JLLN
SD
HN
GXYN
XZ
XJ
QH
CQHuN
GuZJX
AHHeN
SX
SaX
GS
NM
TJHeBNX
JSSH
FJ
GD
SC
BJ
ZJ
TW
CDHuB
Zhonghua
Micromarketing –Oral
Competitor
High SOV: >30%
Medium SOV: 20-30%
Low SOV < 20% Source:A.C. Nielsen / CSM 2006
Micromarketing –Lux body wash in South China
Opportunity• Guang Dong Province is the largest
shower gel market
Objectives• Grow turnover +50%• Increase market share >6%
Expansion plan• Increase share of voice• Expand media footprint• Continuous promotion schemes to
drive consumer uptake• Increase in-store visibility
In 200 stores110% increase in uptake
60% sales growth8% market share *
*Source: AC Nielsen
Outcome
Challenge –Sustainable expansion of distribution
• Sustainability • Balance trade push and
consumer pull
• Scale sufficient to make
distribution viable
• Strength of relationship with route to market partners
• Capability build
2 ndScale up
UNILEVER FIELD CAPABILITY
OPTIMIZEDCOVERAGE
STABILIZED CONTROLLEDDISTRIBUTION
ENHANCEDOPERATIONS
2010
2007
UNILEVER FIELD CAPABILITY
Response –Implementing best practice distribution model
WORLDCLASS
1 stScale up
Challenge –Building a world class supply chain
Manufacturinglocations
1997 16
2007 7
Xinjiang
Xizang
Qinghai
InnerMongolia
Gansu
Yunnan
Guizhou
Hainan
Shandong
Hebei
Fujian
Guangxi
Zhejiang
Jiangsu
Liaoning
Jilin
Heilongjiang
Shanxi
Henan
Hubei
Shaanxi
HunanJiangxi
Guangdong
Sichuan
Anhui
Tianjin
Shanghai
Beijing
Ningxia
Chongqing
Current manufacturing location
Closed since 1997
Conversion cost reductionLaundry Powder
Conversion Cost per Ton
Personal Wash Liquids
Conversion Cost per Ton
Y00 Y02 Y04 Y06 Y08Est
15Y00 Y02 Y04 Y06 Y08
Est.
Challenge –Managing complexity
From (1997) To (2007)
10 joint ventures
13 business units
29 senior executives
1 wholly owned business
1 operating unit for Foods, Ice Cream and HPC
Simplified management structure led by 12 senior executives
• Source: Hewitt Salary survey 2006
Challenge –War for talent
13.9%
10.2%
14.9%
5%
7%
9%
11%
13%
15%
17%
2003 2004 2005 2006
Employee turnover rate
Unilever
All industries
FMCG
• Correct leadership objectives
• Developing Asian leaders
• Simplification
• De-layering
• Stimulating environment
Response –A rewarding Vitality environment
• Unilever China: the context
• The opportunity
• The challenges and our responses
• The outcome
A Unilever growth engine with sustainable 20% growth momentum
The outcome
Accelerating changeUnilever China
Outpacing the market Mumbai
14th November 2007