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How 'old world' companies can capture the future

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Over the years I’ve seen comments that prompted me to look at the financials of Unilever – a global company in the fast moving consumer goods (FMCG) sector. 

The what? That sector makes the products you use daily; the ones you tend to throw into your supermarket trolley without paying much attention: ‘care factor’ 0/10 ‘basics’, where you select the lowest price and wouldn’t recall the brand. It just does the job.

While amazing things have happened in the business world, most manufacturing-dinosaur companies in the FMCG sector have plodded on, been taken over or gone out of business.

I recently read a business piece that suggested Unilever had ‘repositioned itself for the future’. Hoping there would be some interesting ideas to ponder/borrow, I headed for the annual reports – in particular, the numbers because they tell you if the pictures and words are correct.


The headline numbers are impressive: 2 billion customers in 190 countries per day buy one of Unilever’s 400 brands focused on health and wellbeing. Health and wellbeing? My ‘care factor’ just shot up to about 7/10 because producing products which appeal to our sense of self means you can charge more. 

Its top 14 brands each generate over €1billion per year, with 56% of revenue coming from emerging markets, representing an underlying growth rate of 5.7%. Good idea - head where the customers are, especially the 'rising middle class' we hear so much about - that should increase volume. 

The CEO’s reports show that the company is very ‘number’-driven. What do the reports unveil?

  • That the four categories are being actively managed

Over the years it has been rationalising its portfolio: buying brands that produce revenue in the top quartile of product performance (‘stars’ (1)) and selling those that no longer match its 'sustainable living' vision or produce sufficient margin (‘dogs’). It bought Australia's T2 (premium teas) in 2013 because of its 'double digit' profit line and store-readines for global roll out. Yet Unilever is still working hard for its money: sales volume grew only 2.9% and prices 1.9% (2014).

  • That margins matter

The diagram, above, shows the core operating margins. While Personal Care and Goods had the highest margins, the Refreshment and Home Care lines - which had highest sales growth - had (very) low margins. They must be ‘cash cows’. The CEO admitted that the depth of China’s slowdown had taken Unilever by surprise (now we can all feel better!) but its geographic and product diversity provided a buffer.

  • That it prioritises innovation and investment

Many companies put ‘innovation’ on the agenda but find it had to do anything different, or do anything which increases financial performance. Remember 3M used to tout that 30% of each year’s budget had to come from new products or services? It worked. You have to drive innovation attempts - but try it: the C-suite always seems to focus on time to breakeven, time to payback and time to profit. Expecting to have the time to develop a portfolio of new, mid-margin and ‘in need of a refresh’ products that can generate sustainable growth, can be difficult.



Two issues to consider: 

How to make ‘being good’ work for you and the bottom line 

Having been around since 1929, Unilever took a head start on TBL philosophy and now claims to have 'Brands with Purpose'. It has 70,000 women micro-entrepreneurs selling its products in India. This gives the women business education, a sustainable income and assists with educating rural populations about its sanitation and health programs (and products which use less water). It sources agricultural inputs from farmers which achieve accreditation and publishes the certifications for the Responsible Sourcing Policy (eg Palm Oil at 98% traceable and certified).

How to ensure others protect your products

This is always a problem with retail – your much-loved products end up on a shelf somewhere, getting dusty or damaged. Despite just being the manufacturer, Unilever spent €7billion (2014) on its own marketing programs and digital "infotainment" through mobile channels, offers retail training, is rolling out 10 million of its "Perfect Stores" in 2015 and building a sense of ownership through its retailer awards. That's interesting as some retail fashion chains have dropped retailer training claiming that the customer makes a decision online and buys then, or just comes into a shop ready to buy. Can you be that reliant on brand alone? 


Two questions to ask

  1. How can you protect your margins in a competitive business? The risk is that the "cash cow" products become commodities - or that others offer versions of your product or service - which restricts your ability to sell "value" and maintain prices. The idea I found worth pondering is its tactic to "own the entry level category price" and then "premium-ise" the brand.
  2. What matters if 50% of your assets are intangible? Buying top-three brands that meet your performance criteria will result in a rise in intangible value (and amortisation which could affect Earnings). 

Remember that assets need to be hard at work in the gym either increasing in value and/or generating revenue. When the assets are brands, you have to protect reputation, invest in them and more actively protect them than, say, a manufacturing plant. Protecting intangibles is not just about getting a trade mark or Intellectual Property protection. It’s a new approach - Brand Promise, Brand Ambassador...new ways of ...premium-ising

I'm always interested in companies that are doing something unique. This one's a surprise: 


Imagine announcing to your family that you've been promoted to manage the toilets division and you're "saving lives one toilet at a time"!

(1) Boston Consulting Group Model

Unilever stresses that its website material is not an encouragement to buy shares but the disclosure requirements of regulators in the jurisdictions in which it operates. 

This blog is for education purposes only (and learning ways to improve business performance by watching others (and saving the cost of experience!)

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