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UnileverA Troubled Giant

A multinational company with world wide operations in foods and detergents

World wide business activity runs in a loose confederation (excessive de-centralization) unlike its major competitors P&G & Nestle in Foods

Lagging behind the competition, was known as sleeping giant

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Problems encountered:
Increase in cost structure by duplication of manufacturing facility from country to country

No competitive pricing due to heavy costs

Excess time taken to transfer technologies from parent organization to subsidiaries across the world ( R&D )

High advertising costs - since the same products are known by different brand names in different markets

Aim:
Synchronize the launch of new products throughout Europe in order to beat competition

Reducing Manufacturing, Storage, Distribution and advertising costs

Focusing on key brands so that the brand portfolio is streamlined and more emphases could be given in terms of different resources
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UnileverA Brief Timeline

1885 - Lever brothers founded by Hesketh lever 1917 - Lever diversified into foods 1920s - Association formed with Thomas Liptons tea company 1927 - Margarine Unie formed by merger of Jurgens and Van Den Berg 1929 - Unilever formed when Dutch margarine company Margarine Unie merged with British soap maker Lever Brothers
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1930s - Soap and edible fat accounted for 90% of the business 1930s/40s Acquisition of Thomas J Lipton (1937) and Pepsodent (1944) 1940s/50s - Extensive investment in new technology and research facilities 1970s - Expansions through acquisition in chemicals and packaging 1980 - Frozen foods,ice cream, packed soups, tea and personal products accounts for 60% of business, soaps and edible fats accounted 40%.

1980s Decides to adopt Core strategy

1990s - Decided to restructure its operations in early 1990s

1999 - Acquisition Kibon (Brazil) to become leading ice cream in the world

2000 - Acquisition of Slimfast, Ben & Jerrys and Best foods

2000 - Company is restructured to reflect the split between the Best foods (foods) and home and personal care divisions.
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Before restructuring (PGS)

Company owned 1600 global and local brands in foods, home, and personal care divisions worldwide. Business divided into five geographical segments viz Europe North America,Africa and the middle East, Asia and pacific and Latin America Restructuring results 1985-99 Operating margins rose - 6%-11% Return on Capital(ROC) 11%-22% Average EPS increased by 9% Second largest packed consumer goods company and third largest food firm(after nestle and Kraft foods)
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(PGS)

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Why PGS ???

Major downfall in stock prices during 1999 Market capitalization fell from Pounds 51bn-20bn by Jan 2000 Poor brand strategy-investing less in leading brands (In 1990s, a majority of investments went into restructuring and acquisitions) Unilever expected that PGS to result in annual cost saving of 1.5bn by 2004 and another 1.6bn from global procurement.

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Key objectives by 2004

Annual top line growth of 5-6%

Operating margins of 16% (compared to 11% in 1999)

Double digit Earnings per share(EPS)

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Growth of leading brands

Exit from tail brands and businesses in a value creating way

Delivery of EPS growth in quality way with increased gross operating margins, partially reinvested to support leading brands

Under performing businesses being pruned

Organization restructured,to execute PGS with a real passion for winning 13

As PGS company decided to concentrate on following areasModification of existing organizational structure

Focus on leading brands and supporting these brands with strong innovation and focused marketing strategies

Rationalization of supply chain

Simplification of business processes and weeding out under performing businesses and brands
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Organizational restructuring
Unilevers 300 operating companies were placed under 10 regional groups via two divisionsDivision Foods Regional groups Foods north Africa,Middle east and Turkey Unilever Bestfoods Asia Unilever Bestfoods Latin America Unilever Bestfoods North America and Slimfast worldwide Unilever Bestfoods, Europe
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Division Home and personal care

Regional groups Home and Personal care Asia Home and Personal care Europe Home and personal care North America HPC North Africa,Middle East and Turkey HPC, Latin America
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Divisional executive directors (for different regions) Regional president(different for different divisions) Recruiting new crop of young executives willing to take risks rather than being conservative and rational executives,who averted risks Over 40 of the companys top 100 executives were new to companys rank between 2000-2002 (Cerebral company to action company)

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Comments
This separation into two different divisions can lead to duplication of all major activities and would lead to cost inefficiencies.

Global markets are broken into different regions headed by regional presidents reporting to global directors,The key to this lies in the level of autonomy given to these presidents

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Brand Restructuring
Unilever decided to slash its product port folio from 1600 to 400 leading brands WHY? About 1000 brand of the companys total brand portfolio accounted for 8% of turnover where as leading brands accounted for 95% Could reduce fragmentation of resources and re-route to support the leading brands Effective innovations and faster rollout of new products
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Major food brands:

BertolliIBF brand Heart Knorr Birdseye Hellmanns Lipton Slim-fast

Cornetto Family brand

UBF Food solutions Findus Iglo Healthy heart Amora Magnum

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Home and personal care brands:

Axe

Ponds Dove

Surf

Sunsilkcomfort Lux Rexona Cif Omo Signal ponds sunsilk

skip snuggle Calvin Klein Close up Vaseline

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Domestos Radiant surf

Major components of brand Restructuring

Major focus categories-Tea, Beverages, ice cream, culinary dishes margarines and spreads, health and wellness Exploiting brands within the existing product categories but outside their scope (Dove for hair, knorr in frozen food) Extending brands outside their existing geography/category Extending brands to adjacent segments(Cornetto into soft ice market, Lipton into soft soft drinks market with ready to-drink Tea etc)
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Expanding brands into new markets-fast growing and developing markets Acquisition spree in food business: The company mainly focused on acquiring American food companies and brands since their valuations were low owing to the prevailing recession.

Some of the major acquisitions were Bestfoods(US, foods) Slimfast (US, slimming products)

Amora Maille (France, Culinary products) Ben & jerrys (US ice cream)
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 Decided to improve the performance of under performing businesses such as Elizabeth Arden range of fragrances and skin care products.Brands/businesses failed to improve were disposed

Due to significant food consumption done outside homes, food business (comprising over 1000 brands) started declining

In 2000, Unilever disposed 27 businesses and brands

Company decided to invest Pound 1bn in additional marketing support to its leading brands over five years

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Alternate distribution channels

Lipton soup bar, a soup station for fast service In turkey company appointed sales team that used fleet of boats with ice cream freezers for consumers on yacht in the bays Reinforcement in advertisement strategies to strengthen focused brands

4-year advertisement deal worth $500mn with Carlon communications-major broadcasting company in UK Online advertising contracts with Microsoft for promotion in France,UK and Germany
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Placed banners and advertisement on MSN.com (Europe) and had dedicated websites and displays in France, UK and Germany

The decision to de-emphasize about 1200 brands enabled company to focus on innovations(through increased resources) and strengthening the leading brands.

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Comments
The decision to build,maintain,harvest and divest is a crucial one for a companys profitability. A detailed industry analysis is required for product related decisions A detailed competitive analysis required apart from focusing only on sales and profitability Company has to spend heavily on advertising and promotional expenses,which may affect revenues initially
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Simplification of Processes
Under the simplification of processes,company decided to use latest IT tools and internet After 2000, company tried to Centralize its IT infrastructure by implementing global information network which provide fast access to actionable information

Under knowledge management, they started Unilever information program to harness data from various information sources regarding brands,supply chain and customers
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Planned to invest in $208mn in e-commerce with Microsoft, Ariba, Compaq to improve brand communication

Marketing Online selling activities Business to business transactions across its supply chain

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Supply Chain Restructuring

Established a supply chain division lead by two vice-presidents(one each from food and HPC business) along with a new supply chain steering team

Focusing on 150 key plants out of 388 manufacturing plants

Developing efficient and committed supplier base (rewards for process improvements and innovational initiatives)

Different supply management division for purchasing non-producing 30 items

E-procurement to reduce supply chain redundancies and global economies of scale to reduce procurement cost and streamlining worldwide purchases

Combined all its warehouses and chose one warehouse in every region In 2002, Unilever announced five regional mega distribution centers(1mn sq ft each) carrying both the product lines Benefits Expected to reduce freight and warehousing costs by 10%-20% Restructuring of supply chain was expected to save pounds 1.75 billion in total
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Supply chain restructuring is a step in right direction

Fostering long term relationship with suppliers Closure of inefficient manufacturing plants Consolidation of warehouses In the absence of a detailed competitor analysis, positioning and a re-positioning strategy of product line any supply chain activity may be useless.
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Companys performance- 2002

Sales growth % 5 4 3 2 1 2000 1.5 Leading brands % Turnover 78 2001 4.0 84 2002 4.2 89
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Continued

Earnings per share ( BEIA growth %) 25 20 15 10 5 0 2000 10.5 2001 12.2 2002 20.9
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Some financial Comparisons

Particulars Sales Operating margins EPS Annual top line growth Share price 1999 41.3 bn 11% 9% 1.5% $45 2002 47.6 bn 14.9% 10.89% 4.2% $59 2004 49.56bn 16% 5-6% -

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Some Other Milestones

By July 2002, Unilevers 400 leading brands accounted for 88% of sales from 75% in 1999 July 2002 July 1999

Total sales (bn)

47.6

41.3

Contribution% (leading brands) Value wise (bn)

88%

75%
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41.88

30.9

 About 30000 employees were laid off in two years

By 2002,company exited from 100 businesses and closed over 122 manufacturing plants

By mid 2003, Unilever reduced its brand portfolio to 635 and was fast closing in on to its target of 400 brands

Top 400 brands accounted for 90% of companys turnover by this time.
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Key Insights On Restructuring

The management of a company before embarking on any change process Should identify the reasons for change Develop clearly the strategic objectives that has to be achieved Facilitate upwards-downward communication in order to develop the implementation plan Communicate with all stake holders of the company through proper channels
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Core Strategy
As a part of this, company decided to focus on following four industries-Foods, Personal care, Home care, Specialty Chemicals Strategy followed-Acquisition and divesture of brands and companies. 1984 - Unilever acquired Brooke bond to strengthen presence in European market 1987 -Acquired Chesebrough-Ponds Inc to establish itself in US personal products market and world skin care market Acquisition of Faberge/Elizabeth Arden and Calvin Klein fragrance businesses
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 Unilever built an extensive range of product categories under each business segment

Did not take appropriate steps to steamline its business processes as it increased in size

Became inflexible to the change due to cumber operations and other inefficiencies

By late 80s it was referred as Troubled giant

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Restructuring of Early 1990s

Reducing the number of product categories from 50 to13 and focusing only on core categories under each business segment Acquisitions and divestures 1992-96 Company made 100 acquisitions, more than half in foods business following detergents and personal care products (with 38 acquisitions only in 1995) More focus on emerging economies like Eastern Europe, Southeast Asia, Latin America, China, India Mid 1990s saw recession in food business in western Europe and US affected Unilevers performance and had to shut down and sell 43 many food companies

 Focus on different product segments in different countries based on sales potential

E.g. ice creams and margarine in south east Asia, Latin America and china.Ice-cream sales doubled as reach increased to 45 countries from 20 countries earlier

Exited from plant breeding,agricultural products, and packaging

Exited from chemical business in 1997 to focus on core businesses

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Bestfoods acquired for $ 24 bn in June 2000

Major food brands- Knorr,Hellmanns

Expected to result in annual cost savings of about pounds 0.8 bn

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Slimfast foods co. acquired for $ 2.3 bn in-a diet supplement manufacturer

Company strengthened its position in growing functional foods market

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Ben & jerrys Homemade Inc for $223mn-April 2000

Expected to strengthen Unilevers presence in US and provide it with products and brands that could be expanded internationally

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