Unilever USA Operations - Case Study Example

?Unilever Group [Document Sub s Table of Contents Unilever USA’s Operations 3 Company History 3 Product Lines 4 Participating Markets 5 Product Line Analysis 7 Target Market 7 The target market for brands such as Surf Excel and Knorr (especially ready to cook meals) includes housewives mainly from the ages of 25-50 years. For products such as Axe, the target market is young men from 20 years plus while for brands such as Dove and Vaseline there is not one set target market as the whole family can use them whether it is the kids or parents who are buying them. Dove gives equal attention to the skin care needs of men and women alike. Unilever is a proponent of hygiene and well being and due to this it targets house wives in order to make them believe that their families are safe and healthy with Unilever products. It’s ice cream brands such Ben & Jerry’s and Wall’s are for all age groups (children, young and elderly). Knorr’s noodles are enjoyed children mostly. St. Ives is a beauty products line that has scrubs, lotions and proteins etc. and caters to women of 18 years plus. Lipton is consumed in the Asian region majorly and so people from the age of 20+ are catered here, as children are not very fond of tea. Unilever targets its customers through its principles of health, hygiene, personal care and nutrition. It focuses on hygiene and personal care specifically and for this the average housewife is targeted (Brand Source, 2009). 7 Products in the Target Market 7 Segmentation Strategy 8 Positioning Strategy 9 Marketing Mix 9 Financial Analysis 11 Income and Balance Sheet with Key Ratios 11 Projections of Earnings 12 Beta and Safety 12 Fast Moving Consumer Goods Industry 13 History of the FMCG Industry 13 FMCG Industry Today 13 Bibliography 16 Unilever USA’s Operations Company History One of the Unilever’s founding companies was Level Bros and in 1980’s William Hesketh came up with the idea for Sunlight Soap, which later proved to be his revolutionary product in Victorian England in terms of hygiene and cleanliness. The idea was to promote cleanliness, make women’s work easier, and promote a culture of health and personal attractiveness in order to convey the message that people who used Unilever products were living a better life. Around this time, the term Corporate Mission was not there but these ideas would have come under it had it been there. The fact only women are responsible for doing housework has become trite and obsolete. Unilever USA is a subsidiary of the multinational conglomerate, The Unilever Group (which has 10 companies operational as of now in the USA). Unilever USA is the largest company among the ten subsidiaries of the Unilever Group in USA and is primarily a consumer goods company distributing well known branded products through grocery, drug, mass merchant and club channels. It has revenues worth $4 billion and if one of the top-notch fast moving consumer goods companies in the USA. However over the past ten years, profits for Unilever USA have not been very great. Due to an accounting change only, there was a profit last year (ConsultingCase, 2012). Unilever has a history that is three centuries old and remarkable events like economic boom, depression, world wars, changing consumer lifestyles and technological advancements have played an important role in it. This history is also marked by Unilever’s efforts to make life easier and enjoyable for its consumers by helping them save time (by reducing time spent on house work, nutritional concerns etc.). Besides that Unilever has also been able to balance its profits with care and social responsibility. During the 19th century, the founding companies of Unilever were the most charitable among others. They designed projects especially to improve their workers and their products were also designed in a manner such that they had social benefits. These products prioritized hygiene, personal care, and nutrition (was improved by adding vitamins to staple foods). Up till now, Unilever is a socially responsible company that takes care of the rights of its employees, consumers, the society and the world at large. Initiatives have been taken by Unilever to source sustainable supplies of raw material, protect the environment, and fund local communities since quite some time now. Unilever had a Path to Growth strategy at the beginning of the 21st century, which primarily focused upon global high-potential brands. Besides that it had a Vitality mission that took it one step further into a new phase of development. According to Lord Leverhulme, Unilever’s products and brands make people ‘feel good, look good and get more out of life’. Unilever’s rich history and culture has inspired people so much that they make efforts to do small good deeds that make a huge difference in the world. It has laundry brands that reduce water wastage and packaging, and provide nutrition and comfort at affordable prices (Unilever, 2012). Product Lines The four broad categories of brands that Unilever has are food, personal care, nutrition and hygiene and well being. Popular food brands of Unilever include Ben & Jerry’s, Knorr, Bertolli, Good Humor, Breyer’s, Hellmann’s, I can’t Believe it’s not Butter, Klondike, Lipton, Magnum, Popsicle, P.F. Chang’s Home Menu, Promise, Ragu, Shedd’s Spread Country Crock, Skippy, Slim-Fast and Wish-Bone. Personal Care brands include Axe, Caress, Consort for Men, Degree, Dove, FDS, Just for Me, Lever 2000, Motions, Nexxus, Noxzema, Pond’s, Q-tips, Soft & Beautiful, St. Ives, Suave, TCB, TIGI, TRESemme and Vaseline (Unilever USA, 2012). Participating Markets Unilever has 167,000 employees and operates in 180 countries. 53% of its business comes from markets that are emerging like China, India etc. It spent 928,000,000 euros on Research and Development in the year 2010. Unilever operates in Regions such as Asia, Africa, Central and East Europe (underlying sales growth 10.5%, underlying volume growth 4.5% and turnover of 18.9 billion euros), Western Europe (underlying sales growth 0.7%, underlying volume growth -1.2% and turnover of 12.3 billion euros) and the Americas (underlying sales growth 6.3%, underlying volume growth 0.4% and turnover of 15.3 billion euros). In 2011, Unilever spent 6.9 billion euros on advertising and promotion. In Russia, Ukraine and Belarus, Unilever used 19 million euros on advertising and promotion. It acquired Alberta Culver for 2.7 billion euros in 2011 and Sara Lee was acquired in 2010 (Unilever, 2011). Unilever USA is supported by manufacturing and distribution facilities world over in terms of production and distribution systems but it only operates in USA. It has cheap labor in countries like Mexico, Canada and Southeast Asia and thus its manufacturing costs are quite reasonable. It has a total of 3 plants in USA but it still faced the problem of over capacity. In order to overcome this problem, it has made arrangements with its sister concerns for manufacturing and direct shipping (ConsultingCase, 2012). Product Line Analysis Target Market The target market for brands such as Surf Excel and Knorr (especially ready to cook meals) includes housewives mainly from the ages of 25-50 years. For products such as Axe, the target market is young men from 20 years plus while for brands such as Dove and Vaseline there is not one set target market as the whole family can use them whether it is the kids or parents who are buying them. Dove gives equal attention to the skin care needs of men and women alike. Unilever is a proponent of hygiene and well being and due to this it targets house wives in order to make them believe that their families are safe and healthy with Unilever products. It’s ice cream brands such Ben & Jerry’s and Wall’s are for all age groups (children, young and elderly). Knorr’s noodles are enjoyed children mostly. St. Ives is a beauty products line that has scrubs, lotions and proteins etc. and caters to women of 18 years plus. Lipton is consumed in the Asian region majorly and so people from the age of 20+ are catered here, as children are not very fond of tea. Unilever targets its customers through its principles of health, hygiene, personal care and nutrition. It focuses on hygiene and personal care specifically and for this the average housewife is targeted (Brand Source, 2009). Products in the Target Market Products in the hygiene category like Surf Excel, target housewives but they promote these brands through children (using the popular logo: dirt is good). Also young people consume ice creams mostly but Unilever’s ice cream brands are targeted at children and young people but it generalizes these categories for everyone. Elderly people can consume Ben and Jerry’s too besides children. Pond’s is a beauty brand for slightly older women and its anti-aging creams are specifically designed for women to slow down the aging process. Segmentation Strategy 57% of Unilever’s products are in the food category while 43% in the personal care one. 2 billion consumers in the world market use a Unilever product every day. But all its products are not offered in all countries. Some of the products are for some specific regions only while other products are generalized and sold throughout the world. Unilever has 3 or 4 different brands in one category only. Take the shampoo category; it has Sedal, Dove, Clear and Sunsilk. While Dove, Clear and Sunsilk are easily available in each country, Sedal is not. But Dove’s products like deodorants are not available everywhere and are country-specific. Popsicle and Klondike ice creams are not available in the Asian region but they are available in Western countries (Unilever, 2012). There are five market segments of Unilever USA that serve the purpose of profit centers. These are as follows: Personal Hygiene, Food, Consumer Tissue, Soaps and Detergents and Personal Care. 90% of the profits are accredited to Personal Care and total profits are divided equally among the four market segments. This is because Unilever owns the two top brands in the Personal Care category, in Consumer Tissue it has a brand ranked number 2, in Soaps and Detergents it has a brand ranked three. Unilever has been able to build a huge consumer franchise through aggressive advertising and in-store merchandising support (ConsultingCase, 2012). Positioning Strategy Unilever has been positioned as a brand that makes life easier for its consumers by saving them time and worries for household chores, nutrition, health and hygiene. Products like Omo, Persil are to make the housewife’s job easier so that she has more time for other things as well. Knorr has a chain of ready to cook recipe mixes that make cooking very easy. Children who do not eat regular homemade meals are targeted via Knorr Noodles. Unilever has promoted a culture of personal care, hygiene and health and its consumers use its products because they trust them in terms of hygiene, personal care and health. Marketing Mix The marketing mix traditionally includes the 4 P’s: price, product, place and promotion. Now there are three more P’s like Process, Physical Environment and People (Aashwin, 23). Products of Unilever USA fall in the four broad categories of Personal hygiene, personal care, food, consumer tissues, soaps and detergents. The products produced by Unilever USA are consumed in USA, as it is operational in USA only. Unilever has 400 master brands that it wanted to focus on in 2001 instead of 1500 brands (Bittar, 2001). Unilever’s products can be categorized in the tangible non-durable category. Brands like Lux and Sunsilk have a lot of variants (Khurana, 2010). Take Surf Excel and how it makes a relationship with children via celebrating fun and not caring about dirt because Surf Excel is there to take care of them. Surf Excel targets its customers through beliefs and values. Thus it tries to build a relationship with people. It builds a relationship with children in order to lure moms because they are the decision makers. Children have great pester-power and can convince parents quite quickly. Surf Excel is available in different SKUs in quantities like 25g, 50g, 115g, 500g, 1kg and 2 kg. Unilever provides its products to distributors and sets prices by keeping in mind target markets, cost and competitor prices. The distributors then sell to the retailers. Distributors get a certain percentage of commission by Unilever so that the price that distributors charge to retailers is fixed. Retailers ultimately sell to the final consumers and Unilever has control over retailers so that they charge fixed price to consumers. Prices are set according to the customer’s beliefs regards price and quality. Unilever charges different prices to registered and unregistered retailers. Besides this the size and type of product also determine its price. Quantity discounts are also given to retailers and wholesalers on purchase of huge quantities. Unilever relies heavily on promotion and advertising of its products. It uses TV, radio, billboards and newspaper for advertising. Other than that it also focuses on personal selling, sales promotion and public relations. Unilever has a competitive strategy so that it can keep its prices in line with those of competitor brands and not lose out all customers to competitors (Ahmed, 2008). Premium brands of Unilever are priced high because they are for a niche market and not for everyone. They are not affordable to everyone and not available in every country. Magnum bars are a premium ice cream and were launched in UK in the year 1987. Despite its success in UK, this ice cream has not made much success in the $ 9.3 billion ice cream market in USA. These bars are sold at a price of $2.59 or $3.99 (multipack) in USA. Magnum faces competition from Haagen Daz and Dove bar ice creams. Unilever is the world’s largest ice cream maker with brands like Popsicle, Good humor, Breyer’s and Ben and Jerry’s while the USA is the world’s largest ice cream market. Premium bars constitute 4% of the ice cream market in USA (Sonne, 2011). Financial Analysis Income and Balance Sheet with Key Ratios The turnover for Unilever in the years 2009, 2010 and 2011 has been increasing. The turnover in these three years was 39,823 million euros, 44,262 million euros and 46,467 million euros. The finance income over the three years has also showed an upward trend. Similarly the profit before taxation and the profit after taxation have also shown an upward trend as they increased over the three years. The combined earnings per share (EPS) increased between 2009 and 2010 ($1.21 to $1.51) but stayed the same between 2010 and 2011 ($1.51). Similarly the diluted earnings per share also increased between 2009 and 2010 ($1.17 to $1.46) but stayed constant between 2010 and 2011 (at $1.46). Other comprehensive income was negative for 2011 and positive for the previous two years but the net profits for the years increased reasonably. Shareholder’s equity increased between 2009 and 2010 but decreased after 2010. However the total Equity increased significantly from 2009 till 2011. Total comprehensive income in 2011 decreased after an increase in 2010. Unilever’s non-current assets increased a lot in 2011and so did its current assets. On the other hand, current liabilities also increased significantly and the non-current liabilities showed a reasonable increase. The Asia and Africa region together gave the highest turnover as compared to the Americas and the European region in 2011. However the Americas had the highest operating profit in 2011 (Unilever, 2011). Unilever has an ADR of 1:1, (Price/ Earning Ratio) PER was 15.16 times, dividend yield was 3.99%, Return on Capital Employed (ROCE) was 56.7% and Return on Equity was 22.98% in 2011. The operating margin for the year 2011 was 14.99%, Net gearing ratio was 70.26%, dividend cover 2.12 times and interest cover 13.64 times. Quick Ratio for the same year was 0.54 while current ratio was 0.80 (MorningStar, 2011). Projections of Earnings Looking at the turnover and earning trends of Unilever over the past three years, it can be seen that turnover shows a positive rate of growth. Similarly the profits showed an increase over the three years from 2009 to 2011.Between 2009 and 2010 there was an increase in earning of 0.11% and between 2010 and 2011, the increase was 0.05%. The average percentage increase is 0.08% and taking we can predict that the turnover for 2012 would be 50184.36 million euros and for 2013, it would be 54199.1088 million euros. Unilever Group’s revenues can be broken down into foods, consumer goods and all equities. In 2011, 12.7 billion euros came from food, 11.6 billion euros from consumer goods and 8.1 billion euros from all equity. So in terms of percentage we can see that 39% revenue comes from food, 36% from consumer goods and 25% from all equities. Using these percentages we can calculate how much revenue will come from these three categories in 2012 and 2013. For 2012, the revenues from food will be 19671 million euros, 17967 million euros from consumer goods and 12546 million euros from other equities. Similarly for 2013, revenue from foods will be 21245 million euros, 19405 million euros from other consumer goods and 13550 million euros from other equities (Macroaxis, 2011). Beta and Safety Unilever has a beta of 0.2, which means that the Unilever stock is 80% less volatile than the market. This makes Unilever’s stocks comparatively safer than the market and hence investors will be more than willing to invest (Ghumatkar, 2011). Fast Moving Consumer Goods Industry History of the FMCG Industry Fast moving consumer goods industry comprises of those companies that produce and sell tangible non-durable products such as shampoos, soaps, detergents and ice cream. Some of the prime activities of FMCG companies are selling, marketing, financing and purchasing. Besides this these companies are also involved in operations, supply chain, production and general management. These companies have various brands and within each brand there are thousands of variants and products. India’s FMCG industry is the fourth largest in the world. FMCG companies are those that specialize in FMCG products that are retail products and have a smaller shelf life. These products have a smaller shelf life either because they have a high turnover or they deteriorate quite quickly. Products of FMCG companies are mostly found in super markets. FMCG industry survives on pure marketing and hence to learn marketing in the true sense, there is no better place than an FMCG company (Jaray, 2007). FMCG Industry Today It was thought that basic consumer goods are not prone to recession or are recession-proof. Consumers may not be able to buy expensive bags of Chloe or Hermes daily but they can afford to buy tissue or tooth paste as soon as the need arises. But in times of inflation, people try to cut back their expenditures on daily necessities in order to save money. For instance when shoppers go to a super market, they deliberately pick a basket rather than a trolley in order to buy less products. Some people buy smaller SKUs or packets and some buy larger one depending on the size of the family and income bracket to which they belong. There are some people who do not consider air fresheners, hair conditioner or starch a necessity. This is either because their financial position does not allow or they feel they do not need such products. Coupled with this are the high commodity and fuel costs, which eat up the revenues of FMCGs further (Xchanging, 2010). When excise duties are increased, FMCG companies are forced to increase their prices. For instance this year, when Indian Finance Minister announced an increase in excise duties, FMCG were greatly disappointment and stated that they would be forced to raise their prices (Bali, 2012). In the wake of competition and marketing today, there is a clutter of advertisements because each FMCG wants to outdo the other. Each FMCG wants to break the clutter and make it heard or convey its marketing message to the consumer. FMCG industry is also known as Consumer Packaged Goods (CPG) industry. FMCG companies face a lot of competition in the industry that they are in. There are a huge number of consumables produced and the money generated as a result entices other investors to invest. Investment in the Indian FMCG industry is increasing a lot as it has high potential and is the 4th largest FMCG industry in the world. The total market size of the Indian FMCG was $13.1 billion in 2010 and grew after that at a rate as high as 60%. In New Zealand, FMCG is regarded as the largest sector as it constitutes 5% of the GDP (Gross Domestic Product). Some of the strengths of the FMCG industry are low operational costs, strong distribution networks and these companies also capitalize on the high population growth rates of countries like India and China. Jobs at FMCG companies are very challenging and these companies provide excellent job opportunities. Every now and then there are job openings in supply chain, sales, marketing, operations, human resource and finance departments of FMCG companies. Examples of some of the most successful FMCG companies are Procter & Gamble, Unilever, Reckitt and Benckiser, Johnson’s and Johnson’s and Nestle. These companies have made it to the top by growing in size, forward and backward integration, strong supplier networks and good relations with retailers, wholesalers, distributors and suppliers. FMCG companies study the psyche of consumers very well and with their effective marketing strategies they can lure customers like anything (Economy Watch, 2010). Bibliography Unilever USA. 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Khurana, A. (2010, December 7). Marketing Mix of Unilever. Retrieved june 10, 2012, from www.managementparadise.com: http://www.managementparadise.com/forums/marketing-management/209194-marketing-mix-unilever.html Macroaxis. (2011, december 31). Unilever Revenue . Retrieved june 10, 2012, from www.macroaxis.com: http://www.macroaxis.com/invest/ratio/UL--Revenue MorningStar. (2011, DEcember 31). Unilever PLC Ratios. Retrieved june 10, 2012, from tools.morningstar.co.uk: http://tools.morningstar.co.uk/uk/stockreport/default.aspx?tab=11&SecurityToken=0P00007P0W%5D3%5D0%5DE0WWE$$ALL&Id=0P00007P0W&ClientFund=0&CurrencyId=GBP Sonne, P. (2011, March 18). Unilever Brings Magnum Bars to U.S. . The Wall Street Journal , 1. Read More