Unilever Home and Personal Care Division Market Overview

Unilever Home and Personal Care Division

Market Overview l Market includes – Liquid & powder detergents – Shampoos, body washes, personal care items – Perfumes – Cosmetics

Market Trends l l During 1990’s – tight competition in established markets Economic slowdown in global market Strong competition to develop new products Need to control costs and price

Market Trends l l l Acquisitions or joint ventures to solidify global position Strong need to be able to satisfy changing consumer preferences Laundry detergents form the largest component – 50%

Products Unilever manages over 400 leading brands and just under 250 tail brands. These range from food to home and personal care.

Food Products Ben & Jerry’s Breyers Country Crock Hellmann’s Ragu Slim Fast Lipton Others

Home and Personal Care Dove Caress Pond’s Snuggle Wisk All Others

Technological Scope l l Global integration of SAP software Standardized corporate computer services – includes intranet Standardized corporate e-mail Warehouse management systems using bar code technology

Markets and Distribution l Unilever Divided into 2 Major Divisions – Foods – Home and Personal Care » Improved Focus Globally and Regionally » Faster Decision Making » Strengthened Innovation Capacity

Markets and Distribution l Home and Personal Care Divisions – – – – North America Europe Asia North Africa Turkey Middle East Latin America

Manufacturing and/or Processing Operations has 2 divisions Foods Home & Personal Care Employs 265, 000 people Has 2 parent companies Unilever NV Unilever PLC Corporate Centers London Rotterdam

Manufacturing and/or Processing (con’t) One of largest users of packaging among consumer goods companies Works with others to ensure public concerns are understood Provides the best solutions possible Trends in manufacturing Fewer production centers More efficient production centers

Manufacturing and/or Processing (con’t) Pilot project to improve logistics of incoming raw materials to manufacturing locations Carried out in Warrington, UK Combine/optimize loads Seek more direct deliveries Some plants are making own bottles for liquid detergent Reduced number of deliveries Saving around 1, 000 trips a month

Manufacturing and/or Processing (con’t) Uses many forms of transport Railroad Ships Trucking Have minimized the environmental effects of transport Ensuring vehicles are used efficiently Shifting goods from road, to rail and water

Industry Attractiveness & Business Strengths Nature of Competitive Rivalry Unilever and P&G globally highly competitive Sales driven by marketing Bargaining Power of Suppliers/Customers Carry clout with suppliers due to large consumption of supplier goods Customer – available shelf space Threat of Substitute Products Low consumer differentiation New Entrants Large capital barrier to new entrants

Industry Attractiveness & Business Strengths Economic Factors Large Market U. S. Market spends discretionary income on personal care products Financial Norms Personal care products carry higher profit margin Customers tend to pay late Socio Political Environmental concerns – recyclable packaging Community programs such as Forest Park Clean. Up

Industry Attractiveness & Business Strengths l Cost Position – Economies of scale due to large consumption of raw materials – Supply chain teams to control costs l Level of Differentiation – Recognition for key brands – Dove, Snuggle – Extremely effective in defending product patents l Response Time – In U. S. due to competition has had to improve flexibility – Continuing to combine business functions

Industry Attractiveness & Business Strengths Financial Strength Strong cash reserves Striving to improve growth of revenues Human Assets Promotes high level of training and empowerment Manufacturing becoming more non-union Public Approval Low recognition in U. S. Highly recognized oversees especially in third world countries

Mission Statement At Unilever we are dedicated to meeting the everyday needs of people everywhere. We provide washing powder, shampoo and toothpaste, teas, ice cream, oils and spreads for consumers all over the world.

Corporate Philosophy Unilever's Corporate Purpose states that "to succeed requires the highest standards of corporate behavior towards our employees, consumers and the societies and world in which we live. This is our road to sustainable, profitable growth for our business and long-term value creation for our shareholders and employees. "

SWOT Analysis l Strengths Finance 1) Strong Cash Reserves 2) Global Purchasing 3) International Exchange Rate

SWOT Analysis Strengths Marketing 1) Extensive product lines make Unilever a formidable competitor 2) Strong image for well-known brand products 3) Use of creative advertising and promotions on website and commercials

SWOT Analysis l Strengths – Operations 1) Two Major Divisions – Foods and Home & Personal Care 2) #1 in many consumer product categories 3) Well developed supply chain

SWOT Analysis l Strengths – Human Resources 1) High level of training in place for employees 2) Employ approximately 265, 000 people 3) Enterprise culture – developing employee to be more customer friendly

SWOT Analysis l Strengths – Information Systems 1. Corporate intranet and e-mail 2. All laptops and desktop machines organized the same (Sunrise hardware program) 3. SAP software used globally 4. Total Business Productivity – each category has website – example Accounting

SWOT Analysis Weaknesses Finance 1. Since it is an overseas stock – not included in US market analysis 2. Business acquisitions affect overall profit Marketing 1. Lack of innovation in several categories has caused slippage in market share 2. Reduced marketing expenditures in television commercials

SWOT Analysis l Weaknesses – Operations 1. Innovation time cycles continues to need improvement 2. Consolidation of facilities is causing production turmoil

SWOT Analysis l Weaknesses – Human Resources 1. Expensive labor due to high benefit package 2. Union contracts limit flexibility Information System 1. Global help desk – India & Ireland 2. Deferred updating due to leased hardware 3. Insufficient software package training

SWOT Analysis l Opportunities – Demographics 1. Products appeal to wide range of population 2. Product loyalty through generations Technology 1. Automated manufacturing facilities 2. Already using product innovation needed for front loading washing machines

SWOT Analysis Opportunities Economy 1. Goods are durable in any economic environment 2. Use of international exchange rate Global 1. Largest consumer manufacturer 2. Integration of international employees bring broad cultural and business experience in all processes

SWOT Analysis l Opportunities – Environment 1. Maximize recycled packing materials 2. Processes environmentally friendly 3. Products are biodegradable

SWOT Analysis Threats Demographics 1. Low product differentiation tends to make consumers reluctant to change products 2. Consumer purchasing base on cost Technology 1. Competitors manufacturing technology innovations 2. Reduction in innovations due to patent constraints

SWOT Analysis Threats Economic 1. Internal turmoil in third world countries 2. Ventures in developing countries are jointly owned Global 1. Internal business in country may be given preference 2. Knockoffs

SWOT Analysis Threats Environment 1. Increased regulations 2. Pressure to reduce utility consumption

Strategic Plan: Increase profitability from 6% to 12% in next 4 year 12% 6% growth 6%

Assumptions Prime Rate is 4% Available Market Growth is ongoing at 1 – 2% per year Assume our vendors will accept late payments Assume our customers will pay net 30 Existing computer hardware will be able to support new computer software Outsourcing of production has acceptable sources

Strategic Plan l Action Plan #1: – Reduce costs in production of laundry detergents by 3 – 5% over next 4 years l Action Plan #2: – Strengthen market share in personal care products by increasing market share by 10% points

Action Plan #1 Information Systems: Upgrade information systems to achieve improve forecast of sales Improvement in forecasting should result in a change from 10 week product coverage to 9 week product coverage Improve scheduling Improvement in raw material inventory Reduces storage time 10 – 15% These improvements would reduce storage time 10 – 15% Storage equates to $1 to $2/sq ft Results in a 10% savings

Action Plan #1 l Finance – Change payment on Accounts Payable from normal 30 day cycle to 45 day cycle – This allows capital to remain invested for a longer period – Example - $1 M invested at prime (4%) results in $1643 additional revenue in the extra 15 days

Action Plan #1 l Marketing – Reduce marketing on cash cow brands such as Rinso, All, Final Touch and others – These brands can effectively be marketed in Club Pack stores – examples Cosco, Dollar General, Sam’s – Allows for reallocation of cash cow brand marketing budget to key brands only should result in an additional $8 M available

Action Plan #1 l Marketing – Anticipated 2004 advertising cost increases

Action Plan #1 l Production – Initiate process changes to increase utilization of assets and reduces fixed costs – Increase automation to reduce manual labor on production lines – reduction in staffing from 5 per line to 3 per line » Average hourly pay $15/hr plus benefits » Costs savings of $62, 400/per worker – Outsourcing of production to reduce 2 production lines per facility

Action Plan #1 l Production – Increase quality control to reduce over pack – example » On a 50 oz package reduce your over pack from 2% to 1% » Assuming cost of $5/lb » Resulting savings of $3. 4 Billion/year

Action Plan #1 l Research & Development – Reduce cost by alternative formulation – Reduce builder in powder detergents by 2% » Cost savings – reduce raw material cost from 0. 15/lb to 0. 09/lb » Total cost savings - $29 M/year l Human Resources – Provide additional staff and line worker training – Training with help lines run more efficiently

Pros and Cons l l Gives cost reduction desired By increasing efficiency – makes business more competitive Focuses marketing on key brands Sets corporate culture for future growth in this area

Pros and Cons l Disruptive to business – Contracts for raw materials need to be renegotiated – R&D diverted from innovation to cost savings emphasis l Negative reaction from laid-off workers

Cost of Reversibility l l Many of these changes would not have a cost of reversibility associated with them If the outsourcing of production needed to be reversed – loss of workers and the need to divert capital back into production facilities would be costly

Summary In order to meet the strategic goal both action plans must be implemented Personal care products have the higher profit margin Upcoming changes in laundry detergent market necessitate reduction in production costs to maintain current profit margin