Strategic Financial Project – Unilever Group
Contents
Identification and Justification of strategies 7
Strategic Options for new markets and existing markets 8
Relevant KPI selection and justification 10
Financial projections and planning 13
Recommendation and Conclusion 15
Introduction
Unilever is an Anglo-Dutch multinational company that deals in consumer products such as beverages, foods, personal care products, etc. The company is headquartered in Rotterdam and London, with an employee strength of around 180,000 people (Global, 2020). Unilever was founded in the year 1930 by the Britain-based Lever Brother and Dutch-based Margarine Unie (History, 2020). The company is a dual-listed company comprising of Unilever NV in Rotterdam, Netherlands and Unilever PLC in London, United Kingdom. The directors of both the Unilever companies are the same, and they operate efficiently as a form of a single business. The company is committed to supporting and providing customers across the world with products that will make them feel good, look good, and get more out of their life. The business model of Unilever promotes profitable growth, along with responsibility. The company began with a UK-based sop maker company named Lever Brothers, and the business got revolutionized with the introduction of Sunlight Soap in the 1890s. By the year 1930, Unilever expanded their business operation by promoting its products in Latin America. The expansion in business operation was further enhanced through association with two important US-based acquisitions. In the year 1980, Unilever made restructuring a revolution through the selling of the majority of its subsidiary business to concentrate on the company’s core business. Gradually, detergents, foods, special chemicals, and toiletries became Unilever’s core business. In today’s world, Unilever is one of the top world’s most consumed product brands in food, personal care, and home care.
However, with rapid globalization, Unilever is facing tremendous completion from its rivals such as Procter & Gamble and Nestle. To attain long-term sustainability and maintain its market position, Unilever must focus on developing their products based on the continuous changes in consumer behavior and demand. In addition to that, the company has faced severe criticism in the past from Greenpeace UK because of their actions in cutting down palm oil trees that resulted in the extinction of Orangutan species in Kalimantan. The following report is a 5-year business strategic plan report of Unilever, along with the company’s market and industry analysis. The following report will further identify and justify Unilever’s business strategies by highlighting the strategic options for existing and new markets. Lastly, there will be a relevant KPI selection and mentioning of the financial projections or plans along with a proper assessment of the associated risk and then conclude with a relevant recommendation.
Market Analysis
Unilever PLC is listed on London Stock Exchange, and Unilever N.V. is listed on Euronext Amsterdam. Unilever implements a complex marketing mix by considering variations and differences among markets around the world. Unilever has 400 companies that operate in 150 countries. In Africa, Asia, and Central Europe, the company experiences a significant underlying sales growth despite the market conditions being challenging and volatile. The overall operating profit in these regions has witnessed remarkable growth. However, in terms of American markets, the company suffers a decrease in turnover growth as a result of the effects of the exchange rate, disposal, and acquisitions (Week, 2020). In addition to that, the company has suffered tremendous losses in Western Europe as well as much as 6% in the year 2009 that includes the effects of the exchange rate, disposal, and acquisition that can be seen in the graph below. The operating profit for the year 2009 experienced massive losses, and factors such as lack of confidence among the customers towards Unilever’s brands are a major contributor to such losses.
Figure: Unilever group’s worldwide revenue from 2007 to 2019
Source: Statistica 2020
Unilever has been operating internationally and generating excellent revenue sales from 2015 to 2019, and the company’s profitability has produced a comparatively stable share price that does not experience a massive downfall despite the tough completion in the European market with a competitor like Procter & Gamble (P&G) (Statistica, 2020). The company has also performed significantly better as compared to the dismal prediction of the FTSE 100 index over the last decade.
The market of Unilever is structured into four major segments comprising of Personal care (17%), Homecare (22%), Foods (27%), and Refreshments (34%) (Mwololo, 2020). The prime products of Unilever include Lipton, which is a best-selling tea brand globally. The company is currently the third-largest company in terms of consumer products, behind P&G (Procter & Gamble) at number 1 and Nestle at number 2. The customers of Unilever belong to different age groups. The home and personal care segment comprises of age group ranging between 15 and 40 with a medium to high-income level. The segment of food comprises of the age group that starts from 5 years old who prefers healthy and for tasty foods. The overall cost of Unilever products includes production, packaging, marketing, and distribution that are included in their product pricing. The market of Unilever is based on consumers who purchase Unilever products from the super shop, retail stores, online sites, etc., and the company strives to get the best store location as compared to its competitors.
Industry Analysis
SWOT analysis
Strengths: Unilever possesses some of the strongest brands in the industry of consumer goods. The strongest brands help the company to go for market penetration and efficiently compete with its competitors. The company also has got a broad product mix that displays the extent of business growth for Unilever. Over the years, Unilever has consistently increased its portfolio of products through acquisitions and mergers that have led to a significant increase in revenues along with the growth of the company (Panmore, 2020). In addition to that, the necessary production efficiency based on competitive pricing strategies has been immensely supported by economies of scale. Lastly, after years of global expansion, Unilever has significantly increased its international market presence that is a major strength in terms of the popularity of their brand.
Weaknesses: Unilever has a major weakness in the form of the imitable nature of its products. Limited diversification in their business model is another weakness associated with Unilever as they are confined to the industry of consumer goods (Panmore, 2020). Overall, the company lacks a strong influence on those consumers who consider buyers getting affected by retailers.
Opportunities: There exists a tremendous opportunity for Unilever to diversify their business model by entering outside the industry of consumer goods. Market-based risks can be reduced along with enhancing business resiliency through product innovation. The company can make it’s business more eco-friendly and sustainable for retaining as well as attracting consumers that are conscious regarding the environment (Panmore, 2020). Overall, the opportunity of market development can provide the company with increasing revenues from its current products’ sales in the new market segments.
Threats: Unilever is facing intense competition that is a significant threat, given the strengths of its competitors and other firms in the industry of consumer goods (Panmore, 2020). Competitors possess a significant threat to the financial performance and market share of the company. In addition to that, imitation of Unilever’s products is another major threat to the company.
PESTLE analysis
Political: The political structure of the majority of countries allows Unilever to enhance their business operation. However, the political issues of the European Union act as a potential threat against the business operations of Unilever in the consumer goods market region (Frue, 2017). Overall, the company has a tremendous opportunity to grow its global business based on expanding free trade relations with emphasis on developing countries.
Economical: With the passage of time, the wages in developing countries are increasing, and this is presenting an opportunity for Unilever to generate more profits from potential higher sales (Frue, 2017). However, this acts as a threat to the company as well, given the increasing costs that will be accompanied along with the increase in wages.
Social: There is a tremendous possibility to grow products for directly addressing the consumer’s increasing interest in healthcare products by Unilever. The company can boost its sales by employing more female employees worldwide so that people get emotionally attached to the company (Frue, 2017). Lastly, eco-friendly measures like minimizing energy consumption and adopting energy-efficient technologies can help Unilever gain a sustainable advantage.
Technological: Unilever can increase its operational efficiency with the rise of business automation. New processing equipment related to business operation can tremendously enhance the efficiency of distribution and supply chain (Frue, 2017). Lastly, increasing investments in research and development (R&D) can potentially threaten Unilever by increasing the competitive advantage of other firms in the industry of consumer goods.
Environmental: With the rise of business environmentalism, Unilever can enhance its environmental programs that will attract consumers who are conscious about the environment (Frue, 2017). The company must be able to satisfy the increasingly complex programs related to the environment. Therefore, the environmental factors provide Unilever an opportunity to improve its competitive advantage through the implementation of CSR strategy.
Legal: In today’s business world, Unilever needs to match the company’s CSR strategy with the regulations of the environment (Frue, 2017). In addition to that, strengthening international patent laws can tremendously facilitate the growth of Unilever. Lastly, stronger consumer rights laws, provide an opportunity for the company to improve the overall quality of customer service, along with standards of product quality.
Identification and Justification of strategies
The strategy of market penetration: This strategy is based on Unilever’s existing products and existing markets. The company can increase its sales volume to generate revenues and enhance business growth (Adam, 2020). Unilever can set up new stores in the existing markets, and they can eventually close down certain underperforming stores. The customer service in the existing market needs to be improved so that the existing products gain consumers’ trust. The company can also start selling its products aggressively in the existing markets of Canada, and the United States as this will tremendously enhance the company’s ability to attract customers from its competitors.
The strategy of market development: Market development can be used as a supporting growth strategy in the business operation of Unilever. The company can tremendously grow by entering a new market or new segments by marketing its existing products in certain market segments that are unaddressed. In Europe, there exist a new market for existing products, and Unilever can achieve this by opening stores in various parts of Europe. However, significant research is required on behalf of Unilever to determine the appropriate store locations so that it becomes easier to grab customer’s attention.
The strategy of product development: Unilever can implement this strategy by introducing new products based on the growing customer needs (Warc, 2020). For example, Unilever can manufacture and release new versions of personal care products to maintain or increase market share. The company should emphasize sourcing their products with improved quality, sustainability, exclusivity, and enhanced margins. It is also beneficial to issue incentive schemes for the employees, along with the introduction of customer satisfaction initiatives that can give fruitful results. The company’s intensive growth strategy must be according to the company’s differentiation generic strategy so that it becomes easier to attain a competitive advantage in the industry of consumer goods. It is essential to understand that uniqueness of the product is the core of differentiation that can be potentially applied to the product development process of Unilever.
The strategy of related diversification: Unilever can use diversification to support its growth strategy. The growth strategy must be focused on establishing new businesses that will ensure the company’s growth. It is essential to continuously keep on acquiring various businesses that will ensure that Unilever will have unique features of different brands and attract their target customers (Nazarova, 2015). Overall, the diversification strategy should be based on expanding its business beyond the industry of consumer goods because the company has earned a tremendous reputation over the years that will grab people’s attention.
Strategic Options for new markets and existing markets
Market penetration-Market penetration is referred to as the degree to which a particular product or service is utilized by customers in contrast to the predicted market for that product. Market penetration is generally considered as the primary intensive growth strategy in the case of Unilever. According to this severe strategy, the company maximizes its volume of sales to develop income and growth of the business. For instance, in the case of a market based on home care, Unilever sells its products in existing markets with great potentials, such as Canada and the United States. Such efforts of Unilever maximize the ability of the company to attract customers. Hence, it has been identified that Unilever efficiently applies this current approach by utilizing the standard plan of differentiation in order to make its products more attractive and competitive than earlier. The strategic purpose associated with this specified approach is to expand the business by promoting the products of Unilever in the customer goods market globally.
Market Development- In the case of Unilever, the development of the market is identified as a sustainable growth approach. In this particular strategy, the company generally expands by entering new segments of the market. For instance, Unilever has the ability to expand by promoting its existing products as a modern approach so that certain requirements in market segments are fulfilled. Moreover, it has been determined that the company is already promoted practically in every customer goods market all over the world. Hence, this particular strategy performs only the role of support in the case of Unilever (Frost and Dawar, 2020). The general approach of differentiation supports this strategy by establishing a competitive advantage as per the exceptionality of the product essential to efficiently enter new markets. The sole purpose of the development of the market is to implement a market campaign that lays emphasis on other advantages of its existing products.
Product Development- Product development is referred to like all the phases involved in bringing a product from various perspectives through promoting the market. Development of Product is regarded as a secondary utilized by Unilever for the growth of the business. The company generally applies this particular strategy by developing new products according to the requirements of customers. For instance, complete developed editions of personal care products are produced to maximize the market share of the company. This particular strategy is associated with the general approach of differentiation for acquiring competitive benefits in the customer goods industry (Frost and Dawar, 2020). Differentiation mainly requires distinctiveness of product, which is applicable in case of methods of product development of Unilever. The sole objective of expanding the company can be obtained through constantly innovating the product. Such new creations play an important role in developing the product mix in the case of the marketing mix of Unilever.
Diversification- Diversification is referred to as the method of developing the initial market for a particular product. This strategy aims at maximizing sales linked with the current line of products. Unilever generally applies diversification as a supportive approach based on growth. The focus of this particular strategy is to generate new businesses so that the company expands. For instance, in order to acquire diversification, Unilever obtains several other businesses. The general approach of differentiation supports this particular strategy by ensuring that the brands that are provided by Unilever are able to provide distinct characteristics and attracts a huge number of targeted customers. The sole purpose associated with this specific strategy is to achieve development by following the practices of the collaboration of the company. Such practices help to expand the expectations of Unilever in the customer goods industry. Diversification is of great significance in investment since markets generally cannot be predicted.
Relevant KPI selection and justification
Key performance indicators are measures to evaluate specified activities that play a significant role in producing efficient results. Most importantly, key performance indicators must be in association with objectives that are important for the success of the business. Key performance indicators assist in maximizing the probability of acquiring efficient results (Tessella, 2020). Key performance indicators are also considered as the leading indicators of recent approaches that can estimate upcoming results. It can minimize the occurrence of risk failure by offering reliable measures. In the case of Unilever, their focus is mainly on savings on selecting between commercial approaches and adopting key performance indicators. Adopting key performance indicators provides the business additional information based on risks and hence the necessity to continue to make investments in such efficient compliance programs. Based on the PESTEL analysis and the overall market analysis, there are three significant factors that can be determined in the case of Unilever.
- Satisfied shareholders
- Financial profitability and sustainability
- Safe and high-quality products.
- Satisfied shareholders- They interact with shareholders on a regular basis. According to the code of Principles of Business and policies, they interact with governments, consumers, suppliers, and trade associations. It is essential that only trained representatives can conduct their engagements with such groups, and detailed records must be kept as per the laws and regulations applicable in Unilever. Their sole objective is to maintain long-term connections with shareholders through optimistic engagement so that it is beneficial for all the shareholders. They can directly interact with shareholders on various aspects such as financial, social, and environmental. During 2018, they interacted with shareholders on topics based on Remuneration Policy and making Unilever simplified. In April 2017, financial targets for 2020 were framed to increase the value of shareholders. The Boards further decided to reframe the dual-headed legal structure of Unilever after interacting with shareholders.
- Financial profitability and sustainability- The strategic investment options adopted by Unilever have a major impact on the long-term growth and benefits of the business. In case Unilever is inefficient in making the most favorable strategic investment options, then opportunities available for increased growth and maximum revenue cannot be achieved. The success of Unilever entirely depends on determining sustainable solutions in order to support overall development. The Sustainable Living Approach of Unilever frames long-term obligations to minimize impacts on the environment and augment livelihoods.
- Safe and high-quality products- The superiority and security of products are key factors for the development of brands and status. The probable risks undergone by raw materials throughout the supply chain and several other shortcomings observed in the product cannot be ignored (Tessella, 2020). The methods of product quality are monitored regularly through performance indicators to acquire developments. The brands of Unilever are readily available in over 190 countries. Hence, this is considered an optimistic opportunity that will produce desirable effects on the lives of people worldwide.
Turnover growth
Turnover growth averaged 1.6% over five years.
2.0%2019
(5.1%) 2018
1.9%2017
Underlying sales growth*
Underlying sales growth averaged 3.3% over five years
2.9%2019
3.2%2018
2.8%2017
Underlying volume growth*
Underlying volume growth averaged 1.4% over five years
1.2%2019
1.9%2018
0.8%2017
Operating margin
16.8%2019
24.8%2018
16.7%2017
Underlying operating margin*
19.1%2019
18.6%2018
17.7%2017
Free Cash Flow*
€6.1bn2019
€5.4bn2018
€5.8bn2017
Cash flow from operating activities
€10.6bn2019
€9.6bn2018
€10.0bn2017
Cash flow (used in)/from investing activities
(€2.2) bn2019
€4.6bn2018
(€5.9) bn2017
Cash flow (used in)/from financing activities
(€4.7) bn2019
(€12.1) bn2018
(€2.0) bn2017
Financial projections and planning
Brand Building
- Offer value-added investigation so as to support the team in framing reliable decisions on business
- Analyze the methods and provide counsel to the marketing group for further developments and effectiveness
- Support the business by providing reviews on improved products and several other innovations
- Regular forecasts on sales and operational methods must be done based on reasonable information and on time.
Customer Development
- Offering marketable support to conduct operations of customer development in business
- Financial support must be provided for taking principle decisions in case of customer development (Wizbii, 2020).
- To offer reliability to information based on trade associated with the decision making of the company.
There are several strategies employed by the finance team in Unilever.
- Creative business partnering- Capabilities must be improved so that finance experts serve as a great support to business and influence the strategic plan of Unilever.
- Financial processes- Financial methods must be simplified, and various aspects such as accounting, management of information must be improved.
- Financial flexibility- Certain approaches based on finance, the tax must be adopted to offer money for adequate growth.
If the above strategies are adopted, it will be a great support for the financial experts, and clear objectives can be framed in an efficient manner to bring about subsequent changes in Unilever’s business. The finance team members of Unilever put their maximum efforts into delivering products to customers according to their requirements and at affordable costs.
Assessment of Risk
Management of risk is significant in determining the strategy of Unilever and acquiring the long-term objectives of Unilever. The success of an organization is dependent on the capability to determine opportunities created by business and the markets in which Unilever is operating. Unilever mainly determines and reduces negative impacts such as reputation, talent, or money loss. It is also involved in determining upside risks such as inefficiency to deliver the strategy.
Managers must implement Unilever’s Principles of Risk Management in the following manner:
- Responsibility- they must determine and manage the potential hazards associated with their performance.
- Identifying the level of risk- they must evaluate the degree of risk so that no significant danger arises in acquiring the desired objectives.
- Regulation of risk- Adequate regulations must be adopted so that they are effective and objectives can easily be delivered
Members of the leadership group must make sure that the activities related to the management of risks as specified in the Risk and Regulation frameworks of Unilever are being followed. Regular reviews on risk must be done and must make sure that risks are minimized as per the requirements. Since the entire market is uncertain, therefore Unilever has to put maximum effort into overcoming the financial uncertainties. Unilever conducts its operations over a wide range of methods and covers several aspects related to planning, implementation, and management of performance. Management of risks must be implemented at every level of the business cycle. The Corporate Audit function performs a significant role in granting reasonable reviews for the effectiveness of management of risks and internal control procedures to both the management and the Boards in the case of Unilever. The Boards, along with the Audit Committee, have analyzed the risk assessment, internal procedures, and regulation in conducting its operations with Unilever.
Recommendation and Conclusion
Opportunities are available for Unilever to expand by entering businesses outside the customer goods industry. The company also has adequate opportunity to make its business more environmentally friendly and profitable. Development of the market helps to expand the business of Unilever by maximizing income from the sale of existing products in improved segments of the market. The strategic factors taken into consideration while determining the SWOT analysis of Unilever lays emphasis on major opportunities to expand the business in spite of the limitations observed. Unilever has a powerful brand name and unique lines of products, and an efficient marketing approach. Unilever has adopted elasticity by adapting transformations as per the requirements and preferences of customers. Hence, it can be concluded that Unilever utilizes its success as an appropriate measure to not only conduct operations based on sales but also satisfy customers by adopting social alertness and establishing several campaigns. Since Unilever is a global company, it must conduct its operations after taking into consideration the local requirements. Unilever must constantly develop the approach in order to sustain its level over the local competitors. Unilever must also ensure that suppliers meet the expected standards. It is essential for Unilever to launch campaigns based on advertising to develop a Sustainable living plan for consumers. Products must also be improved, keeping into account the strategy adopted by the Sustainable Living Plan of Unilever. Since the emerging markets have greater capabilities, the hence greater concentration must be applied in Emerging markets. Based on research and estimates, several difficulties and challenges were noticed. It is essential for Unilever to reform its strategies and policies constantly to overcome various difficulties and challenges. The sole objective of Unilever is to double the size of the business while minimizing the effects of environment. Lastly, it has been noticed that Unilever is regarded as one of the most efficient companies.
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