Unilever Pakistan
Case Study
Muhammad Azeem Khalid. 10E0022 Company Information: Unilever Pakistan Limited, the largest FMCG Company in Pakistan, is engaged in a diverse blend of business categories including Personal care, Personal wash, Beverages(Tea), Ice-cream, Spreads, among others. The company is the subsidiary of ULEVER Overseas Holdings Ltd with 70% majority shareholding. ULEVER has a fifty years history of operations and a strong distribution network. The company operates through 4 regional offices, as well as 4 wholly owned and 6 third party manufacturing manufacturing sites across Pakistan.
The Home & Personal Care (HPC) is the back bone of p rofitability and continues to drive overall growth momentum. On the other hand, mature tea segment continues to remain under pressure and follows a declining trend as ULEVER faces stiff competition in the organized and unorganized players in the market, resulting in loss of market share. In the capital intensive Ice cream segment ULEVER has made significant investments in expansion project and strengthening its distribution network. Going forward, we expect HPC and Ice cream to be the main subscribers of growth and profitability. On the beverages front, strategy is to hold market share at best.
Revenue Break Down HPC
Beve Bevera rage gess
Ice Ice Crea ream
13%
52% 35%
Market Position
ULEVER operates in an emerging market with varied consumer preferences. The market ULEVER is highly responsive to economic conditions, inflation and social disruptions resulting in
variations in sales revenues for the company. ULEVER faces intense competition from both organized and un-organized players. In the organized sector, competition includes multinational FMCG companies like P&G, Colgate, Nestle, Reckitt Benckiser as well as local operators. Apart from the threat of legitimate competition, the company confronts the risk of losing market share to cheaper smuggled and counterfeit products. Based on the estimates the size of organized HPC, Tea and Ice cream segment is PRs39bn, PRs25bn, and PRs7bn and ULEVER holds around 35-40%, 35-39% and 60-65% market in terms of turnover. ULEVERs key competitive advantage over other market participants is the retail reach of the company. ULEVER services 500,000 outlets with 50% through direct distribution and remaining via wholesalers. ULEVER is gearing up to increase its market share in the untapped rural economy, and has increased its coverage of retail shops in rural segment by 15,000 within 2 years. Market share analysis of various business segments reveals Beverages (Tea) is turning out to be a growing concern as ULEVER continues to lose ground to competitors. In the HPC segment, ULEVER is the leading player in personal wash and detergents among others and has gained market share in key categories. By gaining early-mover advantage ULEVER controls high growth ice cream market and is investing aggressively to maintain its market dominance with around 65% of market share. The biggest challenge in safeguarding market position is low cost, under-invoiced and smuggled products available in the market. According to industry sources, 40% of local tea consumed and a large portion of HPC products are smuggled into the country. This coupled with unprecedented rise in inflation causes consumers to opt for these substitutes resulting in loss of m arket for ULEVER. ULEVER: Market Share Analysis 2005
2006
2007
52% 33% 18% 34% 55% 45%
50% 40% 30% 40% 65% 41%
49% 42% 40% 41% 65% 39%
Home and personal care
Personal wash Shampoo Detergent S in Care Ice cream Beverages
Rural Market - A world of opportunity
The under penetrated rural market offers tremendous growth potential as rural population constitutes around 60% of the total population. In the past few years, favorable structural changes, such as double digit growth in agricultural credit, increased penetration of television cable media have boosted demand for FMCG products. ULEVER and others are capitalizing on this emerging trend by targeting central and southern Punjab where the effect is most pronounced. In order to cater to rural segment ULEVER is offering value packs in small sizes in lieu of standard packs. However, the key risk in this segment is high price sensitivity. With rapid inflation pushing product prices up, consumers are likely to switch to cheap local substitutes.
Problems
Whenever we look for the problems of company its problems can be bifurcated into two broader categories. 1.
Internal problems
2.
External problems
Internal problems These problems are normally faced by organization due to elements, factors and weaknesses which are present inside or which are existing internally in the organization e.g. problems due to organizational policies, culture, structure, information sharing networks, organizational strategies or even employees, they can be positive force and the problem child as a source of internal problem as well. 1.
Companys management rely on long term strategies which they receive ready made
from their parent company, head office as a modus operandi. And hence a strategy or a policy approval, formulated and implemented 50 years back becomes obsolete and discard in prevailing scenario and changing environment e.g. in their advertising campaigns of Sunsilk shampoo they only use Nabila as their celebrity (Hair Expert) and they have never tried any other sports or film media celebrity for the promotion of their product which their competitors use extensively. Here in this field they lag behind due to their long term strategy even in field of advertising given by their parent head office. Hence being an influenciable organization they exhibit bureaucratic management style they want to maintain their status quo before these environmental changes like advertising trend. 2.
Offices and branches of Lever Brothers Pakistan Limited are normally placed in
domestic setup especially Multan branch, since it is a marketing organization, its office outlook and location must be in professional and well to do area which will contribute in proper functionality of branch and its employees as well. 3.
Management team of Unilever Pakistan Limited normally arrange excessive
operational meeting, they have less emphasis on the strategy implementation part as compared to strategy formulation and planning.
4.
All the decisions regarding product planning, development, distribution and even
targets of the branches are centralized and are in hands of central sales office of Unilever Pakistan Limited. They dont believe in MBO (Management by objectives). Branches are given inflexible targets of sales though data on these branch managers negotiate this figure but it takes too long. 5.
Due to heavy capital investment in their brands Unilever Pakistan Limited is unable to
observe their slow moving brands which create a cost burden. 6.
Since removing old/discarded brand is very expensive due to expensive installed
machinery, technology and capital investment, launching new brand is also very expensive for Unilever Pakistan Limited due to the same reason. As to launch a new brand complete research and development setup is required which is inflexible and can not be re-utilized for another brand along with its consumer market is heavily flooded with products, there is very low probability that market will absorb new brands. 7.
Whenever Unilever Pakistan Limited launch any product they first launch it in India if
product proves a big success they try it in Pakistan which is not a good strategy due to cultural difference and religious differences. 8.
Unilever Pakistan Limited has very poor relationships with their dealers and retailers.
They are far away form their competitors like P&G, in case of retailer relationship. Their brand manager makes very rare visits to the retailers to know their problems, very little discounts are offered by Lever Brothers Pakistan Limited to their retailers. No prize scheme and incentive is given to dealers, retailers, wholesalers of Unilever Pakistan. Even Lever Brothers Pakistan Limited brand manager never bargain on the proper and prominent shelf space of their shampoos (Sunsilk and Lifebuoy). 9.
Unilever Pakistan Limited has not been able to place any check on its smuggling
shampoos into Pakistan e.g. Indonesian Sunsilk is made according to the demographic of Indonesia, when it will be used in Pakistan it will damage the hair of people, which deteriorate the brand image. Which create problem on local sales of Pakistan. 10.
Employment insecurities in Unilever Pakistan Limited also contribute negatively
towards the performance of branch operations. All branch managers, brand managers and operation are transferred within branches of Lever Brothers Pakistan Limited allover Pakistan. This create an uncertainty among management team, new managers takes much time to settle in new branch and to understand new setup of branch and new dealers network. This affects the branch operations and performance.
External problems Unilever Pakistan Limited is not facing any prominent external problem.
Industry Outlook
ULEVER predominately operates in growth segments except for the mature tea and soap business. However, even in the mature soap business ULEVER has been able to post robust growth and high margins. The growth segments offer prospects of sustained above average profitability, however these also require hefty investment in product and brand development, thus pose the risk of losing market share amidst intensifying competition. Industry Classification Industry
Tea
Ice Cream
Soap
Detergent
Shampoo
Industry Classifi cation
Indicators
Mature
Industry growt agging GDP growt Low profit margins Reduced sales volumes
Growth
0.5 g per capita year y consumption Double digit revenue growth Large Capex and advertising spend
Mature*
*ULEVER Growth company within mature industry Lux sales doubled in 3 years High profit margins Introduction of liquid hand wash
Growth
11% rise in Surfs market share Low penetration, 50% population uses laundry soap Double digit turnover growth
Growth
Lowest penetration in Asia Clear Shampoo highest growth in comparable regions
