HLL – The new Face

By Vikram Vasisht

In 2000 Unilever’s then Chairman Niall Fitzgerald laid down an ambitious 5 year restructuring plan popularly known as “Path to Growth”. The targets sets were high, first a 5% growth rate for its leading brands and secondly, to make them accountable for 95% of total Unilever’s revenues. To achieve this Unilever decided to chop down its rich stable of 1600 brands to 400 core or popularly called as power brands. The entire restructuring was going to take around five years with managers given clear directions to focus on core and growth oriented brands and shed the remaining (remember in India under Chairman Mr Vindi Bhanga strategy HLL’s 110 brands were down to 36 power brands). Steps taken as a part of “Path to growth” plan-
1. Cutting down on brands and manufacturing cost- Unilever saved about €4 billion ($4.9 billion) in costs over the past five years as it reduced its portfolio of brands from 1,600 to some 450 over a period of 5 years.
2. Restructuring Levers culture and reward system- After the buyout of Bestfoods its integration with current Levers business was important. Levers reenergized the enterprise culture, in terms of reviewing there own leadership group. About 40% of workforce was changed. The new work force was supposed to be more risk takers, more business-builders, people who have a passion for growth. Much more emphasis is laid on real delivery and performance. Levers moved to one of the most aggressive reward systems in terms of being skewed toward performance.
3. Exiting the American bakery market- As a part of radical restructuring, $2 billion were raised from the sale of Levers American bakery business and some European food brands. The sales were as a part of a condition imposed by European regulators after Unilever's acquisition of Bestfoods for $21.3 billion in 2000.
The plan impressed everyone initially even the numbers were positives for first few quarters but the final picture is a dismal one. Though Levers saved about €4 billion ($4.9 billion) in costs over the past five years and reduced its portfolio of brands substantially. Last year sales were down by 6% and operating profits slipped by 9%. In September 2004 came the group's first ever warning that it would not deliver a promised increase in profits and to add to there woes there leading brand grew by a mere 0.9% far short of targeted 5-6%. Analysts feel more than changing business environment it’s the missed opportunities in Unilevers strategy which is responsible for this situation.
4. Division of Levers into HPC and Food- April 2004 as a desperate effort Chairman Niall Fitzgerald went against his plans and reorganized Levers into two division Home and Personnel Care(HPC) and Food divisions in order to quicken the decision making process.
Chairman Niall FitzGerald, 58, who had a tough time restructuring Unilever, left the Unilever to head British news and information company Reuters. In keeping with tradition, Unilever PLC picked up an insider to fill the spot. Patrick Cescau, a 55-year-old director of the firm's global foods division, took over the helm in September 05 and marked the end of “Path to growth” at the same time started his own restructuring process so as to revive the growth for which Unilever is known for. Firstly let’s look at the factors which made the air hot for Unilever
Missed Opportunities
1. Advertising Misfit- Many think that the main problem is under-investment in advertising and marketing, an infatuation with brands and unattractive product. Unilever cut its ad and marketing expenditure at the worst moment. Commoditized products were vulnerable to the onslaught of retailers' own brands. In many instances, retailers' own brands now capture as much as one-fifth of the market. Unilever also over-extended some successful brands, for instance Bertolli's olive oils and pasta sauces. The firm spends 14.5% of its revenues on advertising, which is more than the 12% spent by Nestlé, the world's biggest food firm, but far less than the 20% that P&G splashes out on promoting its products. The problem also lies in the way that the company spends its advertising budget. It sacrificed longer-term advertising on television and other media for short-term promotions in an effort to stem its loss of market share which backfired.
2. Lack of Innovation- Unilevers Management obsession with sales number has taken yet another toll. Everyone in the company during “Path to Growth” was so busy with growth, sales etc that they overlooked innovation in there brands and which where there rivals knocked them. For e.g. P&G, it continues to gain share in lucrative spots: It has 70% of the tooth-whitening market, up from 57% a year ago, and 48% of disposable diapers, vs. 45% a year ago. The key behind P&G success is renewed creativity. Since the new agency took over in 2000, P&G has shown a savvy knack for innovation. From its Swiffer mop to battery-powered Crest SpinBrush toothbrushes and Whitestrip tooth whiteners, P&G has simply done a better job than rivals at coming up with new products that consumer crave -- and, not incidentally, on which it can earn higher margins than it can on its more mature lines. In the last three years P&G has updated all of its 200 brands and created whole new product categories -- such as Mr. Clean AutoDry Carwash -- that have added $2 billion in sales. The company is launched its Crest Vanilla Mint toothpaste during an episode of The Apprentice. The focus of the show was on the contestants' plans for marketing the toothpaste. During a 15-second spot, viewers were invited to visit Crest.com, where they wrote that how they would have handled the marketing job. An extremely new and innovative concept which did indeed did well.
Antony Burgmans, Chairman
M.S. (Vindi) Bhanga, president (foods)
CFO Rudy Markham
HR chief Sandy Ogg
Harish Manwani, President (Asia-Africa)
Patrick Cescau, CEO
Kees Van Der Graaf, president (Europe)
John Rice, president (Americas)
Ralph Kugler, president (HPC)3. Low Carb Diet craze untapped- Unilever needs to do a better job of managing its brands like Slim-Fast. In June 2003, it was believed in Unilevers that low-carb diets were a fad and were going to go away. Slim-Fast products traditionally included foods such as shakes and meal bars that serve as low-calorie -- but not necessarily low-carbohydrate -- alternatives to regular food. This calculation misfired and company was left behind with serious catching up to do. As a result Slim-Fast's global sales dropped by nearly 30%. At the end of last year, Unilever rolled out five low-carb Slim-Fast products. It was this move that brought some respite to Slim-Fast a move which can be vindicated by the fact that about 20% of slim fast’s revenue is from Low –Carb drinks. It has, however, been too slow to introduce new products.
4. Poor performance of Fragrance Division- Unilevers Prestige fragrance division which sells Calvin Klein Obsession, Eternity, cK, and other designer names were to slow to offer variety and get newer products in the market. On the contrary other companies were quicker to launch more products. It is believed that with fragrances, consumers are on to new things very quickly. These twin problems with Slim-Fast and fragrances have hit Unilever particularly hard in North America. Marketing the scents became tougher, as consumers became more selective in their discretionary spending.
5. Complex Organizational Structure- Levers follows a 75 year old practice of having two chairmen, one in London and one in Rotterdam. This meant complex management structure to with overlapping accountability and slow decision-making.

6. Less dispensing of dividend to shareholders arising negative sentiments
7. Volume driven growth giving way to margin driven growth as more focus was on profits and growth. This meant short term profits but hindered long term sustainable growth as it was seen world over in various Levers offices.
Business Environment
1. Competitive Heat- Yet most analysts agree that the P&G-Gillette merger is likely to make the climate even tougher for Unilever in the consumer-products business. Notably, the bulked up P&G will have more leverage to bargain with large retailers such as Wal-Mart, although in the short-term P&G may be distracted by its own consolidation it still is not a healthy sign for Levers.
2. Store Special Brand- Unilever often has to fight for market share with increasingly popular store-specific value brands, which fill the shelves of Europe's "hard discounters". With less spending on advertisement meant low brand value of a product, consumers often flocked to cheap store brand. As a result In Europe, which a FMCG business was fluctuating commodity prices which put pressure on the margins.
3. Unrealistic performance target- Many people believe it’s the unrealistic performance target which Levers has set for itself responsible for its bad shape. A moderate 3% growth would have been a practical target rather than 5-6%.
Soon after Patrick Cescau the new chairman took over in September 2004, he himself has revamped the Levers operation. Calling an end to “Path to Growth” he has restructured the organizational structure toward volume driven company from margin driven.
Change in leadership structure- The Anglo-Dutch giant had a unique dual-chairman structure that is; it had two Chairmen one in based in London and the other in Rotterdam. The Rotterdam office was lead by Antony Burgmans while the Unilevers London chairman was Patrick Cescau. In May 2005 it was changed to a more conventional form of a chairman and CEO model. Antony Burgmans became chairman and Patrick Cescau took charge as CEO. The objective of this exercise is simplicity of structure and clarity of leadership. The streamlined focus would bring better focus, accountability and will quicken the decision making time. Antony Burgmans would be the non executive chairman and it would be mainly Cescau job to steer Unilever into growth. One of the first steps taken by Cescau is towards companies’ unification popularly known as One Unilever. Cescau has been trying to transform it into a more global organization under the One Unilever programme. The idea is to ensure that Unilever is able to leverage its scale fully - something that it hasn’t done in the past. This will ensure that Unilever is in a better position to negotiate with it suppliers and big buyers (retailers) like Wal-Mart and others. Nobody in US knew that Unilever is a ten-billion dollar company because they had separate businesses (in UK, Holland and US). As a result of One Unilever they can establish this image of theirs especially when competitors like P&G have taken consolidated by acquiring Gillette.
The new restructured Unilever has 8 independent executive directors including CEO who will be responsible for there respective divisions. Out of eight directors two of them are Indians which just reinstates the respect which Indians command in Levers.
Renewed Advertising Strategy- As pointed earlier Levers failure to innovate and misdirected advertisements have hurt them badly. Taking a cue from this experience of theirs Unilever and their ad agencies are innovating and downgrading the importance of the 30-second TV spot. The target set for their many new products is between 18-25 years. Unilever believes that if it can create compelling entertainment on the Net and in game venues where guys spend time, it can foster brand loyalty. They are also going beyond the 30-second TV commercial to create a deeper bond with our guy. Their offering include streaming video, plus downloads to cell phones and Sony PlayStations this summer, a video game, blogs, and chartrooms and others.
Restructuring in HLL
Amidst the entire upheaval HLL Unilevers Indian subsidiary is undergoing its own revamping. The power brand strategy under then chairman VS Bhanga didn’t deliver as expected. Mr. Harish Marwani took over from Mr. VS Bhanga. HLL in early 2004 was divided into two divisions namely Home and Personnel Care and Food division both having there own managing director. Last month, HLL announced that Douglas Baillie, group vice-president and head, Unilever (Africa, Middle East and Turkey), will take over as its new CEO and managing director with effect from March 2006. Reversing a split that happened in 2004, HLL's dual-business structure (the home and personal care or HPC division, and the foods division) will now have Baillie as the man in charge. Arun Adhikari, managing director, HPC, was deputed chairman, Unilever Japan (with responsibility for Korea). S. Ravindranath, managing director of the foods division, will retire soon. As far as for Mr. Marwani is concerned he moves on to become president Unilevers Asia-Africa at the same time continuing as the non executive chairman here in India. Baillie's India appointment and Adhikari's move to Japan (the two countries together account for roughly 28 per cent of Unilever's Asia-Africa turnover) were both orchestrated by Manwani. Both will report directly to him, and increasingly, they will be key players in his regional gameplan. During the period of 2000-2010 it is expected that consumer spending is going to increase by $14.4 trillion, of which Asia-Africa is expected to bring in $8.6 trillion which vindicates the importance of this region for Unilever.
Carrying forward One Unilever will benefit as this would mean HLL would be one company and not two businesses or two divisions. They can also use their scale across the board, so that might of HLL can be leverage. Whether they sell Annapurna Salt or Dove soap, might of HLL in every one of these activities can be used. Also part of the interdependent Unilever and take advantage of all the global innovations. One of the distinct competitive advantage for Unilever is that they operate through out the pyramid whether it penetration driven (lower end), volume driven (middle class) or innovation driven (high end upper class user). It is clear that new management has brought in new style of strategy which now revolves around volumes and not profits. Management is willing to give managers time to build brands and wait for profits. Consolidation of ailing brands is of prime importance before deciding on their future unlike the time from 1999-2004 when they were disposed of without giving second thought. The performance of Marwani and his team would be closely monitored for his future in Unilevers as many feel he is an ideal person to replace Patrick Cescau.