Using the right Levers for emerging markets

Paul Polman, Unilever CEO, was in Bangalore last week to inaugurate the consumer goods giant’s global enterprise support and information technology centre in the tech hub of Whitefield. This centre, which employs 1,400 people, will be the largest operating centre for Unilever and will support Hindustan Unilever Ltd (HUL) as well as the global Unilever business. Polman, COO Harish Manwani, and HUL’s MD &CEO Nitin Paranjpe interacted with select media on the occasion. Polman and Manwani spoke about how Unilever is today an ‘emerging markets company’ as 56 per cent of its revenues come from developing and emerging markets, and will go up to 75 per cent by the end of this decade. Polman also spoke passionately and at length about Unilever’s sustainable living plan and how he wants the MNC to make a difference.Vinay KamathandK. Giriprakashof Business Line were present at this meeting. Excerpts from the conversation:

On innovation

We have set ourselves an aggressive objective to double our turnover and do it in a manner that reduces our environmental footprint and improves our social footprint. It is important we have a business model that uses fewer resources. The key driver of that is going to be innovation, better anticipating consumer needs and a certain speed and agility. We are really blessed that 60 per cent of our revenues comes from emerging markets and 85 per cent of our growth comes from these markets.

Increasingly, innovation comes from these parts of the world. For example, how do you use mobile technology to connect with distributors and consumers? We are able to connect 40,000 (Project) Shakti ladies through mobile phones; it’s like in China where you see chefs with iPads, it’s the same concept. Our global business has grown very fast, growing at twice the rate of our competitors’ in the developing and emerging markets; we have added around €10 billion to our top line in the last three years alone and people have realised our business model is working. Our innovations are being done quicker and we are rolling them out quicker.

On capital investments

We are investing heavily in emerging markets. The biggest investment is in people; we are building a state-of-the-art training centre in Singapore. We doubled our capital spending and spent €4-5 billion. Of the 28 factories we are building, bar two, all are in emerging countries. In the last two years, we have introduced 300 brands in different countries. The best example is the brand Tresemme acquired a short while ago and introduced in India – a great example of the speed we have been able to bring to the local market. Pure-It has now been introduced in 15 countries and is doing very well. We are investing in people, capital, new brands, R & D; advertising and promotional spending has gone up.

On aspiring markets

By 2020 we will have 75 per cent of our business from the aspiring markets. Our business is across eight clusters; two of them are in developed markets. We don’t have regional structures any more. One cluster is in Europe and one is North America. Africa is in different stages of development. Seventy-five per cent of our business in 2020 will be in six clusters; the business in these clusters will be at the same size of the total business we are at today.

Manwani: To put this in context, currently 56 per cent our business is in developing and emerging markets, which is the widest footprint among any of our peers. So to go to 75 per cent is not inconceivable. Second, look at our track record for the past 20 years. We have grown 8-9 per cent. And, the past two years, we have shown double-digit growth on a base like that. We know how to manage these businesses. We talked about shifting resources here, whether it’s IT, or enterprise support, R&D, so if you add all that up, we are on the right trajectory.

Polman: The growth is quality growth in top and bottom line; it is profitable, volume and market share growth.

On organic growth, acquisitions

If you look at the growth of Unilever, we have grown last six months at 10-11 per cent, most of the growth is organic. It’s true that we have taken over businesses such as Alberto Culver in the US, and Sara Lee’s business in Europe, but they have been modest businesses. And we have to offset the businesses that we have exited, such as the frozen business and some minor ones in the US. But the portfolio has become stronger because of this management. Ninety to ninety-five per cent growth will come from our own organic growth, from our own brands. If you look at India, Sri Lanka, or Pakistan, we have a good portfolio of brands. More than 75 per cent of the business we have a 50 per cent market share, though the markets are small. The markets are a third of the markets in China. So, the opportunity to develop these markets is enormous. That is why we are accelerating so much in emerging markets.

Manwani: When we talk about 11-12 per cent growth, that is on a base of $35 billion, which is 56 per cent of our $60-billion business. And, when we talk about market development as a big opportunity, remember our track record, we built the shampoo market in India, we converted people from using hard soap for washing clothes to using detergent powder.

On the threat from private labels

Polman: There is always a threat of low-cost competitors. Then there are the low-cost regional competitors. We continuously look at taking cost out of the system as we grow. One of the ways the stock market likes us is every year we have taken over $1 billion, this year it is $1.4 billion, of cost out of the system. Products have to compete.

Low price or low quality will always have a place. If you look at products in Europe, for example, where private labels are strong, there are labels in wine, cheese, meats, dairy, in vegetables. So when they publish these private label numbers, they are basically saying these are the categories that are commoditised.

But in our category, take oral care, or personal care, there are very few private labels. One of the reasons we went out of olive oil was it was difficult to differentiate and it became a business that was more commodity-price driven, though it’s a big market. So our business model evolves to be sure that we stay ahead.

On learnings from emerging markets

Our model works on differentiation, creating brands and accessibility. Just to give you one example, as there is more and more economic stress in Europe, you know what is working really brilliantly for us there? It’s some of the learning that we have taken from the developing markets. Of late, some of our best brands in the UK, for example, had a £1 price point. People still want to buy brands. But we have to make them accessible. Where do we get this learning from? In this part of the world, where people said they don’t want to buy a cheap shampoo, they want a great experience. But they can’t afford to buy a bottle of shampoo, so we give them accessibility. Similarly, the fact that we are running these fantastic programmes of making sure that our brands are available not just in hypermarkets and supermarkets but in every convenience store makes our brands accessible. So there is a whole ecosystem how we can reach up and reach down the consumers but the biggest differentiation has to be brands.

On Unilever’s sustainable living plan

If you look at capitalism, it has shown there are shortcomings, there’s tremendous amount of private and public debt in Europe, huge consumption of resources, and too many people left behind, that’s the root cause of the Arab Spring. The political system cannot handle it. Politicians have a hard time internalising these conflicts.

If you want to be accepted by consumers over time you have to have a model where you contribute to society, it is the right thing to do. There are so many connected on the social networks, they connect with each other to demand change and ask for transparency. If we have that trust, and increasingly show that we can grow our businesses in a responsible way, consumers relate to it and are positively responding to it. Our innovations are becoming relevant because they respond to the needs of the society.

Take the issue of hygiene or sanitation - there are six million children dying every year of infectious diseases, pneumonia, diarrhoea; just by the sheer act of hand-washing you can cut it to half. So, we have the global hand-washing day, we had new technology which cleans hands in ten seconds versus 30 seconds, which is long for a child. We had to go into school programmes every year in the last two years. We brought 250 million people into the habit of washing hands. So it’s good for society, it’s good for our innovation programmes, it drives our business and is ultimately good for the shareholders as well.

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