Unilever is a leading consumer goods company with a strong global presence. The company is more than 100 years old and sells across more than 190 countries. It has managed a strong presence in the emerging markets, which accounted for around 58% of its revenues in 2020. Unilever uses a large network of retailers globally for selling its products worldwide.
Unilever’s strengths include its strong business model, strong product portfolio, manufacturing capabilities, economies of scale, and several more, including its human capital. In 2020, the pandemic tested the capabilities and strengths of all the leading consumer goods brands. It tested the resilience of their business models and supply chains. However, despite the impact of the pandemic, the leading consumer goods brand Unilever performed well against all odds. Its net revenues remained $50.7 billion in 2020, slightly less than the previous year.
Unilever is also facing heavy competition in the global market. The company continues to rely upon innovation and marketing to achieve growth. We will analyze Unilever’s key strengths and weaknesses in this swot analysis, apart from the opportunities and threats that can affect its business worldwide.
Strong Business Model:
One of the leading strengths of Unilever is its strong and highly sustainable business model. The pandemic proved its business model’s resilience. Unilever’s business model is highly adaptive, which allows it to maintain lower operating costs and overcome disasters like the pandemic. Overall, its strong business model has helped the company maintain its market leadership and retain its growth momentum.
Large Product Portfolio:
Another leading strength of Unilever is its large product portfolio. The company sells a large array of around 400 household names in various corners of the globe. Several of these brands are leaders in their categories and popular worldwide. There are several iconic brands in its portfolio. According to a report Unilever published a few years ago,
“The Unilever brands in the Kantar Worldpanel Global Top 50 are Lifebuoy (3rd), Sunsilk (10th), Knorr (11th), Dove (12th), Lux (13th), Sunlight (14th), Pepsodent (18th), Surf (27th), Rexona (28th), Vim (29th), Brooke Bond (34th), Close Up (42nd) and Lipton (48th).”Unilever.
Global presence and distribution network:
Unilever is a truly global brand with a strong global presence. Its products are available across 190 countries. More than 2.5 billion people on the planet use Unilever products daily. The company employs a large network of around 25 million retailers to sell its products worldwide.
Strong focus on marketing and promotions:
As a consumer goods brand, Unilever faces heavy competition from several global and local players. The company maintains a heavy focus on marketing and promotions to retain its market leadership and growth rate. It utilizes several channels, including digital and traditional channels, to promote its brand and products. The company spent € 7.1 billion on marketing and promotions in 2020.
Unilever also excels in terms of managing its human capital. The CEO of the company is Alan Jope. Unilever employed 150,000 people approximately in 2020. It is also recognized as the FMCG graduate employer of choice in over 50 countries. Unilever’s performance in terms of achieving gender balance is also excellent. It has achieved a 50/50 ratio in terms of gender balance among 10,000 managers.
Focus on innovation:
Unilever’s focus on innovation is also one of the key factors enabling faster growth for the business. The company has established a culture that fosters creativity and innovation. It also devotes a large sum each year to research and development to develop and improve products and processes. In 2020, the company spent 800 million Euros on research and development. Its focus on innovation is also a key source of competitive advantage for the brand. Through a continuous focus on innovation, Unilever has strengthened its competitive edge in the global market.
Economies of scale:
Unilever also uses economies of scale to achieve social good through its CSR activities. Through its strong manufacturing and supply chain capabilities, the company has achieved economies of scale, helping it control its operating costs and grow its profitability. The company produces a large range of products in enormous amounts. Large and multinational consumer goods companies can achieve impressive profit margins in this way. Economies of scale are also a key factor helping Unilever beat the heavy competitive pressure in the global market.
Highly sustainable business:
Unilever has adopted a highly sustainable operating model. It focuses heavily on sustainability in its products and processes. The company uses 100% renewable grid electricity globally. In 2020, it used 67% sustainably sourced agricultural raw materials for production. Climate action and waste management are also some key focus areas for the business in terms of sustainability.
Improving free cash flow:
Unilever’s free cash flow has continued to improve over the past several years. Its free cash flow in 2018 was €5.4 billion, and it grew to €6.1 billion and then to €7.7 billion in 2020. Free cash flow is significant for big businesses. It allows them to pursue opportunities that maximize shareholder value. Investors love companies with plenty of free cash flow.
A large array of products with too many substitutes:
Unilever’s product portfolio is quite extensive. The company targets a wide range of customers through its large and diverse product portfolio. However, the market is full of substitutes, and the switching costs for consumers are low. Maintaining customer loyalty becomes difficult due to these factors and requires a huge investment in marketing and promotions.
Lack of forward integration:
Unilever is a large and global brand that employs 25 million retailers to sell its products worldwide. The company lacks forward integration capabilities, and so the retailers enjoy a lot of control over sales. Several big brand retailers have also started their private label brands that compete with Unilever products. If Unilever can manage to grow its retail chain, the company will enjoy higher profitability. Currently, it depends on the retailers for sales heavily.
Lack of diversification:
Currently, Unilever makes and sells three categories of products, mainly including beauty and personal care, foods and refreshment, and home care. However, the product portfolio of the brand is full of similar or matching products with low differentiation. The company has not diversified its product portfolio much. The result is higher competitive pressure.
Emerging markets are full of opportunities for Unilever. The company has currently maintained a strong presence in emerging markets. For example, India offers a large base of middle-class consumers. The rise of the middle class in the emerging markets has brought new opportunities for Unilever. Consumers shop using both online and traditional channels. Unilever must improve its digital sales and distribution capabilities in emerging markets to enjoy stronger sales.
Sustainable and health-friendly products:
Globally, consumers are now more attracted to health-friendly and sustainable products. The pandemic has also accelerated the movement towards such products and brands. Unilever must focus on growing its array of health-friendly and sustainable products and brands to find faster growth and expand its customer base.
Demographic changes have brought new challenges and opportunities globally. The Millennial generation has different needs and preferences compared to the baby boomers. Companies like Unilever need to research millennials’ tastes and preferences to create and sell products matching their expectations. The millennials currently represent the largest part of FMCG company’s customer base, like to use digital channels for shopping and connecting with their preferred brands. Unilever should grow its digital channels for sales, marketing, and customer engagement to benefit from the demographic trends.
Digital technology, Cloud technology, and social media:
Digital technology and other leading technologies like cloud technology drive higher growth for businesses across various industry sectors. However, cloud technology has several more advantages that can enable Unilever to unlock more benefits and grow its competitive edge. Unilever has partnered with Arzeda to use its cloud computing capabilities and software tools, which can help it further its research into enzymes. Unilever can also use these technologies to manage data and analytics or other purposes like marketing, managing customer experience, and customer engagement. It should also increase its focus on digital technology and social media for sales, promotions, and customer engagement.
The FMCG sector is marked by intense competition, and there are just too many substitutes in the global market for Unilever products. The company must focus on diversification to differentiate its brand from rivals.
The competition in the FMCG industry has kept intensifying. Higher competitive pressure causes the operating costs of Unilever to grow. The company has to invest more in marketing, innovation, and maintaining product quality. With higher competitive pressure, the focus on differentiation also needs to be higher. Apart from that, the pressure on prices and profit margins is also higher with higher competition in the sector.
Worldwide, the government regulation of various industry sectors including FMCG has grown a lot in recent years. Businesses like Unilever need to remain compliant with all the relevant laws and regulations to avoid hefty fines and loss of image.
Brands like Unilever operating in a global environment are subject to several risks, including currency risks. Fluctuations in currency exchange rates can cause profits and margins to fall.
Rising operating costs:
The operating costs of Unilever have continued to grow, driven by an increase in the prices of raw materials. Packaging costs and transportation costs have also increased. These factors are affecting Unilever’s bottom line. Despite raising its products’ prices, the company has not been fully able to absorb the impact of the rising prices of raw materials, packaging, and transportation, causing its profitability to fall. In 2021, Unilever’s underlying operating margin fell as cost inflation sped up in the second quarter. The company was already expecting higher inflation this year, but it was way above the company anticipated. Unilever has pushed up prices in countries like Brazil and Argentina, but it will have to increase the prices under its contract with the retailers gradually in some European nations. Cost volatility has also resulted in an uncertain outlook over margins this year for the company.