Case Study Unilever Pakistan

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 sites across Pakistan.

The Home & Personal Care (HPC) is the back bone of profitability 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 Beverages Ice Cream
13%

52%

35%

Market Position
ULEVER operates in an emerging market with varied consumer preferences. The market
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 multi-
national 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 market for ULEVER.

ULEVER: Market Share Analysis

2005 2006 2007

Home and
personal care
Personal wash 52% 50% 49%
Shampoo 33% 40% 42%
Detergent 18% 30% 40%
Skin Care 34% 40% 41%
Ice cream 55% 65% 65%
Beverages 45% 41% 39%

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.            Company’s 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 don’t 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
Industry Indicators
Classification
Industry growth lagging GDP growth
Low profit margins
Tea Mature Reduced sales volumes

0.5kg per capita yearly consumption

Double digit revenue growth
Ice Cream Growth Large Capex and advertising spend

*ULEVER Growth company within mature industry

Lux sales doubled in 3 years
Soap Mature* High profit margins
Introduction of liquid hand wash

11% rise in Surfs market share

Low penetration, 50% population uses laundry soap
Detergent Growth Double digit turnover growth

Lowest penetration in Asia

Shampoo Growth Clear Shampoo highest growth in comparable regions