Bloomberg News

Unilever Doubles P&G Growth by Dominating Jakarta Stalls: Retail

January 03, 2013

Unilever Doubles P&G Growth by Dominating Jakarta Stalls

An advertisement for Unilever NV's Sunsilk line of hair care products is displayed above a store in Jakarta, Indonesia. Photographer: Dadang Tri/Bloomberg

Hari Sumarno runs a small shop selling tobacco and household sundries at the Palmerah market in Jakarta, the bustling capital of Indonesia, which has one of the world’s fastest-growing economies. Palmerah is a hive of more than 100 mom-and-pop stores, and shoppers haggle over everything from duck eggs to flip-flops as flies buzz overhead.

The front of Sumarno’s cramped stall is plastered with small packages of Sunsilk shampoo, Fair & Lovely skin cream, Bango soy sauce and Rexona deodorant -- a seemingly random assortment with a common denominator: All are Unilever brands.

Unilever, the world’s second-largest consumer-products company, provides Sumarno with discounted goods in exchange for the prominent placement, and company sales reps check in weekly to make sure everything is in stock and displayed neatly.

Unilever brands account for about 30 percent of Sumarno’s 15 million rupiah ($1,554) in daily sales, and stores like his helped Unilever (UNA) Indonesia boost sales 17 percent last year, nearly triple the growth rate of the nation’s gross domestic product. Competing products are “in the back,” said Sumarno, grinning as he jerks a thumb toward the dusty, unlit shelves behind him. “You can’t fight Unilever.”

From the markets of Southeast Asia to the aisles of American supercenters, that message is spreading. The Anglo- Dutch maker of household staples such as Dove soap and Lipton tea has accelerated its sales growth, new-product development and presence in emerging markets over the past three years while many of its rivals in the $7 trillion consumer-goods sector, Procter & Gamble Co. (PG:US) in particular, are struggling amid the prolonged economic downturn.

Newfound Luster

“It’s Unilever’s moment in the sun,” said Harold Thompson, a Deutsche Bank AG analyst who has spent a decade following the company, which sells 400 brands in 190 countries.

Unilever Indonesia advanced 1.1 percent to 22,100 rupiah as of the 4 p.m. close in Jakarta, following a 4.8 percent increase yesterday. The share price rallied 11 percent last year, compared with a 13 percent gain in the Jakarta Composite index.

Unilever’s newfound luster -- sales are growing at more than double the rate of P&G’s -- comes courtesy of emerging markets such as Indonesia, which comprise 55 percent of revenue, up from 20 percent in 1990. That’s a higher proportion than at peers like P&G, France’s L’Oreal SA, (OR) Swiss-based Nestle SA, Germany’s Beiersdorf AG and Britain’s Reckitt Benckiser Group Plc. (RB/) In the third quarter, Unilever’s emerging-market sales rose 12 percent, a sixth consecutive quarter of double-digit gains.

Comeback Architect

Half of Unilever’s 50 billion euros ($65 billion) in annual sales come from food and drinks, one third are beauty products, and the rest are from household items such as detergents. By focusing its innovation and marketing firepower on fewer, bigger projects with global appeal, Unilever is able to get products like TRESemme shampoo and Magnum ice cream into stores in Sao Paulo, Mumbai and Jakarta faster than ever before. Once there, it uses local knowledge gained over decades operating in developing markets -- Unilever has been in Indonesia since 1933 and India since 1888 -- to lure shoppers to its brands.

In the decade prior to 2009, Unilever’s sales were stagnant and its shares languished as the sprawling company shed brands, factories and employees, and jumped from one grand strategy to another. The architect of Unilever’s return to grace is Paul Polman, a Dutchman who once fancied being a doctor or a priest.

Since his recruitment in 2009 as Unilever’s first-ever chief executive officer from outside the company, the P&G veteran has brought an emphasis on winning market share that was sorely lacking in the 170,000-employee company. Polman’s lofty rhetoric about doubling Unilever’s 2009 sales to 80 billion euros while cutting its carbon footprint in half and improving the hygiene habits of more than a billion people -- all by 2020 -- was met with skepticism at first.

20,000 Reports

But as sales improved even in recession-wracked Europe, which accounts for a quarter of Unilever’s business, investors signed on. The shares have soared 68 percent during Polman’s tenure and trade at a higher price-to-earnings multiple than both P&G and Nestle for the first time in more than six years.

Excluding the impact of acquisitions, divestitures and currency fluctuations, revenue increased 6.6 percent in the first nine months of 2012, better than the previous year’s 6.5 percent and almost double 2009’s 3.5 percent. Over the past three quarters, P&G’s sales growth (PG:US) on the same basis hasn’t topped 3 percent.

“Our business is not rocket science,” Polman said. “There’s nothing intellectual about this. It’s about being a little bit better every day.”

Online Blitz

Polman has cut more than 1 billion euros in costs each year and is jettisoning excess layers of management and red tape. The company once had 20,000 different types of financial reports, which it’s whittled down by 90 percent.

In 2005, Unilever had 5,000 new-product projects in its pipeline and could only bring eight of them to 10 or more countries within a year of their debut. Last year, it cut the pipeline to 600, with 90 of those rolled out globally inside of 12 months, he said.

“You want fewer, bigger ideas,” according to Polman, who said he won’t even look at a new project unless it can potentially generate at least 50 million euros in sales.

One success has been TRESemme, a shampoo acquired when Unilever paid $3.7 billion for Alberto Culver in 2010. Polman quickly rolled the brand out in Brazil, but not before getting 40 big retailers behind its marketing plan, courting fashion bloggers, and distributing 10 million free samples. Finally, a Unilever online ad blitz lured 1 million fans to TRESemme’s Brazilian Facebook page in just six months.

Supplier Smarts

In less than a year, TRESemme went from zero market share to besting P&G’s Pantene in hypermarkets and drugstores. Sales reached 150 million euros in its first 12 months. Polman aims to repeat that launch success in India and Indonesia.

Retailers worldwide are fans because Unilever’s so-called on-shelf availability, a measure of how well it keeps products in stock, has risen 8 percentage points in the past three years. That translates into higher sales for merchants, who then may give Unilever brands more shelf space or promotion than rivals. The world’s two biggest retailers, Wal-Mart Stores Inc. (WMT:US) and Tesco Plc, (TSCO) recently named Unilever their supplier of the year.

Polman wants to move Unilever’s personal-care products upscale. Premium-priced shampoo and skin creams generate profit margins as much as 8 percentage points higher than mainstream products, he said. So he’s pushed 80 percent of his product development staff into the field, where they can work closely with suppliers, who he said now contribute to seven out of every 10 new ideas. He’s also put 500 million euros into a venture fund that invests in next-generation products such as personalized skincare treatments.

Facial Treatment

“This is a big opportunity for us to make sure that we are able to play the top end as well as we play the mass end,” said Chief Operating Officer Harish Manwani.

In Jakarta, that means targeting shoppers such as Fitri Zenitia, a 34-year-old mother of three who visits the Pond’s Institute in south Jakarta every two weeks for a $20 “Gold Radiance” facial treatment. Since Zenitia first came to the spa, which Unilever opened in 2010, she’s increased her monthly spending on Pond’s face creams from 16,000 rupiah to about 500,000 rupiah.

“I’m very concerned about my hair and my face, so this is worth it,” she said.

With 46 percent of the population living on less than $2 a day, many Indonesians can’t afford a $10 bottle of Pond’s, so lower-income shoppers can grab a 35 cent sachet of Fair & Lovely cream from the Palmerah market.

“We capture all the prices,” said Maurits Lalisang, Unilever’s Indonesian chairman, clad in a maroon-and-gold batik patterned shirt.

“Being Indonesian, we don’t need to spend thousands on research to understand Indonesian consumers. We live here. We know. We tell London what to do, not the other way around.”

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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Companies Mentioned

  • PG
    (Procter & Gamble Co/The)
    • $81.65 USD
    • 0.81
    • 0.99%
  • WMT
    (Wal-Mart Stores Inc)
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    • 0.34
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