Unilever’s Path to Growth Strategy: Is It Working?

Bianca Cole ~ Reginald Green ~ Kameela McClinton ~ Stephanie Richardson ~ Derek

Agenda
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Company Overview Environmental Analysis Financial Analysis Strategic Issue Recommendations Implementation Q&A

Company Overview
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Created in 1930 as result of a merger Key player in the food and household products industry Maintains dual headquarter/dual chairperson approach Launched Path to Growth strategy (2000) to revive the company Historically grew through acquisitions

Competitor Comparison

Top Segment Top Brand CEO Stock per share Growth Revenues Revenue Growth International Business Segments Employees

CG/Foods Dove A. Burgmans $66.03 15.58% 42,942M -11.93% 100+ 3 234000

Consumer care Tide A.G. Lafley $53.76 9.25% 28.2 BL 19% 42 5 110000

Food Mac & Cheese R. Deromedi $30.70 8.2% $31,010 M 4.3%% 150+ 5 10600

Food Kit Kat P. Letmathe 66.90 11.23% $69 B -1.93% 86 6 253000

S.W.O.T. Analysis
Strengths
Recognized as a global company  Strong brand portfolio  Strong relationship with retailers  Economies of scale
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Weaknesses
Dual leadership  Not connecting with customers  Inefficient management of brands  Reduced spending for R & D  Inability to maximize acquisitions Threats  Decrease in revenues  Strong Competition  Increasing store brands  Tougher Business Climate  Exchange rates

Opportunities
Changing consumer preferences  Increasing need for healthy products

SlimFast
Rationale
•Build strong portfolio •Strategically attractive category

Ben & Jerry’s

Bestfoods

Attractive Drivers
•Strong customer reach •20% annual growth rate •Strong sales and distribution network •Opportunity for product •Would make Unilever world’s largest ice cream products maker •Premium prices •Strong brand equity •10th largest U.S. based food products companies •History of growth in revenues and earnings •Strong global position

Unilever contributions
•$2.3 billion cash •International presence •$20.3 billion euro cash; assumption of net debt •Operating efficiency •Similar portfolios and geographic coverage

•$326 million •Competencies in the industry

Financial Analysis
Revenues
54,000 52,000 50,000 48,000 46,000 44,000 42,000 40,000 2000 2001 2002 2003 Revenue
3500 3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 Net Income

Net Income

Financial Analysis (cont.)
Net Profit Margin
0 0 0 0 0 0 0 0 2000 2001 2002 2003 Net Profit Margin

Employees
280000 270000 260000 250000 240000 230000 220000 210000 2000 2001 2002 2003 Employees

Revenues: Product Segmentation
43%

57%

Foods Division Home and Personal Care

Why Path to Growth Strategy
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Years of slow performance Lack of sound corporate strategy Numerous low-volume brands Small global presence compared to competition Mediocre performance in emerging markets

Elements of Path to Growth
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5 year growth plan Reduce portfolio to 400 “core” brands Focus R & D and advertising on leading brands Concentrate on product innovation to fuel internal growth Grow through acquisitions

Source: Crafting and Executing Strategy

Objectives of Path to Growth
Expectations

Strategic Targets

Achieve double-digit EPS growth Secure a better competitive position in global food and household Build brand value to gain pricing power

Top-line sales growth of 5-6% annually Increase operating profit margins 11% to over 16% Plan to be accomplished by year end 2004

Is it working?
Yes…

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Successfully trimmed unsuccessful brands Leading brands increased sales from 75% to 93% 12 brands with sales of 1B+ Consistent growth in Home & Personal Care Improved overall quality and growth profile of Food portfolio

Global procurement programs have delivered 2.4B, excess of 1.6B target Improved capital efficiency Successful integration of Bestfoods acquisition Operating assets have improved by 9%, exceeding 6% target

Is it working?
No…. “Unilever was getting there, but getting there too
late”

Reported a net loss of $318M In 2004, underlying sales grew by only .4%, leading brands by .9% Issued 1st ever profit warning ahead of third quarter results, 3% decline Lagging behind competitors in terms of marketing and innovation

Failure to increase advertising and marketing efforts Still lack focus and effective strategy execution The company remained too local and fragmented Unilever plans to discontinue the “Path to Growth” Strategy

So what’s next?

Strategic Issue
What adjustments, both internally and externally, should Unilever make to rebuild a strong and focused competitive strategy?

Recommendations
1. Reorganize and streamline Unilever’s organizational structure. 2. Implement “Unilever Believer” product and brand extensions.

Recommendation 1

Recommendation 1

Strategy Justification

Unilever maintained two business entities, dual chairperson approach Unilever Group owns Unilever Plc and Unilever NV List stock separately and share board of directors Management typically wear two/three hats Board and business responsibilities conflicted Company remained two local and fragmented Recognize the need to streamline leadership and management structure

Reduced effectiveness and slowed the decision making process.

Unilever Plc

Unilever NV

One Unilever

An initiative to create an overall umbrella brand across all Unilever’s brands that will eventually consolidate various businesses under one name

One Unilever

One Unilever

Cross Functional Management Team
Market Development Organization Global Business Services

Global Business Units

Corporate Functions

•Margarines, spreads, oils •Frozen Foods •Icecreams •Tea-based beverages •Culinary •Health and Wellness •Fragrances •Deodorants/toiletry •Oral Care •Soaps, lotions, skin care •Laundry •Househould care •Cleaning Products

•Ireland •Korea •Neverlands •Italia •US

•Global Enabling Team •Regional Leadership Team •Global Process Owners

•Customer Business Development •Finance •Human Resources •IT •Market Research •Government Relations •Product Supply •Public Affairs

One Unilever

Cross Functional Management Team
Market Development Organization Global Business Services

Global Business Units

Corporate Functions

A simpler management structure will increase accountability and speed the decision making process.

•Margarines, spreads, oils •Frozen Foods •Icecreams •Tea-based beverages •Culinary •Health and Wellness •Fragrances •Deodorants/toiletry •Oral Care •Soaps, lotions, skin care •Laundry •Househould care •Cleaning Products

•Ireland KEY •Korea •Neverlands •Italia •US

TO SUCCESS Team •Global Enabling
•Regional Leadership Team •Global Process Owners

•Customer Business Development •Finance •Human Resources •IT •Market Research •Government Relations •Product Supply •Public Affairs

Recommendation 1 Deliverables

Provides a greater clarity of leadership, responsibility, and accountability Allows Unilever to focus on the needs of their customers and consumers thus reigniting growth and increasing sales potential Provides the ability to leverage scale of operations Create a strategic platform for brand management

Recommendation 2

Unilever Believer

Program that focuses on brand initiatives to the consumer Lets the consumer know more about the product and its uses Believe in Unilever Objective: Bring top of the mind awareness Strategy: Use advertising that connects with consumer needs

Recommendation 2

Strategy Justification

Consumers demand high quality products that both are convenient and delicious Consumers look for new ways to use products More females are working full time jobs Large population of single-parent households Increase consumer focus on health and nutrition

Products of Focus

Lipton Extension
Focus on Energy Drinks

Energy drinks jumped 56% in sales last year

Market has exceed $100 million

Main Competitor: Red Bull

Positioning Statement: A Healthier Alternative t Energy Drinks

Lipton Extension

roduct: Lipton Lift Target Market: Young adults 18-32 Uses: stay up all night and/or start a night out Main Ingredients: Caffeine, Vitamin B, Guarana

Advertisements: Highlight healthier ingredients of th product while showcasing its ability to give energy a evitalize body

How Do You RAGU?
Marketing & Advertising

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Featured advertisements on how consumers use Ragu EXAMPLE of new product usage A mom showing how she uses Ragu as a base for her chili

Call to Action: How Do U Ragu contest & website with new uses The created new uses will get our consumer involved in being a Unilever Believer

How Do You RAGU?
Product Line Extension
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Focus on Consumers on the Go Ragu Lunch Pack -Ragu sauce -Cooked spaghetti -Garlic Bread
How do I Ragu… On the Go

Recommendation 2 Deliverables

Delivers innovative products that capitalizes on changing consumer preferences Allows Unilever to focus on the needs of their customers and consumers thus reigniting growth and increasing sales potential Provides a strong competitive platform against major competitors and private label brands

Q&A

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