SWOT Analysis Unilever (2021)

Unilever

This article will provide a SWOT Analysis of consumer goods multinational Unilever Plc. Unilever is a Dutch-English company by origin. The name Unilever comes from a merger in 1929 between the Dutch Margarine Unie and the British soap producer Lever Brothers. Until 2019, Unilever also had two official headquarters, one in London and one in the Dutch city of Rotterdam. However, the conglomerate had decided to simplify its legal structure. Unilever describes this as Unification. After some severe discussions, the choice was made to make London the official Headquarters. Unilever is listen on both the London and Amsterdam stock exchange.

The consumer goods industry is highly competitive. There are many known parties active such as Nestlé, Procter & Gamble, and PepsiCo, just to name a few. Unilever has firmly stood its ground for over 90 years now. That’s why it is fascinating to look at what has made the firm so successful, as well as what its future looks like. I will do this by discussing Unilever’s strengths, weaknesses, opportunities and threats.

Company Profile

Full Name:                                     Unilever PLC
Year Founded:                              1929
Industry:                                        Fast Moving Consumer Goods (FMCG)
Products & Services:                   Food, Beauty & Personal Health, Cleaning
Biggest Competitors:                  Nestlé, Procter & Gamble, PepsiCo, Kraft Heinz, Johnson & Johnson
Headquarters:                              London, England
Number of employees:               155.000+ (2020)
Revenues:                                      €51 billion (2020)
Net Income:                                  €6 billion (2020)
Price/Earnings ratio:                   21 (2021)

Unilever SWOT Analysis Overview

SWOT Analysis of Unilever plc

Strengths

Strong and diverse product portfolio

Unilever is known for its strong and diverse product portfolio. The company is mainly active in three industries and Unilever organized its divisions accordingly: Food and Refreshments, Beauty and Health Care, and Home Care. If we look at the proportions of each division in terms of turnover, we see the following:

DivisionTurnover in € billion (2020)Proportion of Total Turnover
Food and Refreshments19.138%
Beauty and Personal Care21.141%
Home care10.521%
Total50.7100%

As you can see, all three of the divisions have a strong contribution to total turnover. This is a clear strength. There may be situations where one division performs badly, which could be compensated by the other two. For example, During Covid-19, sales related to out of home foods declined, since many countries were in lockdown. The other side of the coin is that products related to personal hygiene performed much better during the pandemic.

To give you a better understanding of the different divisions, let’s have a quick look at some of the top brands within each division.

Food and RefreshmentBeauty and Personal CareHome Care
MagnumDoveDomestos
Ben & Jerry’sRexonaOmo
KnorrAxeCif

Geographic diversification

Unilever is not only diversified in its brand and product range. The firm also is also geographically diversified. It has a global presence. Let’s have a detailed look at the geographic spread of Unilever:

Geographic RegionTurnover in € billion (2020)Proportion of Total Turnover
Europe11.222%
North America10.120%
Asia/AMET Africa, Middle East, Turkey, RUB (Russia, Ukraine, Belarus)23.446%
Latin America612%

The table above shows that Unilever has a solid spread geographically. As a consequence, the firm is protected against economic downturn or other causes of bad performance in one of the regions. A bad performance in one region can be compensated by a good performance in another.

 

Sustainability leader

Unilever’s vision is formulated as follows:

“Our vision is to be the global leader in sustainable business. We will demonstrate how our purpose-led, future-fit business model drives superior performance, consistently delivering financial results in the top third of our industry”

As you can see, Unilever puts a strong emphasis on doing business in a sustainable way. Former Unilever CEO and Dutchman Paul Polman initiated the Sustainable Living Plan, which aims to decouple Unilever’s growth ambitions from its environmental footprint. This plan has three main objectives:

  • Improving health and well-being for its customers
  • Reducing environmental impact by half in 2030
  • Enhancing livelihoods for millions of people

Unilever has been mentioned in several sustainability rankings. The firm has been present in the Dow Jones Sustainability Index since 2014. This is a list of top performers with regards to sustainability per industry. As society focuses increasingly on sustainable solutions and customers demand environment-friendly products, the market leading position Unilever has in terms of sustainability is a definite strength.

Marketing Capabilities

In the consumer goods industry, marketing is essential. You need to make customers aware of your products. Since competition is strong, a solid marketing strategy can help companies to win over consumers. Unilever CEO Alex Jope mentions in the 2019 annual report that Unilever wants to be the world’s best marketing company. The company has been very successful in terms of marketing and has been ranked #1 in the Effie Index for several years in a row, a ranking of companies based on the effectiveness of their global marketing.

What is interesting is that Unilever does not particularly market the brand name Unilever. In fact, people who are not interested in business may never even have heard of Unilever. However, hundreds of millions of people are aware of the brands that belong to Unilever. For instance, who is not aware of the ads from deodorant and shampoo brands Dove or Axe?

Personally, one ad I still remember even though it is over ten years old is from the marketing campaign The Axe Effect. There was a horrible chocolate-smell deodorant that all teenage boys wanted to have.This was marketed by an over the top campaign that really sticks in people’s heads. If you for some reason are not familiar with the campaign, check out one of the ads below:

Weaknesses

The use of plastic

Unilever, as is common in the consumer goods industry, uses a lot of plastic for its packaging. Plastic is polluting the environment, and in particular the oceans. The negative environmental impact of plastic is of increasing concern to consumers. Additionally, legislation is putting pressure on the use of plastic. Unilever aims to decrease the impact on the environment by reducing plastic packaging and using more recyclable plastic.

Although Unilever is taking action to reduce the negative impact of its plastic packaging, at the moment I would call it a weakness. Competitors could potentially profit from this weakness if they are able to make a faster transition towards more environment-friendly forms of packaging.

 

Vulnerable to imitations

Unilever employs several thousands of people working on research and development. However, it is in the nature of consumer goods is that they are relatively easy to imitate. Firms may spend a lot on research and development, develop innovative products, and then (illegally) be copied by other firms. Counterfeit consumer goods are usually sold under the same brand name without consent, while being of inferior quality.

Aside from counterfeit products, retailers often develop their own house brands. These brands are often cheaper and quite similar to the top brands. House brands are not marketed as extensive as luxury brands. Additionally, retailers who develop house brands have the advantage of having their own sales channels. In contrast, the Unilever brands are dependent on other parties (retailers) for sales volumes. This brings me to the next weakness.

No sales channel directly to consumers

Unilever depends almost entirely on retailers as a sales channel. The company does not directly sell its products to consumers. Instead, it needs a ‘middle man’. Depending on how big a retailer is in a certain geographic area, this could give these retailers a position of power. This is a typical example of bargaining power of buyers, one of the five forces in the Five Forces Model of Michael Porter. To be less dependent on these retailers and reduce the impact of this weakness, Unilever should consider finding new sales channels. Read more about the Five Forces model here: Porter’s Five Forces

 

Dependency on currency exchange

Unilever is a global company. I already elaborated on its presence in all areas of the world. Results in different geographic areas are influenced by the relative strength of the local currency. A devaluation of a currency can have a negative impact on financial results.

To give an example, Unilever’s turnover in 2020 was negatively impacted by 5.4% from currency related items. This risk is part of being a multinational corporation, Unilever’s competitors must deal with this as well. The flip side is that it could also have a positive effect. This happened in 2019, when there was a positive currency related effect of 2.4% on the organization’s turnover.

 

Opportunities

Emerging markets

In 2019, more than half of Unilever’s turnover came from developing and emerging markets. Although this is a large portion already, there is still potential for growth in these markets, as the economies as well as the population in many of these emerging markets are still growing. While there is also a (political and economic) risk associated with doing business in emerging markets, it is primarily an opportunity for growth.

In 2020, the results from emerging markets was disappointing, mainly because of strict lockdowns during covid-19. In China and India, the markets declined in the first half of the year, but both markets returned to growth in the second half of 2020. After the global economy normalizes and the pandemic is under control, there is a lot of growth potential in emerging markets. Unilever recognizes this. One of the strategic choices of Unilever (as stated in the 2020 Strategic Refresh) is to accelerate growth in the USA, India, China as well as emerging markets in Africa, Asia and Latin America. While the United States is not an emerging market, the other focus regions have that classification.

New product categories

There are several product categories with a lot of growth potential. These growth areas exist in all of the product segments: Home care, Food and Refreshment, and personal care & beauty. The table below shows a simple overview of product segments with potential for growth.

Product SegmentGrowth Potential Areas
Food and RefreshmentVegetarian & Vegan Products
Functional Nutrition
Home CareHygiene Skin Cleansing
Personal Care & BeautySkin Care Luxury Beauty Products

One example of a growth brand for Unilever is The Vegetarian Butcher, a brand of plant-based meat.

Digital sales channels

To become less dependent on physical retail channels, Unilever has the opportunity to growth with respect to digital distribution channels. This is becoming increasingly important, as the global economy is becoming more digital. Retailers in emerging markets are also increasingly focusing on ecommerce. These retailers want products that are suitable to each sales channel. This is a chance for Unilever to grow further.

In 2020, Unilever’s Ecommerce sales grew rapidly: 61% compared to the year before. This is also a side effect of the pandemic, with consumers buying more online. This trend is not going to stop. 9% of Unilever’s sales came from ecommerce in 2020, and the company recognizes the potential for growth in this area.

Acquisitions and Disposals

The consumer goods industry is susceptible to mergers and acquisitions. Especially for large conglomerates such as Unilever, acquisitions and disposals are a great opportunity to keep optimizing the product portfolio.

In 2020, Unilever acquired several new brands. Below some examples:

  • Unilever bought the Horlicks Indian business, a milk-based drink that strengthens the firm’s functional nutrition competitive position
  • Another brand acquired by Unilever in 2020 is SmartyPants Vitamins, a vitamin and supplements US-based brand. Again, this brand improves Unilever’s presence in the functional nutrition market.

Threats

Fierce competition

I already mentioned in this article that competition in the consumer goods industry is fierce. This threat came to a boiling point in 2017, when US-based competitor Kraft-Heinz attempted a hostile takeover of Unilever. Despite Unilever being the bigger of the two, there were several large investors behind Kraft Heinz. One of them was Warren Buffet. While Unilever fought off this hostile takeover, it is a clear sign that competitive threats are always on the horizon in the consumer goods world.

Apart from takeover bids, there is also an intense level of competition for customers. Additionally, there is potential competition for attractive brands that Unilever wants to add to its portfolio.

Covid-19

Another threat to Unilever (and its competitors) is covid-19. While there are working vaccines now, the pandemic is not yet under control. In 2020, the coronavirus had a big impact on Unilever and it is still unclear how fast the situation will return to normal. Unilever should take into account a scenario in which 2021 still has a major impact on results.

Changing consumer preferences

Unilever should always be on the lookout for potential changes to consumer preferences. In today’s social and business environment, consumers have rapidly evolving wishes and needs. This can be a threat for Unilever, since brands that are currently fitting the needs of customers, could be a lot less popular in the future. In addition, products that are currently not wanted by customers, could rise to the top of the consumer wish list in the future. This is both an opportunity and a threat for Unilever. If the Dutch-British consumer goods giant is aware of changing customer needs and takes action accordingly, it could be an opportunity to profit from. However, if Unilever reacts to changing preferences slower than its competitors, it is a clear threat.

Political uncertainty

Because Unilever has a global presence, it will always be affected by political uncertainty. Unstable political environments are common in developing and emerging markets. Politics may also impact the economic prospects in a country or region. Political changes could make business for Unilever easier or more difficult. The diverse spread of Unilever’s sales mitigates this threat in a way. Nonetheless, scenario planning is important here. What does the company do when it is negatively impacted by political developments in a country? Which action is taken? Important questions on which an answer should be formulated.

 Unilever SWOT Analysis: Final Words

I hope this SWOT Analysis of Unilever has been insightful to you. Do you agree with some of the factors covered in this SWOT Analysis? Are there any strengths, weaknesses, opportunities or threats missing? Drop a comment below!

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