In-Depth SWOT Analysis of Unilever | Strengths Weaknesses Opportunities & Threats
About Unilever:
Unilever is a British-Dutch multinational company that produces soaps, detergents, cleaners, personal care products, and foods. It is one of the world’s largest producers of consumer goods. Unilever is listed at number 165 in the Forbes Global 2000.
Unilever is a well-established company that has been in business for over 100 years. It has undergone many changes throughout the years, including developing and adapting to new technologies, ownership shifts, and name changes.
Unilever can be compared to IBM because both companies have long histories of operation and large-scale product lines ranging from personal care products to cleaning agents and food products for an enormous range of consumers.
Unilever sells products in more than 150 countries through a wide network of local factories, distributors, and agents as well as supermarket chains under its own brand names, which include: Axe, Dove, Omo, Rexona, and Sunsilk, among others.
Unilever’s products are sold in more than 150 markets worldwide, with annual sales of over €50 billion in 2009.
The Unilever Group’s largest product category is personal care, which produced approximately 21.1 billion Euros in sales in 2020. The company as a whole posted revenue of approximately 59.8 billion US dollars that year.
Unilever is headquartered in the Netherlands and the United Kingdom, but the vast majority of its revenue comes from the rest of the world, especially the United States. Unilever invested about 1.36 billion US dollars in ads in the United States alone in 2019.
Unilever’s Growth Strategy:
In the late 1990s, Unilever began to invest in rapidly emerging markets such as India, China, and Brazil. The investments included building factories and signing contracts with local companies to manufacture products for Unilever.
The two main reasons for these investments in the emerging markets were the significant growth of populations in these countries compared to other developed countries and many people living in poverty there.
These factors led Unilever to believe that enormous potential existed for expansion.
In January 2008, Unilever Redevelopment and Restructuring project was launched. The project aims to revive the company’s overall performance by developing new business models, product line extensions, and a strong focus on emerging markets.
The company also undertook a major restructuring of its four main operating divisions: Foods, Home Care, Personal Care, and Refreshment. A company spokesperson described this plan as an effort to “transform Unilever into a more focused, fully functioning enterprise.”
Unilever’s strengths Analysis:
This company has many strengths that include strong brands, a strong product range, innovative products, a solid financial position, and a global presence which are all helping to drive its growth.
#1 Strong brands & strong product range. The company has a solid holding in the consumer goods market, which gives it many advantages over its competitors. Unilever is indeed a huge multinational company with operations in more than 170 countries across the globe.
It owns many brands, including Axe, Dove, Omo, Rexona, and Sunsilk. Among these is the number 1 shampoo brand in Europe (Dove), number 1 deodorant brand in Europe (Rexona), and number 1 hair care brand in Asia (Sunsilk).
#2 Marketing capabilities. The company has marketing capabilities that can be seen in the construction of its brands through strong advertising campaigns. Unilever has a very active web presence with many websites and blogs to support its products and business.
This helps to build brand awareness, increase loyalty, and strongly influence the thoughts and actions of the consumer. The key brands such as Dove, Axe, Omo, Sunsilk are strong in their respective channels, which help reduce the expenses of marketing each product.
#3 Strong portfolio of brands. Unilever has developed a strong portfolio of brands that help it address different market segments, proving very beneficial. The product range includes products such as Dove (beauty and skincare), Vaseline (insect repellent and beauty products), Lipton (tea and herbal supplements), and Hellmann’s mayonnaise (condiments).
#4 Financial structure with low risk. The company has many operating divisions in its financial structure that provide very low-risk growth opportunities. Unilever has a well-diversified product portfolio with products in cleaning, personal care, food, nutrition, and health care, giving it the capacity to expand in many directions. The company has strong global capabilities which are helping to create large-scale production facilities across the globe.
#5 Strong balance sheet. The company has a strong balance sheet with strong cash reserves of over €8 billion. This gives the company the financial strength to expand its business through acquisitions or investment. The balance sheet is also supported by low debt obligations and a good cash flow from operations. The company has a solid track record over the last few years of operations, making it a very safe business for investors.
Unilever’s weaknesses Analysis
#1 Decline in its food and refreshment sectors. This company is relatively weak in comparison to its competitors. The company has experienced a decline in its food and refreshment sectors over the past few years, which has not helped its performance.
The company has suffered due to weak demand and excess capacity in the food and refreshment industry. The food sector is facing a global oversupply of food products, which has resulted in lower profits in this sector, leading to a poor performance by the company. Unilever has been forced to reduce its operating margins as it struggles to meet rising input prices and product costs.
#2 Poor Sales growth. The company has suffered from some major setbacks that include weakness of its brands in China and Russia, contributing to poor sales growth. This is due to poor brand management in these regions, with most of the brands having limited distribution channels. Unilever does not have a strong presence in emerging markets that are seeing huge growth currently.
The company is also facing some issues with its products in China and Russia, including poor brand management, limited distribution channels, and high marketing costs. The company has had challenges with its products in these markets, including poor product activation and limited access to distribution channels. This has led to poor brand power, which has impacted its sales volumes.
#3 Lack of Competitive advantage. Unilever is powerful in the personal care sector but is facing a slowdown in some sectors due to competition from other companies offering similar products at lower prices. As a result, Unilever has seen a decline in revenues from this sector over the past few years. This has led to poor performance in large part due to lower sales volume.
#4 Loss-making businesses: Unilever has several loss-making companies divested in the past few years.
#5 Levered position: The company has a debt-to-equity ratio of 28%, which is higher than the industry average of 26%.
Unilever’s Opportunities Analysis:
#1 Diversification: The company’s concern is that low food prices will continue to limit the profitability of the world’s largest food companies. The company has made efforts to further diversify its portfolio by entering new markets and improving product offerings.
This has helped improve Unilever’s performance as a whole though it has been unable to benefit from these initiatives due to lower sales volume fully.
#2 Unilever’s acquisition. Unilever’s acquisition of Best Foods in 2000 has helped the company gain better exposure to the higher-margin non-food sector. The company’s move into emerging markets, especially in Africa and the Asia Pacific, has also helped improve its results.
The company has also been able to use its brands to gain a better foothold in these emerging markets.
#3 Good cash flow generation: Unilever generates a good amount of cash from its business operations which can be used for debt reduction, acquisitions, share buybacks, and dividends to shareholders.
#4 Mature and strong brand portfolio: Unilever has a large stable of brands it has built up over many years and has a strong Balance sheet.
#5 Product and Geographic diversification: Unilever is not only diversified in its brand and product range. The firm also is geographically diversified. It has a global presence. Unilever has also improved its performance in the personal care sector following a strong showing in Asia and Latin America.
Unilever has improved the performance of its brands due to several initiatives that have included better marketing and promotions. The company has also taken some steps that include increasing distribution channels and improving product innovation.
Unilever’s threat analysis:
#1 Mass consumerism: Industry is moving from mass-market to mass customization. This trend will be driven by lower costs for customization and technology, allowing consumers to make their own choices.
In the future, a lower number of brands will dominate in different categories because of increased competition. Consumers will demand more product information on the internet, which would result in lower profitability for industry players.
Consumers also want cheaper goods; this can be seen through the popularity of discount retailers such as ASDA or Tesco.
#2 Consolidation: This trend is due to the emergence of multinational companies, creating a competitive environment for local players. Large multinational companies will use their global resources to dominate different markets through mergers and acquisitions.
As a result of this, large multinational companies will become dominant players in different markets.
#3 Competition: The company also faces some risks from increased competition from other companies such as Unilever and Procter & Gamble in many of its sectors. This includes the personal care sector, facing strong competition and declining sales volume from both P&G and Unilever. The company also faces a risk from new entrants to the markets that it serves.
#4 Fluctuation of foreign currencies; The company faces some risks, including weak foreign currencies and high raw material prices for vegetable oil. The company has suffered from a slowdown in emerging markets, reduced demand, and excess capacity in several food products that has led to poor performance of the company.
#5 Rising Commodity Cost: The main challenge Unilever faces is commodity costs remaining high. The commodity cost of food products has increased over the last few years due to rising raw materials such as wheat cereals, sugar, and oil.
Strategy Segment & Product Coverage:
The company has the following segments: Personal Care, Home Care, Deodorants & Antiperspirants, North American Foods, and Europe, Middle East, and Africa. The Personal Care segment represents 72% of the total company’s revenues. This segment’s products include deodorant, shampoo, and shower gel, among others.
The home care segment represents 22% of the total company’s revenues. This segment’s products include dish liquid, laundry liquid, and dish soap, among others.
The company’s products include pasta sauce, baby food, and ice cream among the frozen food category and instant mashed potato and soups among the chilled food category.
The company has also increased its sales in the non-food sector as it enjoys better prices in this sector. The global food market is getting weaker as companies face oversupply issues, leading to lower profits for most food companies. This, in turn, is leading to poor results from companies in this sector.
Unilever has many threats that can impact its performance in the future, such as a sharp slowdown in emerging markets and a poor performance of its food products. However, its strong balance sheet and good track record of operation have given it a good starting point to build on.
Investment recommendation:
Unilever has many growth opportunities and is well-positioned in several market segments. Unilever has a strong balance sheet and is well-diversified, which makes it a low-risk investment opportunity.
The company’s operating margins are still increasing, giving the company the ability to expand its operations through acquisitions or investments. The company is still able to grow its sales revenue through its strong brand performance. This gives the company a good ability to raise its share price growth in the future.