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Unilever CEO bets on emerging markets on economic strength

— PHOTO: VIVEK BENDRE

HUGE POTENTIAL: Patric Cescau (centre), Group CEO, Unilever, with Nitin Paranjpe (left), Executive Director, Hindustan Unilever, and Harish Manwani, President, Asia AMET Unilever, at a press briefing in Mumbai on Saturday.

MUMBAI: The $55 billion fast moving consumer goods (FMCG) giant, Unilever plc expects half its turnover to come from the developing and emerging (D&E) markets by 2010 from its level of 44 per cent in 2007. At a media briefing here on Saturday, Unilever Group CEO, Patrick Cescau, said he believed the company was likely to continue witnessing good growth in these markets “due to domestic demand, economic strength of the region, trade factors and flows which have changed and are less dependent on the U.S. and developed markets than they used to be.”

He said if India reproduced its 2007 performance for the next 3-4 years, it would add another 600 million euro to the Unilever turnover of 45 billion euro. “India is very close behind Brazil in terms of size and percentage growth and this is in line with the potential that exists in the country.”

About two-and-a-half years ago, the D&E markets represented 37 per cent of Unilever’s turnover and Mr. Cescau said low level of consumption and penetration pointed to a huge potential for several of Unilever’s product categories. “This is the essence of Unilever strategy — capitalise on our positions in emerging markets. It is not about neglecting other markets but when we allocate extra resources for growth, this is where we go. And we believe we are well placed because of how we compete in these markets — quality of our management, history, strength of our distribution system, reach and our brand strength.”

Although 2007 was a good year for Unilever, the current year posed more challenges. “Despite a more challenging economic environment, I feel very confident that the transformation of Unilever is progressing well and the company is ready to face a more challenging 2008 in terms of raw material prices and the slowdown in the U.S. Clearly, we were facing unprecedented cost increases and this is structural — about supply and demand and bio-fuels. We are reacting to that by increased productivity improvement, increased buying efficiency, innovation that adds value and growth through technology, trying to push the portfolio and finally price increases.”

The company saved about one billion euro in terms of costs last year largely due to volume growth supplemented by price increases. “I am afraid increase in prices will continue as we see no sign of slowdown in raw material costs and we have positioned ourselves to be ready to manage. Last year we have experienced increase in costs of around 220 basis points. We are expecting a level of 300 basis points well into 2008,” he said.

In terms of savings, the group expects to save costs to the tune of 2.5 billion euro by 2010. “There is a delicate balance in terms of pricing, productivity and mix. It is not about price and cost increases. It is likely that we are going to see in our growth a higher contribution from price and a lower contribution from volumes although volumes will be at a very respectable level.”

On whether Unilever would consider an acquisition-led strategy like its competitor Procter & Gamble, Mr. Cesacau said, “We are big and being even bigger does not mean better. Size allows us to be a player in D&E markets but I am not tempted to do big acquisitions. We are not pursuing any big acquisitions actively.”

The company was clear that it would grow as fast as the market where it operated, “so there is no loss of market share. It is also important to selectively increase market shares where we have better return on investment and where we are best placed in terms of innovation of assets. I do not want to go gung-ho after market share in every market. We are going after market share in Laundry and Hair Care in India but we have to be selective.”

However, the Unilever chief was emphatic that in India “the focus is on organic growth. There is so much growth potential in micro marketing, rural marketing and the middle-class, so I am very bullish.”

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