09 Dec 2013 UK: Unilever to cut 2,000 jobs in cost-saving drive
Unilever will shed 2 000 jobs from its global workforce and remove more SKUs from its portfolio as the FMCG giant further streamlines its operations.
At an investor conference in London last week, the group outlined plans to respond to lower category growth by reducing costs.
Chief executive Paul Polman said the company needs to shift the focus of the business model as top-line growth slows amid an economic slowdown.
“The global economy has calibrated down about 1-1.5% and we probably should have done a better job seeing it coming,” he told analysts. “We’re using that opportunity to step up the performance and drive new energy into the organisation.”
Management said the company has is targeting cost savings of €500m ($684.1m) in 2014, on top of supply chain savings of €1bn. The group wants to reduce complexity from its business, improve its supply chain management and increase efficiency.
According to CFO Jean-Marc Huet, Unilever has made strides in improving its gross margin. In 2011, Unilever’s gross margin stood at 39.8%, in 2012 it rose to 40% and in the first half of this year it improved 120 basis points to 41%.
However, Huet conceded Unilever is operating at margins below its peers, with competitors operating at around 500 basis points above Unilever.
Closing the gap will be achieved by a shift in the group’s mix to higher-margin products. Unilever is therefore focused on “premiumisation”, “margin accretive innovation” and “channel opportunities” in fast-growing areas such as drug stores.
In order to improve margins, Unilever aims to reduce the number of SKUs it carries by 30% by the end of fiscal 2014, focusing on fewer, bigger brands. The group will also shed non-core units in a process of “selected portfolio pruning” – primarily in the food space, Huet said.
This year, Unilever has sold off its Skippy peanut butter brand and its Wishbone dressings business in the US. The company has also been linked to the potential sale of its Peperami and Bifi meat snacks business, with market rumours putting Kerry Group as the front-runner in an auction process.
At the same time, Unilever is on the look-out for bolt-on acquisitions that are aligned with its overall strategy and targeted to emerging markets, management revealed.
The spreads business
While Unilever is said to account for around 16% of the global spreads market, the company has moved to calm speculation that it could be preparing to sell off this ailing unit.
Unilever is the world’s largest producer of spreads, with brands including Becel and Rama, as well as Flora. The business is one predominantly centred on Europe and North America and some industry watchers question whether spreads are a concept that can be rolled out to faster-growing emerging markets.
There have been some signs consumers in Europe and North America may be turning more to butter as they deem it more natural, a potential problem for a spreads category said to be only seeing volumes only grow at 1-2% a year. And Unilever has had some specific issues in some markets, notably the recent changes to the recipe for Flora in the UK.
Speaking at an event in Germany to mark the 175th anniversary of the start of the Knorr business, Polman acknowledged there could be some issues in introducing spreads into some emerging markets (“You’re not going to teach Indians how to do spreads when that habit doesn’t exist”) but says he believes “100 per cent” that, if the company can do a better job convicing consumers of the benefits of spreads, the business can grow.
And he indicates Unilever had in the past invested less in spreads than it had in other, faster-growing parts of its consumer goods empire.
Polman is keen to emphasise the benefits of consuming margarine over butter and admits Unilever needs to improve the way it markets its products.
“If you look at butter and its environmental footprint and its health footprint versus margarine, there is no comparison. There are more people dying from non-communicable diseases. The World Health Organization policy is changing its focus now. Many of the margarines are trans fatty acid free, if you will, it’s a cheaper product [and] it’s natural,” he says. “If we can make it taste the same, and if we can make it of the quality people look for, margarine makes much more sense.”
The company is launching products into the category in an attempt to reverse negative sales trends, foods president Antoine de Saint-Affrique has revealed. The “green shoots” of these efforts are starting to emerge, he suggested. However, de Saint-Affrique also stressed Unilever’s spreads business was on a “long-term journey”.
Source: www.just-food.com