Unilever SWOT and PESTLE analysis

Unilever SWOT and PESTLE analysis Company background and mission statement Unilever is a global company that can trace its origins to 1929, when a merger between a Dutch margarine manufacturer and a British soap maker was negotiated (Jones, 2002). Given the distinct sectors in which the two organisations were located, the merger was considered somewhat of a ‘curiosity’ (Jones, 2002, online), but it set the stage for a multinational corporation producing a wide portfolio of goods. Some of the world’s most recognised brands are produced by the company, including Surf, Lipton, Dove, Lynx, Magnum and Hellmann’s. Today, Unilever is one of Europe’s largest companies, and in terms of sales, it is the third-largest consumer goods firm in the world, after Nestle and Procter and Gamble (Thain and Bradley, 2014). The company has been floated twice, and is a constituent of the FTSE 100 Index and the AEX Index. The stated aim of the company is to â€Å"provide people the world over with products that are good for them and good for others† (Unilever, 2014, online). Strategic Audit A strategic audit comprises a systematic and comprehensive evaluation of a company’s business environment and internal assets. There are two key elements to the audit: the external environment and the internal environment. The external environment identifies issues concerned with customers and competition, and examines the social, economic, technological, environmental political and legal elements impacting the business. A typical tool used at this stage is the PESTLE analysis. The internal analysis focuses on the resources the company possesses, such as the product distribution, product portfolio, sales and profit margins. A typical tool used at this stage is the SWOT analysis, in which the strengths and weaknesses, and the advantages and disadvantages of a company compared to its competitors are listed. Below, these tools are in turn applied to Unilever. The External Environment PESTLE analysis The PESTLE framework below analyses the political, economic, social, technological, legal and environmental dynamics of the environment in which Unilever operates. Political Unilever is co-headquartered in London and Amsterdam. Both the Dutch and the British political systems are in a time of flux. The British government currently comprises the first coalition government in the post-war period, with another expected after the General Election in 2015 (Taylor-Gooby and Stoker, 2011), while in the Netherlands, coalitions are standard. Such governmental frameworks have important implications for the conduct of business, for there tend to be policy ebbs and flows over short periods of time. For instance, in the Netherlands, the rate of Value Added Tax (VAT) for businesses has changed three times since 2010 (Wolf, 2014). Both the United Kingdom and the Netherlands are original members of the European Union (EU) which facilitates trade among member states by the harmonisation of certain rules relating to business and the removal of trade barriers. There is some political impetus in both countries, however to leave the EU. For instance, in 2012, the prime minister of the Netherlands, Mark Rutte, threatened to pull the country out of the Eurozone as a means of easing the local Dutch economy (Dutch News, 2014), while in the UK there is a lobby for a referendum on EU membership. Exiting the EU would have massive implications for a co-headquartered business like Unilever. For this reason, Unilever has been vocal about its preference for both countries to remain in the Union (The Guardian, 2014). There is growing political unrest in the Middle East, and while Unilever does not currently operate there, 53 per cent of its business comes from developing markets (Unilever, 2014), and globalisation means that it may not be shielded from the effects of conflict and instability overseas. For example, in 2012, oil prices reached unprecedented levels (Smith, 2014). This is a matter of concern for the company because it directly impacts on transportation costs. Economic Shoppers in Europe are still suffering from the effects of the longest and deepest recession in the post-war period. Data from Eurostat shows that household consumption fell drastically across Europe following the recession, and while there has been some recovery in recent years, household consumption is still not back to its pre-2008 level (Gerstberger and Yaneva, 2013). In addition, unemployment has risen and wages have stagnated in several of the economies in which Unilever supplies consumers. Low household consumption, high unemployment and falling wages bring about drops in consumer demand which adversely affect manufacturers like Unilever. During recessions, households tend to cut back on non-essentials, which might impact some parts of the companys product portfolio. While the West has suffered from the financial crisis, economies in other areas, such as Latin America and China, are booming, providing considerable opportunities for the company. For instance, in 2013, sales of the companys products to emerging markets grew by 8.7 per cent (The Guardian, 2014). Social Life expectancy has been increasing over time in wealthy nations. For instance, in the UK in 1980, life expectancy stood at 70.4 years for men and 79.8 for women. By 2010, it had increased to 79.3 years and 83.6 years, respectively for men and women (Blossfeld, Buchholz, and Kurz, 2011). At the same time, the fertility rate has been falling over time. The increase in life expectancy and a below replacement fertility rate coupled with the ageing of the so-called ‘baby boom’ generation (those born between 1946 and 1965) are accelerating population ageing. The UK government has estimated that the proportion of the population aged 30 and under is set to fall, while the proportion aged 60 and above will increase. By 2034, it is estimated that 23 per cent of the British population will be aged 65, while just 18 per cent will be aged 16 or below (Office for National Statistics, 2009). There are important ramifications of the ageing population for businesses like Unilever. Firstly, there are likely to be changes in the structure of demand in future. Older people have unique needs and desires that will need to be met by Unilever. For instance, there is a greater demand for frozen ‘ready meals’ by older people (Ahlgren, Gustafsson and Hall, 2004) which will directly impact Unilever’s ‘Sara Lee’ brand. Secondly, there may be labour shortages in the future. Expanding businesses like Unilever will need to respond to this by encouraging workers to work longer or recruiting migrant workers (Maestas and Zissimopoulos, 2010) As a direct result of some high profile public campaigns, people are becoming more health and ethically conscious. This has led to an increase in demand for ethically produced and healthy products and heightened concern regarding genetically modified goods. This trend has already had a direct impact on Unilever’s product portfolio, with sales of two of its margarine brands (I Can’t Believe its Not Butter and Flora) seemingly in free-fall (The Guardian, 2014) Technological Increasingly, consumers, particularly younger individuals, utilise social media, retailing websites and mobile forms of communication to connect with retailers, to discuss with members of their social networks their purchasing decisions, and to review past purchases (Sashi, 2012). This means that consumables companies like Unilever need to harness the Internet and mobile technologies in accessing these customers. For instance, a growing number of companies now include social networking websites such as Facebook and micro-blogging sites like Twitter in their promotion mix as a means of engaging their current consumer base and recruiting new customers. At the same time, constant connectivity makes the selling environment for consumer products increasingly competitive. The readiness of product price and promotional information, the ability of shoppers to access online stores quickly and the aggregation of online content and offline information all mean that, in the digital age, firms like Unilever must carefully craft their marketing activity (Sashi, 2012). Legal Unilever has a presence in some 190 countries worldwide which means that it must abide by their national laws. The extent of the company’s multinational activity means that it must devote considerable resources to scanning the legal horizon and ensuring that it responds to changes accordingly. There have been significant legislative changes in the area of people management. For instance, across Europe many countries have enacted anti-discrimination laws which companies like Unilever must adhere to. In the United Kingdom, under the provisions of the Equality Act 2010, businesses are not allowed to discriminate against individuals on the basis of factors such as gender, age, disability, religion and ethnicity in their recruitment, selection, training and promotional practices (Hyman, Klarsfeld, Ng, and Haq, 2012). Legal frameworks have also been put in place as a response to the ageing of the population (Maestas and Zissimopoulos, 2010). For instance, the mandatory age of retirement has been removed in both the UK and the Netherlands, which means that Unilever can no longer compel employees to retire once they reach the age of 65. Large companies also must put adequate pension provisions for workers in place under a new British scheme, which has a direct impact on business costs Environmental There is increasing political impetus to respond to environmental degradation, and the onus is on large manufacturers like Unilever to use fewer resources and produce less waste. In Europe, a major development affecting the company is the establishment of the European Union Emissions Trading System (EU ETS), which was set up in 2005 as part of a concerted and collaborative attempt to reduce carbon emissions under the requirements of the Kyoto Protocol. The EU ETS is a system under which polluters emissions are ‘capped’; in order to pollute more, manufacturers must purchase credits from other polluters. Participation in the EU ETS is mandatory for all large factories and plants that produce more than 25 thousand metric tons of carbon dioxide and that use ammonia or petrochemicals (Ellerman, Converey and Perthuis, 2010). The Internal Environment SWOT analysis The second element of a strategic audit is an analysis of the internal mechanisms of the business. This part of the paper uses a SWOT analysis to identify and critically examine the strengths, weaknesses, opportunities and threats facing Unilever Strengths The size of the company is its major strength. Unilever manufactures more than 400 brands which it sells to some 190 countries (Unilever, 2014, the Guardian, 2014). In addition, it employs over 167,000 people and expends 928 million euros on research and development annually (Unilever, 2013). In terms of performance, the company has bucked recent economic trends. In 2013, the company reported profit growth of 9 per cent over the previous year, reporting a net profit of  £4.4 billion. In addition, global sales grew by over 4 per cent that year, with sales to emerging economies growing by 8.7 per cent (the Guardian, 2014). As well as its sheer size, a major source of strength for Unilever is its longevity and brand recognition. The company has been in existence since 1929 and is the world’s oldest multinational enterprise (Thain and Bradley, 2014) Another strength of the company is its geographical spread. Unlike some consumable manufacturers, which are headquartered in just one country and found on just one public index, Unilever has headquarters in two countries, is floated on two indexes and is secondarily floated on the New York Stock Exchange. Another of the company’s strength is its human capital. Human capital is the volume of skills, knowledge, experience and competencies embodied in individuals that staff and run the business. This is important for there is a good deal of empirical research that links high levels of human capital with firm performance (Huselid, Jackson and Schuler, 1997). The company’s chief executive officer, Paul Polman, who held senior positions at both of the companys major competitors, Nestle and Procter and Gamble, has been termed a ‘rainmaker’ that has taken the company from strength to strength (The Telegraph, 2014). On taking the reins in 2009, Polman set out a plan to double the size of the business, to double sales to  £80 billion and to boost efforts at environmentalism and sustainability. Weaknesses Some analysts have argued that the companys broad product portfolio is a source of weakness (the Guardian, 2014). The firm produces goods in four broad product categories – cleaning agents, food, personal care products and beverages. It is argued that such a broad portfolio can prevent the business from focusing its marketing efforts appropriately (Putsis and Bayus, 2001). Thus, in order to consolidate its activities, the company may need to divest some brands or product ranges in the future. Indeed, the company already seems to be taking steps in this regard, selling popular brands Peparami, Slim-Fast, Ragu and Bertolli in 2014 (The Telegraph, 2014). In addition, most of brands produced by the company are multinational brands which may prevent them from being tailored to the needs of local markets. A further weakness of the product line concerns the prices offered to consumers. The prices of Unilever brands are generally higher than those of its competitors (Thain and Bradley, 2014). The company has explained that prices are high to represent the quality of the goods, while analysts have attributed the high prices to the enormous amount the company spends on research and development and its massive marketing budget (Thain and Bradley, 2014). In 2010 alone, Unilever spent 6 billion euros on advertising, and today, the company is one of the world’s largest purchasers of advertising media (The Telegraph, 2011). Threats The company is facing a number of threats, particularly from competitors, the market and consumers. Firstly, while Unilever’s broad product portfolio might be conceived as unusual, it is not unique in this respect. Procter and Gamble and Nestle have very similar business models and product lines (Thain and Bradley, 2014). Indeed, in terms of sales, Unilever is outperformed by both of these competitors. A large proportion of Unilever’s products are premium brands aimed at consumers with relatively high levels of disposable income. This might be considered a threat in the context of the current economic downturn. Increased financial uncertainty might lead households to move away from these brands to own-brand and lower value products, negatively affecting both net sales and sales margins. Food prices have risen substantially worldwide (Headey and Fan, 2008). This represents a significant threat to the company because it must pass the cost of food inflation to customers in order to maintain current profit margins. This might explain why the firm’s CEO is starting to consider refocusing the company strategy on alternative product lines, such as sundries or hard lines (The Guardian, 2014) Although the company has a stated aim to double its sales levels, analysts have noted that the company is still far short of accomplishing that aim. As the Telegraph (2014, online) notes, â€Å"the acquisitions of TRESemmà © shampoo maker Alberto Culver and Radox bath foam have added almost â‚ ¬3bn in turnover†¦However, these deals have hardly moved the needle and Unilever is still sitting on a big pile of cash. With growth slowing in emerging markets where 60pc of the group’s sales are generated, investors may start pushing for Unilever’s leader to be a bit bolder if he is to reach his ambitious â‚ ¬80bn sales goal†. In the context of the recent economic downturn, there have been some demergers and sell-offs in some of the sectors in which Unilever operates. While in some cases this has proven to be an opportunity for the company (for instance, the firm has recently been able to purchase top hair care brand TRESemmà ©), it also poses a threat should any of these product lines fall into the hands of its competitors. For instance, the 2008 purchase of shaving brand Gillette by Procter and Gamble immediately made it the biggest company in men’s personal care (The Telegraph, 2014) An increased social ethic and concern for the environment among consumers should also be considered a threat to the company. In Japan, Thailand and particularly in India, Unilever has attracted heavy criticism for the manufacture of so-called ‘fairness’ products. These are products that are typically aimed at women and used for lightening the skin. While such brands are a major source of income for the company allegedly, one skin lightening agent produced by the company, Fair and Lovely, is used by 80 per cent of the population of Bangladesh (Unilever Bangladesh, 2014) – the company has also come under fire for promoting Westernised standards of beauty. In Thailand, an advert for one of the company’s fairness creams was withdrawn from media outlets after widespread censure because it correlated white skin and high levels of intelligence (The Guardian, 2014). Opportunities Social media offers considerable opportunities to Unilever, particularly given its aim to reduce its advertising expenditure (The Telegraph, 2014). Social media sites are increasingly used by companies to update consumers on new products, to offer discounts and special promotions, and to invite consumers to special events that are either held online or physically (Sashi, 2012). Unilever may be able to capitalise on this trend either through corporate accounts or through brand accounts. There are considerable opportunities to the company through its extensive research and development efforts. Unilever has research facilities in England, Shanghai, Bangalore, New Jersey and Connecticut, which are working continually to develop new product lines and refine existing ones. Through this investment the company is able to regularly introducing new brands or reintroduce redesigned brands to the market. Conclusion Unilever is a unique company. The firm is dual listed, co-headquartered in two of Europe’s wealthiest cities and it offers the market a vast and very broad range of products. This strategic audit has shown that while the company is operating in a turbulent business environment, it is managing to perform well, both in terms of sales and growth. Despite the company’s strengths, there are some external threats posed by market developments, customer attitudes and the actions of its key competitors. The company leadership will need to monitor these aspects if Unilever is to meet its objective to become the largest consumables multinational company in the world. References Ahlgren, M., Gustafsson, I. B., Hall, G. (2004). Attitudes and beliefs directed towards ready-meal consumption. Food Service Technology, 4(4), 159-169. Blossfeld, H. P., Buchholz, S., Kurz, K. (Eds.). (2011). Aging populations, globalization and the labor market: Comparing late working life and retirement in modern societies. Cheltenham, UK/Northampton, MA: Edward Elgar. Dutch News (2014). Opposition MPs call on premier to explain quit the euro claims. 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