With operations in 190 countries and products used by 2.5 billion people everyday, Unilever plc (UL) is the closest thing Earth has to a truly omnipresent company. The end users of Unilever’s wares number in the billions. If you’ve ever washed your hair, used a brand-name cotton swab, or applied brand-name petroleum jelly to your chapped lips, it’s almost certain that you’ve used a Unilever product, or products. But the company is now looking to focus on faster growth segments and shedding some of its businesses. In December 2017, the company announced the sale of its spreads business to private equity firm KKR for nearly $8 billion.
A Lot of Everything
Boycotting Unilever would be more work than it’d be worth. Whether you wash your body with a run-of-the-mill shower gel like Dove, or an extreme one like Axe, or a family-friendly one like Lever 2000, you’re a Unilever customer. In fact, offering multiple brands in the same category is a Unilever specialty. In the unexciting world of margarine, the business it is selling now, Unilever offered Country Crock, Promise, I Can’t Believe It’s Not Butter…you get the idea. No matter how particular your tastes are, Unilever has found a way to cater to them.
Unilever divides its operations into four categories: Personal Care, Food (pasta sauce, soup etc.), Refreshment (which is more or less beverages, and junk food) and Home Care (cleaning products.)
Smell Even Better
Personal Care is Unilever’s biggest segment, containing five of the company’s multi billion-dollar brands and generating sales of $23 billion last year. Those five brands are 1) Dove (shampoo, conditioner, body wash, lotion, etc.), 2) Rexona (antiperspirant, marketed as Degree in North America), 3) Axe (the aforementioned body spray and related products), 4) Lux (a soap sold around the world, but most popular throughout South Asia), and 5) Sunsilk (haircare, again huge in India and Pakistan but almost non-existent in the United States and Canada.) The Personal Care segment is responsible for 38% of total company profits.
“So,” you’re thinking, “Unilever just happens to manufacture all these products that are vital to proper hygiene. Big deal. Anyone could have done it, but Unilever just happened to get there first. There might be a little competition, but ultimately this stuff sells itself.” And you’d be wrong.
In much of the world, the cleanliness regimen that Westerners take for granted is unfamiliar. In recent years, Unilever has taken credit for executing the “largest hand-washing behavioral change program in the world”, targeting if not converting a quarter-billion people who had never given regular hand-washing a second thought. So now Unilever shareholders get richer, and Giardia gets stopped in its tracks. What’s not to love?
Satisfying the Most Basic Need
Unilever’s Food division is a $14 billion enterprise, and contains the largest brand of Unlever’s 200-plus: Knorr, the German maker of soups and sauces. Food accounts for 27% of Unilever operating profit, and today half of Knorr’s sales originate in South Asia, Turkey, and the Middle East/North Africa. And it is aprt of this business that is being sold now. Only by reading Unilever’s annual report can you find such esoterica as Maille brand now operates a standalone retail store on Columbus Avenue in New York City. People in the hinterlands west of the Hudson River will have to continue to make do by ordering their whole grain Dijon online. 2015 marked the watershed year in which Unilever unveiled a Baking, Cooking, and Spreading Business unit in Europe and North America, in the hopes of shifting eaters away from butter and toward more synthetic substitutes. (For related reading, see: How Johnson & Johnson Became a Household Name.)
The Refreshment sector accounted for over $10 billion in sales in the latest fiscal year. The sector contributes a mere 12% of Unilever’s total operating profit, but is expanding into countries not historically known for their consumption of mass-produced empty caloric goodness, such as Indonesia and the Philippines. For some reason, Unilever puts tea and other drinks in the Refreshment category. Including Lipton, yet another of the company’s billion-dollar brands. North Americans will either be proud or embarrassed to learn that their continent is “one of the largest geographies for ice cream,” in at least one sense of the superlative. Here again, Unilever offers multiple offerings in the same market. If only the epicures who won’t settle for anything less than Breyer’s and the hippie idealists who swear by Ben & Jerry’s had any idea how much they have in common. (For more, see: Why is Product Differentiation So Important in Today's Financial Climate?)
Unilever Cleans the House
What geopolitical truth do we glean from finding out that Unilever’s Home Care sector derives 80% of its sales in emerging markets? The $10 billion that Home Care brought in last year included fabric cleaning, home water purification (which, as you can understand, is relatively unimportant in the developed world) and laundry products. The good news is that the less-publicized parts of the planet can finally afford some of the comforts of modern life. The bad news is that most of their currencies took a beating against the pound sterling and the euro last year (of particular interest to Unilever, which has joint headquarters in London and Rotterdam). Fortunately for Unilever, and for any other company with extensive operations in Asia, Africa, and the Middle East, devaluation is a rare event. Product growth remains healthy in Unilever’s Home Care sector. (For more, see: How Procter & Gamble Found it's Way into Everyone's Cupboard.)
The Bottom Line
With many of its brands headquartered in locations as diverse as Singapore and Brussels, Unilever is the very definition of a worldwide endeavor. But it’s the brands themselves that run the show. Unilever’s talent lies in buying expensive but still undervalued brands, and using the company’s giant operating cash flow to turn those brands into market leaders worldwide. Unilever does business in more countries than almost any company, and if you had to pick one multinational to eventually be the first to do business elsewhere in the solar system, Unilever would be on the short list of favorites. (For more, see: Unilever: U.K.'s Go-To Company.)