21st Century Business Herald reporter Tao Li reports from Shanghai
When the industry is in a downturn, "slimming down" is the preferred strategy for giants to get out of trouble. But whether it can be effective or not varies from person to person.
Recently, it was reported that Unilever has obtained approval from the Russian government committee to sell its local business to Arnest, a chemical group owned by Russian businessman Alexey Sagal, at a valuation of approximately 35 billion to 40 billion rubles (395 million to 450 million US dollars).
This is just a microcosm. Unilever has also decided to end its 80 year direct operation in the Zimbabwean market by the end of this year and transition to a business model that relies on local distributors, continuing Unilever's operational strategy of reducing business in some African markets.
Not only that, globally, Unilever is also in a stage of drastic "load reduction". Can a series of measures such as layoffs, factory closures, brand cuts, and changes in senior personnel bring new growth points to Unilever? Still worth paying attention to. At the same time, this also means that in the consumer industry, a larger wave of asset trading and market integration may follow. How can established foreign companies reshape their positioning in a complex international environment?
Loss of control in the Chinese region
According to the official website of Unilever, more than half of the leadership teams have undergone changes since October last year. This includes the Chief Financial Officer, Chief Growth Marketing Officer, President of Home Care Business Group, President of Beauty and Health Business Group, Chief Human Resources Officer, President of Nutrition Business Group, and President of Ice Cream Business Group.
Behind the simplification of productivity and restructuring of personnel business lies a higher demand for performance. After returning to Unilever for 8 years, it's time for Qu Wei, President of Unilever China and General Manager of Beauty and Health North Asia, to say goodbye. This fast-moving consumer goods veteran joined Unilever in 1998 and after 11 years of work, he switched jobs to Neng before returning to his old employer.
Qu Wei's successor, Chen Ge, also comes from the fast-moving consumer goods industry. Prior to 2019, Chen Ge worked at Kraft Heinz for 11 years and held multiple leadership positions, including Business President for Greater China. In July 2019, Chen Ge was appointed as the President of Friesland China, and has been serving for 5 years and 1 month since then.
According to public information, after Chen Ge is appointed as the President of Unilever China and General Manager of the Beauty and Health Division in China, she will report directly to Priya Nair, the Global President of Unilever Beauty and Health. This appointment has been effective since August 15th.
When Chen Ge arrived, the Unilever Greater China region that she was about to control was facing a new transformation. Qu Wei left her with two new propositions: firstly, in the 2024 financial report data, the sales in the Chinese market showed a mid single digit decline, while other regional markets were still growing; Secondly, Unilever is being surrounded by increasingly rising local competitors. Where are the other categories besides food planning going?
According to financial report data, Unilever's revenue for the first half of 2024 was 31.1 billion euros (approximately 244.1 billion yuan), a year-on-year increase of 2.3%; The basic operating profit was 6.1 billion euros (approximately 47.77 billion yuan), a year-on-year increase of 17.1%, and the basic operating profit margin increased to 19.6%.
Looking at specific regions, in the first half of the year, basic sales in the Asia Pacific non region increased by 3.5%, with sales growing by 2.4% and prices increasing by 1.0%. The decline in the Chinese market also reflects the weak market growth in most product categories of the group.
On the one hand, it is due to the lack of domestic consumer power, and on the other hand, it is also related to the aging of its brand positioning.
In fact, the change of leadership in foreign companies is happening in various industries now, and the core issue is that foreign companies are facing challenges in China and have lost their foothold in the Chinese market. "A manager who has worked for Unilever China for many years pointed out in an interview with 21st Century Business Herald that more than 10 years ago, foreign companies had many industrialized processes in Western countries, and these methodologies were formulaic and have been proven to be successful. Unified thinking and behavior are also more efficient than private enterprises. However, the market has changed now, and since the flourishing of e-commerce, consumer behavior habits have undergone fundamental changes, making it difficult to flexibly apply old methods.
Why does it fail now? Since the rise of e-commerce, those old advantages have become ineffective. The current industry relies on individual abilities and innovation. It is difficult to rely on old capital. In the past 10 years, all foreign enterprise managers have been caught in a dilemma, as changes quickly make things useless. She admitted that it is difficult to explain China's background to global headquarters, which will directly lead to increased pressure on the next generation of managers. So, how do you define the value of the Chinese market to the headquarters?
Telling the story of China again is a new beginning and also a challenge.
Subtractive slimming
As a giant in the fast-moving consumer goods industry, Unilever has announced a restructuring since 2022, expanding its original three segments into five segments: beauty and health, personal care, home care, nutrition, and ice cream. Their performance proportions are 21%, 22%, 20%, 22%, and 15%, respectively.
Based on the performance of the past four years, except for the double-digit growth of 14.6% achieved by the group in 2022, the annual performance in 2020 and 2023 showed a year-on-year decline.
Especially in the important Chinese market, its business is facing fierce competition from emerging products, especially in the fast-moving consumer goods sector. With the diversification of user needs and the more subdivision of product functions, new products have emerged in endlessly from shampoo, bath gel to grains, milk and even spices, which has also spawned a large number of new start-ups, which are rising rapidly with the help of Tmall, Taobao Live, Tiktok, Xiaohongshu and other platforms.
These products have gradually gained a place in the sales rankings and pose a potential threat to traditional consumer brands.
Entering 2024, Unilever continues to implement "slimming" measures.
In March, it was announced to divest its ice cream business, including Menglong and Heluxue, and it is expected to be completed by the end of 2025; In June, completed the sale of Elida Beauty business under the personal care sector, including over 20 non core beauty and personal care brands such as Caress, Ponds, and Impulse; In July, sold the water purification company Pureit and completely divested its water purification business; Recently, it plans to sell its high-end skincare brands Kate Somerville and REN, which it acquired in 2015.
This means that streamlining personnel is also imperative. Over the past six months, Unilever has started to lay off employees globally, with an estimated number of over 7500 people, making it the largest layoff in nearly five years.
Overall, the pressure of stock prices has forced the company to split and restructure. The management has changed the limited regional structure to a category first structure, placing market and research and development first, hoping to share experiences and achievements, and reduce the cost of repeated research and development in the region. However, it has not reduced the number of positions at the regional or national level, leading to an increase in labor costs. "An insider from Unilever working in Europe told 21st Century Business Herald reporters that the split of the ice cream business, especially the high business cost of full cold chain management, may result in layoffs mainly in management positions.
He also revealed that because France is an important market in Europe with a large scale, it is not greatly affected by layoffs. I'm not really worried about layoffs caused by the reform, because France has very comprehensive protection for employee layoffs, unemployment, and other aspects. In addition to one-time payments, there is also a two-year unemployment guarantee
However, for Chen Ge, although there have been no large-scale layoffs in the China region, his business is not without worries. At the very least, Unilever must also pursue the giant Procter&Gamble and a group of domestic rising stars.
Daily chemical problems
The three key elements of "strong marketing, big brands, and controlling distributors" were once the three axes for foreign brands to enter the Chinese market, and this methodology has been proven to be effective.
Over the years, whether it's Procter&Gamble or Unilever, their support for brand marketing in China has been directly proportional to their business volume. Low end mass market products with larger market sizes naturally receive more advertising budgets.
Under such principles, their popular products have bombarded the visual nerves of Chinese consumers with unprecedented advertising density from television screens, especially during prime time on major TV stations. Nowadays, consumers' attention has shifted from traditional media to various emerging platforms. Returning to the C position is not easy.
Taking Procter&Gamble as an example, although the company significantly increased its advertising spending in the fourth quarter of 2024, its performance did not meet expectations due to only a 2% organic sales growth in that quarter. In the fiscal quarter ending June 30th, advertising spending increased by approximately $600 million compared to the same period last year.
Unilever CEO Hein Schumacher has previously revealed that the company increased its brand and marketing investment by nearly 700 million euros in the first half of the year, with 85% allocated to "strong brands". These 30 brands achieved a 4% sales growth in the first half of the year and currently account for approximately 75% of Unilever's overall revenue. Among them, 16 brands have annual sales exceeding 1 billion euros, including well-known brands in the Chinese market such as Jiale, Heluxue, Menglong, and Haolemen.
However, the increase in advertising may not necessarily lead to corresponding sales. Overall, rising prices and declining sales have also been performance challenges for Unilever in recent years.
Throughout 2023, Unilever's growth in developed markets will be primarily driven by price, with potential sales increasing by 2.8%, including a 0.8% increase in sales and a 2% increase in prices. Emerging markets, which account for 59% of revenue, are mainly driven by sales growth, with sales increasing by 5.1%, including a 3.8% increase in transaction volume and a 1.3% increase in prices.
For all brands, it is necessary to attach importance to brand building, to re engage with consumers, strengthen the connection with consumers, rather than just focusing on sales oriented advertisements. At the same time, it is also necessary to do a good job in omnichannel planning and layout, and provide corresponding suitable product combinations for different channels and consumer needs. Bruno Lannes, senior global partner of Bain&Company, believes that in the long run, consumers will become more cautious and value the true value of products to themselves more.
And what Unilever is currently doing is adjusting its main products and promotional strategies. Last July, Unilever and Pinduoduo jointly launched the "Super Brand Day" special event, and all of their brands participated in Pinduoduo's promotion.
On April 23rd, Priya Nair, President of Unilever's Beauty and Health Business Group, Frank Qu, President of China, and other global executive teams visited Pinduoduo. Both sides expressed their intention to continue deepening cooperation in areas such as user insights, product innovation, brand marketing, and supply chain upgrades.
Such proactive measures are not commonly seen among top brands. Of course, its ultimate goal is still to target platform traffic.
"Many foreign enterprises are still using the idea of 20 years ago to make products. They think that products that sell well abroad can be directly copied to China, without obvious differentiation. You spend a lot of time to make new products, but it is not to the taste of Chinese consumers." In the view of another senior fast moving consumer, the past success is due to the simple needs of users, even in many areas of blank, and a strong brand premium can gain market access. Nowadays, brands need to have values, identity, and positioning, and they require a group of people to invest together in order to impress people.
GAP Strategy
At present, there are still great opportunities in the Chinese market. It is crucial to find a new positioning and regain the attention of the younger generation. Especially in the context of such a high proportion of e-commerce, consumers no longer recognize brands through hard advertising and shelves, but through the emotions and spirit conveyed by the brand.
This change cannot be ignored by the brand. Shortly after Chen Ge took office, Unilever CEO Hein Schumacher visited the Chinese market for inspection. Subsequently, he posted his thoughts on his trip to China on social media, expressing some optimism in his words.
In terms of revenue, China is Unilever's third largest market, which has great strategic significance for us, "said Sima Han." We see that consumer spending in many categories is slowing down, but this is also a new opportunity. Let our brand create unique advantages in a new way, meet the ever-changing needs, expectations, and habits of consumers, and provide more value for their consumption
At the same time, he does not believe that the economy will experience double-digit growth in the next two years as in the past, and the growth rate in the future will be flat. This also confirms the "Growth Action Plan" (GAP) he has implemented since taking office.
Returning to the strategic level, it includes three directions, namely accelerated growth, productivity and simplification, and performance culture. Following this approach, Unilever is continuously divesting from peripheral businesses and increasing investment in healthy consumption. In April of this year, Liquid I.V., a functional hydration powder brand under Unilever, officially entered the Chinese market. Recently, Unilever participated in the Series A financing of US company Create Wellness through its investment arm Unilever Ventures.
Undoubtedly, Unilever's "GAP" strategy still has a long way to go in order to open up space in new fields and enhance market competitiveness.
Wang Lei, Managing Director of Product and Operations at Kantar Group Greater China, believes in an interview with 21st Century Business Herald that in today's increasingly fragmented media environment, it is becoming increasingly difficult to build a strong brand. Compared to 10 years ago, the possibility of becoming a good brand is gradually decreasing.
How to further achieve localization? This is an important issue faced by foreign enterprises. Especially in the context of the increasingly diversified Chinese market, there have been some new changes in consumer purchasing behavior. They are no longer only pursuing luxury goods or overseas brands, but are beginning to pay more attention to the brand's sense of value. Wang Lei further pointed out that this so-called "substitution" phenomenon has made some foreign brands that used to rely on premiums face the dilemma of how to maintain price advantages.
This issue covers many categories, including automobiles, clothing, etc. For these foreign brands, how to cope with this change is undoubtedly a major challenge at present.