If the adage 'two heads are better than one' applies to business, then certainly Unilever is a prime example. The food and consumer products giant actually has two parent companies: Unilever PLC, based in the United Kingdom, and Unilever N.V., based in The Netherlands. The two companies, which operate virtually as a single corporation, are run by a single group of directors and are linked by a number of agreements. Unilever considers itself the second largest consumer goods firm in the world, trailing only Philip Morris Companies Inc., and produces numerous brand name foods, cleaning products, and personal care items. About 52 percent of revenues are generated in the foods sector; brands include Imperial and Promise margarines, Lipton tea, Ragú foods, Lawry's seasonings, Breyers ice cream, and Birds Eye and Gorton's frozen foods. One-quarter of sales come from the personal care area; brands include Caress and Dove soap, Pears and Pond's skin care products, Degree, Fabergé, and Sure deodorants, Suave and Salon Selectives hair care items, Close-Up, Mentadent, and Pepsodent oral care products, and Calvin Klein, Elizabeth Arden, and Elizabeth Taylor prestige fragrances— well as such miscellaneous brands as Q-Tips and Vaseline. Unilever's third major sector is that of cleaning products, which is responsible for about 22 percent of turnover; brands include Wisk and All laundry detergents, Snuggle and Final Touch fabric softeners, and Sunlight dish detergents, and this area also includes the company's line of institutional cleaning products. Unilever maintains production facilities in 88 countries and sells its products in an additional 70. About 47 percent of revenues originate in Europe, 21 percent in North America, 14 percent in the Asia-Pacific region, 12 percent in Latin America, and six percent in Africa and the Middle East.
Soap and Margarine Origins
William Hesketh Lever, later Lord Leverhulme, was born in Bolton, England, in 1851. The founder of Lever Brothers, Lever had a personality that combined 'the rationality of the business man with the restless ambitions of the explorer,' according to Unilever historian Charles Wilson.
During the depression of the 1880s, Lever, then a salesman for his father's wholesale grocery business, recognized the advantages of not only selling, but also manufacturing, soap, a noncyclical necessity item. His father, James Lever, initially was opposed to the idea, believing that they should remain grocers, not manufacturers. He softened, however, in the face of his son's determination. In 1885 William established a soap factory in Warrington as a branch of the family grocery business. Within a short time Lever was selling his soap throughout the United Kingdom, as well as in continental Europe, North America, Australia, and South Africa.
William also began a tradition that lasted well into the 20th century--that of producing all its raw components. Lever Brothers, a vertically integrated company, grew to include milling operations used to crush seeds into vegetable oil for margarine as well as packaging and transporting businesses for all of its products, which then included Lux, Lifebuoy, Rinso, and Sunlight soaps.
In 1914, as the German Navy began to threaten the delivery of food imports--particularly Danish butter and Dutch margarine—ø Britain, the British government asked William Lever to produce margarine. He eagerly accepted the opportunity, believing that the margarine business would be compatible with the soap business because the products both required oils and fats as raw materials. Lever Brothers' successful diversification, however, now put the company in competition with Jurgens and Van den Bergh, two leading Dutch margarine companies.
1920s: The Birth of Unilever
Jurgens and Van den Bergh both began commercial production of margarine in 1872. Fierce competitors for the remainder of the century, Van den Bergh and Jurgens decided in 1908 to pool their interests in an effort to make the best of the poor economic situation that existed in most of the world. Competition in the margarine industry had intensified, fueled by an increasing number of smaller firms, which were exporting their products and lowering their prices to get a piece of the market. Van den Bergh eliminated the potential for problems such as double taxation--which arose from its interests in both Holland and the United Kingdom--by creating and incorporating two parent companies for itself, one in Holland and one in England. In 1920 Jurgens and Van de Bergh decided there was strength in numbers and joined with another margarine manufacturer, Schicht, in Bohemia. In 1927 the three companies, borrowing the ideal of a dual structure from Van de Bergh, formed Margarine Union Limited, a group of Dutch firms with interests in England, and Margarine Unie N.V., located in Holland.
Through the middle and late 1920s, the oil and fat trades continued to grow. Although the activities of Margarine Unie and Margarine Union were focused on edible fats (margarine), the companies had held soap interests throughout Europe for years. Similarly, although Lever Brothers had produced margarine since World War I, its focus was soap. After two years of discussion, the companies decided that an 'alliance wasted less of everybody's substance than hostility' and merged on September 2, 1929.
As it does today, the newly formed Unilever consisted of two holding companies: Unilever Limited, previously Margarine Union; and Unilever N.V., formerly Margarine Unie. The new organization included an equalization agreement to assure equal profits for shareholders of both companies, as well as identically structured boards. Unilever's parent companies were actually holding companies supervising the operations of hundreds of manufacturing and trading firms worldwide. The end result of the merger was a company that bought and processed more than a third of the world's commercial oils and fats and traded more products in more places than any other company in the world. Its manufacturing activities--which included detergents and toilet preparations, margarine and edible fats, food products, and oil milling and auxiliary businesses--were joined by a need for similar raw and refined materials, such as coconut, palm, cottonseed, and soybean oil, as well as whale oil and animal fats.
1930s: Surviving the Great Depression
The Great Depression, which struck not long after the new company was formed, affected every aspect of Unilever's multifaceted operation: its raw material companies faced price decreases of 30 to 40 percent in the first year alone; cattle cake, sold as a product of its oil mills, suffered with the decline of the agricultural industry; margarine and other edible fats were affected by damaging competition as the price of butter plummeted; and the company's retail grocery and fish shops saw declining sales.
As prices and profits around the world threatened to collapse, Unilever had to act quickly to build up an efficient system of control. The 'special committee' was established in September of 1930 to do that. Operating as a board of directors over the two boards the company already had, the special committee was designed to balance Dutch and British interests and act as an inner cabinet for the organization. It also began administering two committees established to deal with Unilever's world affairs: a continental committee to handle businesses in Europe, and an overseas committee to supervise business elsewhere.
A new generation of management led Unilever through the 1930s: Francis D'Arcy Cooper, who had been chairman of Lever Brothers since William Lever's death in 1925; Georg Schicht, the former chairman of Schicht Company; and Paul Rijkens, who succeeded Anton Jurgens as chairman of Jurgens in 1933. It was Cooper who seemed to lead the efforts to turn the various companies that comprised Unilever into one Anglo-Dutch team. It was also Cooper who convinced the board of the necessity for a reorganization in 1937, when the relationship between the profit-earning capacities of the Dutch and British companies found itself reversed.
Originally, about two-thirds of Unilever's profits were earned by the Dutch group and one-third by the British group. By 1937, however, because of increasing trade conflicts in Europe, particularly in Germany, the situation had reversed. By selling the Lever company's assets outside Great Britain, including Lever Brothers Company in the United States, to the Dutch arm of Unilever, the assets of the two groups were redistributed so that they would be nearly equal in volume and profits, which had always been the objective of the two parent companies.
Before 1945 the oils and fats industries had progressed fairly smoothly. The only major industry breakthroughs were the discovery of the hydrogenation process just before World War I, which enabled manufacturers to turn oils into hard fats, and the possibility of adding vitamins to margarine in the 1920s, which created an opportunity for new health-related product claims. But it was not until the end of World War II that the industry in general, including Unilever, began to recognize the important relationship between marketing and research. Meantime, Unilever expanded its U.S. operations through two important acquisitions: Thomas J. Lipton Company, manufacturer of tea (1937), and the Pepsodent brand of toothpaste (1944).
Postwar Era: Adapting to New Markets and Technology
Although Unilever's growth until the mid-1940s was a result of expanded product lines and plant capacities, its greatest achievements between 1945 and 1965 were its adaptation to new markets and technology. The decade following World War II was a period of recovery, culminating by the early 1950s in rapid economic growth in much of the Western world. Until 1955 demand continued to rise and competition was not a major issue. Afterward, however, profit margins dropped, competition in Europe and North America sharpened, and success was less assured. Unilever's strategy was to acquire companies in new areas, particularly food and chemical manufacturers. Among the postwar acquisitions were U.K. frozen foods maker Birds Eye (1957) and U.S. ice cream novelty maker Good Humor (1961).
Before the formation of Unilever, Lever Brothers had coped with overseas expansion by purchasing two factories in the United States, one in Boston and one in Philadelphia. Following World War II, Unilever found that it lacked the scientific resources needed to compete with U.S. companies in research and development. Previously, key concerns for the soap industry revolved around color, scent, lather, and how well the products adapted to changing fabrics. Following the war—ø the dismay of Unilever and its U.S. subsidiary, Lever Brothers Company--development efforts in the United States succeeded in creating a nonsoap, synthetic detergent powder (Procter & Gamble Company's Tide), which had superior cleaning powers and did not form insoluble deposits in plumbing systems in hard water. The disappointment spurred Unilever to value research as highly as marketing and sales. Lever Brothers had three detergent plants in production by 1950 but remained behind in the industry for some time.
Because the primary ingredients of the new detergents were petrochemicals, Unilever now found itself involved in chemical technology. In the synthetic detergent market, each geographic area required a different kind of product depending on the way consumers washed their clothes and the type of water available to them. The new detergents gave rise to new problems, however: the foam that detergents left in sewage systems and rivers had become a major issue by the late 1950s. As a result, by 1965 Unilever had introduced biodegradable products in the United States, the United Kingdom, and West Germany.
Throughout the postwar era, Unilever continued to invest in research and research facilities. One of its major establishments--the Port Sunlight facility in Cheshire that William Lever had founded in the 1920s--researched detergents, chemicals, and timber. In Bedfordshire, the Colworth House facility continued research efforts in food preservation, animal nutrition, and health problems associated with toothpaste, shampoo, and other personal products. By 1965 the company had 11 major research establishments throughout the world, including laboratories in Continental Europe, the United Kingdom, the United States, and India.
One example of how Unilever effectively answered market demands was its continuing research in margarine. When first developed, margarine was simply a substitute for the butter that was in short supply during wartime. But when butter once again became plentiful, the product needed to offer other advantages to the consumer. Research focused on methods to improve the quality of margarine--such as making it easier to spread, more flavorful, and more nutritious. This was the primary emphasis at Unilever's Vlaardingen laboratory. By enhancing techniques used to refine soybean oil, the company succeeded in improving the raw materials available for margarine production while at the same time achieving vast savings, since soybean oil itself was inexpensive.
The advent of the European Economic Community, or Common Market, also created new opportunities for Unilever. The company held several conferences throughout the 1960s to discuss strategies for dealing with marketing, factory location, tariffs, cartels, and transport issues created by the Common Market. Of particular importance was the need to determine the best places for production under changing economic conditions. Since the late 19th century, when the companies that comprised Unilever had set up factories in other European countries to avoid tariff restrictions, Unilever's products had been manufactured wherever it was most economical. Under the Common Market, many of the tariff restrictions that had spawned the multinational facilities were eliminated, giving the company an opportunity to consolidate operations and concentrate production in lower-cost countries.
1980s: Restructuring and Major Acquisitions
In the 1980s Unilever undertook a massive restructuring. The company sold most of its service and ancillary businesses, such as transport, packaging, advertising, and other services that were readily available on the market, and went on a buying spree, snapping up some 80 companies between 1984 and 1988. The restructuring was designed to concentrate the company in 'those businesses that we properly understand, in which we have critical mass, and where we believe we have a strong, competitive future,' Unilever PLC Chairman M.R. Angus told Management Today in 1988. Specifically, Unilever's core businesses were detergents, foods, toiletries, and specialty chemicals.
In addition to increasing profitability in core areas, restructuring also helped Unilever execute its biggest acquisition to date, that of Chesebrough-Pond's in the United States in 1986. A company with sales of nearly $3 billion, Chesebrough owned such brands as Vaseline Intensive Care, Pond's Cold Cream, and Ragú spaghetti sauce. The acquisition allowed Unilever to fill out its international personal products business, particularly in the United States, where Unilever saw a higher profit potential.
During the 1980s Unilever's detergent products posted a 50 percent growth in operating profit, while food products grew at a faster than normal rate. In the United States, plans to take on longtime rival Procter & Gamble were successful in 1984, when Unilever's Wisk moved P & G's Cheer out of the number two spot in the laundry detergent market. In Europe, Unilever in 1984 completed its first hostile takeover attempt in 15 years, acquiring the British company Brooke Bond, the leading European tea company, for £376 million. Brooke Bond complemented Unilever's Lipton brand, the leader in the United States. Two years later, the company launched Wisk in the United Kingdom, as well as Breeze, its first soap powder introduced in the United Kingdom since the debut of Surf more than 30 years before.
In 1989 Unilever became a major player in the world's perfume and cosmetic industry through three more acquisitions. It obtained Shering-Plough's perfume business in Europe; the Calvin Klein business from Minnetonka, Inc.; and, by far the largest purchase of the three, Fabergé Inc., the American producer of Chloe, Lagerfeld, and Fendi perfumes, for $1.55 billion. The upper-end cosmetics market was a high-margin business, and Unilever planned to step up marketing of its new products to raise sales.
Positioning for the 21st Century
As it entered the 1990s, Unilever had virtually completed reorganizing its European business to better compete within the evolving single market in that region. In 1991 the company further refined its operations by selling the last of its packaging businesses and by making provisions for the eventual sales of the majority of its agribusinesses.
Unilever's flexible management structure and diverse product range were integral to its survival in the rapidly changing international market. In a 1992 Harvard Business Review article, Chairman and CEO Floris A. Maljers explained Unilever's management structure: 'The very nature of our products required proximity to local markets; economies of scale in certain functions justify a number of head-office departments; and the need to benefit from everybody's creativity and experience makes a sophisticated means of transferring information across our organization highly desirable. All of these factors led to our present structure: a matrix of individual managers around the world who nonetheless share a common vision and understanding of corporate strategy.'
Despite poor performances by some of its subsidiaries and recessions in Europe and North America, Unilever's broad product range led to overall profit increases in both 1990 and 1991. In 1990 Unilever made substantial inroads into the newly opened markets created by the unification of Germany. The company began producing its Rama margarine at a former East German state plant in Chermnitz, established a task force to select sites for 23 Nordsee fish stores, and began distributing ice cream and frozen novelties to retailers in eastern Germany.
In 1991 Unilever continued to battle with rival Procter & Gamble over the newly opened markets of the former Soviet Union. Unilever purchased an 80 percent stake in the Polish detergent firm Pollena Bydgoscz for $20 million, changing the name to Lever Polska, the first laundry detergent manufacturer to be privatized in Poland. The company earmarked approximately $24 million for product line expansions, including a fabric conditioner and household cleaning products. Also in 1991 Michael Perry was named the U.K. cochairman of Unilever.
Profits in Unilever's personal products division were down 11 percent in 1991, due to sluggish markets in the United States and only moderate growth in European markets. Unilever's newly purchased Elizabeth Arden and Calvin Klein, however, posted strong growth, supported by strong retailer relationships and $24 million in advertising expenditures. Such growth occurred despite an overall drop in department store cosmetic sales of nine percent from 1987 to 1992. In 1992, though, Elizabeth Arden profits began slipping, prompting the resignation of Joseph F. Ronchetti, Arden's CEO since 1978. Unilever underwent further restructuring of its personal products division, creating a prestigious subdivision geared toward introducing Calvin Klein and Elizabeth Arden into overseas markets.
Unilever's fastest growing market in the early 1990s was in Asia. Although Unilever had been operating in Asia since its earliest days, the company was just beginning to tap into the region's newly acquired wealth. Asian sales of personal products, detergent, and packaged foods were growing more than twice as fast as sales in the United States and Europe. By 1992 Unilever was composed of some 500 companies conducting business in 75 different countries.
Unilever continued to make acquisitions in the mid-1990s, completing more than 100 purchases between 1992 and 1996, more than half of which were in foods. In 1993 Unilever gained the number one position in the U.S. ice cream market through the completion of two acquisitions. The company paid $155 million to Empire of Carolina Inc. for the Klondike and Popsicle brands, and about $215 million for the ice cream business of Philip Morris's Kraft General Foods unit, which included the Sealtest and Breyers brands. The acquired brands were merged with the Good Humor line within Good Humor Breyers Ice Cream Company, a subsidiary based in Green Bay, Wisconsin. Also in 1993 Unilever launched a restructuring, taking a US$750 million charge against earnings to close or consolidate 60 plants and lay off 7,500 employees.
One the largest acquisitions of this period was the 1996 takeover of Chicago-based Helene Curtis Industries Inc., manufacturer and marketer of personal care products, primarily shampoo and conditioners, hand and body lotions, and deodorants and antiperspirants. Purchased for about $770 million, Helene Curtis's portfolio included such brands as Suave, Finesse, and Salon Selectives. Another significant 1996 acquisition was that of Northbrook, Illinois-based Diversey Corporation, a maker of institutional chemical cleansers and sanitizers, and Unilever's first foray into the industrial cleaning sector.
Unilever and Procter & Gamble (P & G) began battling again in 1994, this time for supremacy in the European detergent sector. Unilever aggressively went after P & G's market-leading brand, Ariel, with a new soap marketed under the names Persil Power, Omo Power, and Skip Power. Unilever spent $175 million developing the product and another $292 million marketing it during 1994. The product included a manganese complex molecule that Unilever claimed cleaned clothes better at lower temperatures than rival products. P & G conducted tests on Persil Power, however, which indicated that the detergent resulted in abnormal wear after as few as 15 washings. When P & G publicized its findings, Unilever sued the company for slander. But the suit was quickly withdrawn after Unilever admitted that the detergent did indeed contain a flaw--a flaw that had not been uncovered in the prelaunch testing--and could damage clothes when exposed to a particular combination of dyes. Unilever reformulated the product, but not before it had turned into a public relations nightmare. In the end, the Power formula was abandoned entirely and Unilever, therefore, took a £57 million write-off in its 1994 accounts.
According to Andrew Lorenz, writing in the July 1996 issue of Management Today, the Persil Power debacle served as a catalyst for a fundamental management reorganization. On September 1, 1996, the three-person special committee that had run Unilever since its formation in 1929 was replaced by a seven-member executive committee composed of the chairmen of Unilever N.V. and Unilever PLC and five high-ranking Unilever executives. At the same time the company did away with a complex two-tiered management structure that included both worldwide product management groups and regional management groups. In their place was created a single team of 14 business presidents, with each president responsible for a portion of the European operations (e.g., the food and beverage Europe group), a portion of the North American operations (e.g., the home and personal care North America group), or a region of the rest of the world (Africa, Latin America, etc.). As was typical of the time, this streamlining was aimed at improving decision-making by pushing authority down to a lower level. Along with this major reorganization came a change in the chairmanships, with Niall FitzGerald replacing Michael Perry as U.K. cochairman; an Irishman, FitzGerald became the first non-English, non-Dutch to serve as cochairman, and he also reached the post despite having been in charge of Unilever's detergent operations during the Persil Power debacle. Continuing on the Dutch side was Morris Tabaksblat, who had replaced Maljers as Dutch cochairman in 1994.
In the late 1990s FitzGerald and Tabaksblat oversaw a comprehensive review of Unilever's wide-ranging businesses in an effort to focus on the strongest core areas: ice cream, margarines, tea-based beverages, detergents, personal soaps, skin care products, and prestige fragrances. Several other areas were identified as 'developing' core areas: frozen foods, culinary products (sauces and side dishes), hair care products, oral care products, deodorants, household care products, and industrial cleaning products. Businesses outside of these areas were candidates for disposal. In 1996 the company sold its mass-market cosmetics business, its few remaining animal feed operations, some oil-processing units, and a U.K. franchiser of Caterpillar Inc. heavy equipment. Unilever completed its largest disposal the following year, selling its specialty chemicals business to Imperial Chemical Industries PLC for about US$8 billion. The sale resulted in a net profit of US$4.55 billion, part of which cleared Unilever's US$2.78 billion in debt; the proceeds also contributed to a war chest that expanded to US$9.6 billion. The company made one large purchase in 1997, the US$930 million acquisition of Kibon S.A. Indústrias Alimenticia, the number one ice cream maker in Brazil. In 1998 Unilever sold its Plant Breeding International Cambridge Limited unit to Monsanto for about US$525 million. Unilever also sold off its Nordsee fast-food fish chain in the late 1990s.
In early 1999 Unilever spent a large portion of its war chest on a special dividend to shareholders of £5 billion (US$8.1 billion). In July of that year Tabaksblat retired and was replaced as Dutch cochairman by Antony Burgmans. Two months later Unilever announced that it would eliminate about 1,200 of its brands to focus on around 400 regionally or globally powerful brands--a group that accounted for almost 90 percent of 1998 revenue. This sweeping overhaul of the product portfolio was aimed at increasing annual growth rates from four percent to six to eight percent and at eventually reaping annual savings of £1 billion.
Unilever ended the 20th century with a strategic plan that included a focus on top brands within core market sectors and an emphasis on growth within developing countries. Although it was facing considerable competitive pressures in various markets around the world--particularly from Procter & Gamble--Unilever was clearly no longer the risk-averse, staid organization of the past. The whirlwind events of the late 1990s seemed destined to position the company as one of the most formidable global consumer products companies of the 21st century.
Key Dates:
1872: Two Dutch firms, Jurgens and Van den Bergh, begin commercial production of margarine.
1885: William Hesketh Lever establishes soap factory in Warrington, marking the beginnings of Lever Brothers.
1908: Jurgens and Van den Bergh pool their interests.
1914: Lever begins producing margarine at the request of the British government.
1927: Jurgens and Van den Bergh create dual-structured Margarine Union Limited and Margarine Unie N.V.
1929: Margarine Union/Margarine Unie merges with Lever Brothers to create Unilever, with dual Anglo-Dutch structure.
1930: Special committee is established as a board of directors over the British and Dutch Unilever holding companies.
1937: Reorganization equalizes the assets of the Dutch and the British groups of Unilever; Thomas J. Lipton Company, U.S. manufacturer of tea, is acquired.
1944: The U.S. toothpaste brand Pepsodent is acquired.
1957: Company acquires U.K. frozen foods maker Birds Eye.
1961: U.S. ice cream novelty maker Good Humor is acquired.
1984: Buying spree begins that will last until 1988 and result in about 80 companies being acquired; Brooke Bond, the leading European tea company, is acquired through hostile takeover.
1986: Company acquires Chesebrough-Pond's, its largest purchase to date.
1989: The acquisition of three companies, including Fabergé Inc., makes the company a major player in the world perfume and cosmetics industry.
1994: The launch of a new laundry detergent in Europe turns into a public relations disaster when tests reveal that it can damage clothes under certain conditions.
1996: Fundamental management reorganization is launched, including the replacing of the special committee with a seven-member executive committee.
1997: Specialty chemicals operations are sold to Imperial Chemical Industries PLC for about US$8 billion.
1999: Company announces that it will eliminate about 1,200 of its brands to focus on around 400 regionally or globally powerful brands.
Source: www.fundinguniverse.com
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