Having been in existence for 173 and 81 years respectively, P&G and Unilever are legends in their own rights. After years of divestitures and streamlining, P&G has a strong lead. But with a little help from Acquisitions and Emerging market presence, Unilever could end up as The Undisputed consumer goods leader.
Interestingly, P&G is aggressively focussing on shedding business units, which do not complement its core product categories. On April 5, 2011, P&G sold off Pringles, (the food brand, which generated over $1 billion in annual sales) for $1.5 billion. Pringles made up for roughly 1%-2% of P&G’s sales. Despite significant competitive advantage, P&G is facing the brunt of rising input costs, which is evident from their net sales and profits for 2010. The FMCG giant recorded sales of $78.9 billion in 2010 as against $76.9 billion compared to last year. However, net profits declined to $12.7 billion from $13.4 billion in 2009. Speaking to B&E from Chicago, Lauren DeSanto, Chief Operating Officer, Equity Research, Morningstar says, “Over the longer term, I think P&G can increase sales by 4.5% on an average, which assumes roughly 3% of organic sales growth and then an additional 1.5% annually from acquisitions”.
But unlike his rival, Polman is trying to make Unilever much more robust (which is evident from the bifurcation of responsibilities) by reinforcing its portfolio even if it means acquisitive growth. In 2010, the company acquired Sara Lee’s personal care business and Alberto Culver for $1.67 billion and $3.7 billion. Raison d’être? Unilever has suffered the misfortune arising out of a complex and decentralised structure just like P&G. A clear cut demarcation of segments would drive profitability much more realistically.
Although P&G is clearly ahead, Unilever may be the ultimate winner. One look at statistics and everything falls into perspective. In US and European markets (which contribute almost 70% to net sales), P&G grows at a rate of 1%, & in the developing markets it grows at 8%-12%. And this is where the US major loses out to Unilever. The Anglo-Dutch company invested a lot and much earlier in emerging economies, which make up for over 50% of its revenues.
But Unilever which recorded $62.64 billion in revenues needs to consider is that 50% of its sales come from packaged food products, while the remaining come from personal and home care. Thus, it needs to work on sustaining revenues from food brands in developed markets (which are stagnating. Moreover, it’s a lot more difficult to penetrate Western culinary delights in markets like India & China), while leveraging the scale and distribution prowess it already commands in emerging economies. A possible way to that might be acquiring more companies in the personal care segment (like it did with Alberto Culver and Sara Lee’s personal care arm) as well as in food. For now, Colgate-Palmolive is a good bet. At a current market value of $36.8 billion, it’s trading at less than nine times EBITDA. P&G cannot afford to make a remotely similar acquisition because that would invite regulatory scrutiny on anti-competitive grounds.
McDonald’s innovation engine may make a significant difference, but there is a pressing need for acquisitions for P&G. The company needs to dump more of its assets that cater to developed economies and look at targets in developing ones that are lucrative as well as safe from regulatory ire. Without this major realignment, P&G may continue to give Unilever an ‘unfair’ advantage.
But unlike his rival, Polman is trying to make Unilever much more robust (which is evident from the bifurcation of responsibilities) by reinforcing its portfolio even if it means acquisitive growth. In 2010, the company acquired Sara Lee’s personal care business and Alberto Culver for $1.67 billion and $3.7 billion. Raison d’être? Unilever has suffered the misfortune arising out of a complex and decentralised structure just like P&G. A clear cut demarcation of segments would drive profitability much more realistically.
Although P&G is clearly ahead, Unilever may be the ultimate winner. One look at statistics and everything falls into perspective. In US and European markets (which contribute almost 70% to net sales), P&G grows at a rate of 1%, & in the developing markets it grows at 8%-12%. And this is where the US major loses out to Unilever. The Anglo-Dutch company invested a lot and much earlier in emerging economies, which make up for over 50% of its revenues.
But Unilever which recorded $62.64 billion in revenues needs to consider is that 50% of its sales come from packaged food products, while the remaining come from personal and home care. Thus, it needs to work on sustaining revenues from food brands in developed markets (which are stagnating. Moreover, it’s a lot more difficult to penetrate Western culinary delights in markets like India & China), while leveraging the scale and distribution prowess it already commands in emerging economies. A possible way to that might be acquiring more companies in the personal care segment (like it did with Alberto Culver and Sara Lee’s personal care arm) as well as in food. For now, Colgate-Palmolive is a good bet. At a current market value of $36.8 billion, it’s trading at less than nine times EBITDA. P&G cannot afford to make a remotely similar acquisition because that would invite regulatory scrutiny on anti-competitive grounds.
McDonald’s innovation engine may make a significant difference, but there is a pressing need for acquisitions for P&G. The company needs to dump more of its assets that cater to developed economies and look at targets in developing ones that are lucrative as well as safe from regulatory ire. Without this major realignment, P&G may continue to give Unilever an ‘unfair’ advantage.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
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IIPM: Indian Institute of Planning and Management
