Profits slump as Unilever fails to act
profits, even though sales have risen by 3.5 per cent, prompting
analysts to doubt the effectiveness of its five-year product
reduction strategy.
The Anglo-Dutch consumer goods giant faces another setback after August's disappointing second quarter results, blaming increased expenditure on fuel and marketing and a depressed Western European retail market.
Unilever is the only major consumer goods company not to have achieved overall price increases in the third quarter, and the latest figures indicate that the company has failed to offset increased production costs.
Meanwhile competitors Kraft and Nestlé have successfully absorbed growing manufacturing costs by raising prices on key famous brands.
Nestlé, the world's largest food group, posted higher than expected sales in October and reaffirmed its year targets. Its food and beverage division achieved organic growth of 5.6 per cent - even though conditions in Europe remain tough.
"Unilever is down because it has been slower than the others to get out of uncompetitive markets, such as frozen foods," explained business analyst John Band, of Datamonitor.
"Whereas Nestlé has focused on a few super-brands - things that the likes of Unilever, Kraft and Nestlé are good at marketing - not commodity foods where returns are lower and branding counts for less."
Nestlé's persistent 2004 efficiency strategy responded to market pressures by improving operational efficiency, while the renovation of leading brands such as Nescafe allowed it to refocus its efforts.
But Unilever has continued to stick to a five-year plan, started in 2000, aimed at facilitating growth through a sluggish portfolio cull from 1600 lines to 400.
The move was intended to free up resources to allow for an increased marketing budget, but analysts believe the company has been too slow to shake off unprofitable smaller labels.
And the company's unusual structure is cited as a key factor in its inability to change rapidly to meet market demands.
"The difficulty Unilever has had shaking off unprofitable lines may be due to its slightly different structure. It effectively operates as a joint company from the Netherlands and Britain," Band said.
"Many city analysts believe this makes it more difficult to implement changes, whereas Nestlé and Kraft are more centrally managed."
Unilever is part of the Unilever Group owned by the Netherlands-based Unilever NV and UK-based Unilever Plc. It has two global divisions, Home & Personal Care and Food.
Its packaged foods business is the world's third largest after Nestlé and Kraft. The company's brand names for fragrances, frozen foods, soap, and tea include Calvin Klein, Birds Eye, Dove, and Lipton.
