The profits of public listed consumer goods companies surged by 44% in the first half of the year and are predicted to grow significantly in 2012. Marylou Andrew spoke to Ehsan A. Malik, Chairman & CEO, Unilever
about the reasons for this growth and what to expect in 2012. Pakistan
MARYLOU ANDREW: Analysts are saying that the profits earned by FMCGs are mainly a result of inflation and increased demand for goods as a result of the floods. Is that the whole story?
EHSAN MALIK: It is partly true; I think it is very tempting to say that across the board consumer products have benefited by higher prices and volumes have suffered. You have to differentiate. At Unilever
, our growth is coming from both price and volume. If you take our laundry category for example, nine months ago we had two brands (Surf and Rin) but there was a gap in the middle of the market. We filled it by launching Sunlight. Now, when you launch a new product, you will always get volume growth. This is an example of where we stretched ourselves to the value end of the market. However, I have a number of examples where we have done the opposite. Take soap. For many years we have operated with two soaps, Lux at the top and Lifebuoy in the middle. Then we introduced Dove this year which is at the very top end of the market. Shampoo is an even better example: we had Sunsilk in the middle to top end, Lifebuoy shampoo in the middle to bottom end and then a specialist anti-dandruff shampoo in the form of Clear. Yet we still saw a gap at the very top end and so we brought in Dove shampoo. So our growth is not only price increase growth, it is also what we call a ‘white space fill’. We saw white spaces in the market and we identified the opportunity and introduced new brands. However, even within existing brands you can play with price propositions. Take Surf where we have stuck to the Rs 10 pack and in terms of unit sales, that Rs 10 sachet is 19% up over last year. Pakistan
MLA: It’s interesting that you have launched products at the top and bottom ends of the market. Is that where you see growth coming from?
EM: This is mainly because the middle tier is quite well catered to. We see growth coming from every tier but we will not leave the top and bottom ends untouched. In each of the categories, we look at the consumer pyramid and then ask whether we are addressing that pyramid adequately. In the last seven to eight months, we have launched seven new brands and eight new platforms. Let me give you an example of a platform. Fair & Lovely had been in the market for many years but it was targeted at women, now we have launched it for men as well. Lifebuoy has been in bar form, now we have launched it in liquid form, because that is the future of soaps. Additionally, a lot of our volume and value growth is a result of the evolution in the retail environment in
. When I came back to Pakistan in 2006, less than five percent of our total sales went through supermarkets. As we closed last month, we were sitting at about 18% and we know from our experience in markets in the Pakistan Far East that this increase is a sharpening trajectory, because it may take five years to go from five to 18% but in the next five years it will go from 18 to 40%. Our market share numbers in modern trade are actually higher than in the general trade. The other significant competitive edge that we have is scale. We now have 29 brands, while only seven months ago we had 22 brands. When you go to a supermarket environment with that many brands, your clout increases and that is a win-win situation, because when we go into modern trade and create excitement that also creates footfall for the supermarket.
MLA: You don’t bring in seven brands every year; so why did it happen in 2011?
EM: No, we do not, because you have to give the brands a gestation period to settle and become part of the core. But in the four years leading up to 2011, we had more than doubled in size and we were looking for new ideas to maintain and accelerate our growth. Hence a much more focused view of the gaps that existed.
MLA: I believe a lot of your growth is also coming from rural markets.
EM: Rural growth is coming for three or four major reasons. When I left
in 1994, there were two TV channels, when I came back there were over 70, so there is hardly any part of Pakistan that is media-dark. Then there is the Pakistani farmer who has benefited from the higher agricultural produce price but doesn’t have a high savings habit and the reach of banks is pretty poor, so what is he going to do with that money? There is also the increasing penetration of washing machines which is giving the housewife more free time. That free time is valuable for her and for us because if the TV is on and she is watching our advertising, that creates demand. All we have to do is make sure that the product is available and the assortment is right in the retail channels those customers go to. We have also increased our retail footprint in the rural areas significantly and that has fuelled our growth. Pakistan
MLA: Your ice-cream business has done very well in 2011 with sales rising by 12%. Why is that happening?
’s per capita consumption of ice-cream – 0.4 litres – is very low, whereas in countries like Pakistan it is 2.6 litres per person per year, so there is a lot of room for growth. Globally, ice-cream consumption has nothing to do with temperature and countries like Turkey have the highest per capita consumption. Ice-cream has also been growing because we have increased the footprint of our freezers and we keep changing their location if they are not working in one place. The other factor is innovation; two years ago there was no Badami, in its second year, the growth rate is 50%. When the conditions you live in are insecure, you need small luxuries and that is the secret of the growth of ice-cream. Finland
MLA: Is your profitability going to be affected by increasing commodity prices?
EM: Yes, that affects everyone but it is usually offset by scale. If you invested X amount and you are using 70% capacity, there is a certain unit cost. Once you take that capacity to 80% you get volume growth and your unit cost goes down. If you take the commodity costs and our price increases, the latter is significantly lower because we have the scale advantage which some of our competitors may not have; to compete with us they may have maintained that price parity, but then their margins have been squeezed.
MLA: On the one hand you have growing profitability and on the other you have a middle class that is increasingly under pressure from inflation. How do you reconcile the two?
EM: It is very tempting to generalise and say that the entire middle class is under pressure. When you say that you make a very basic assumption, which is that the official economy is the main economy; but we all know that the informal economy has outgrown the formal economy. A lot of consumer demand is being fuelled by the latter. So when people say that we are under pressure it is a small section of salaried people who admittedly are under pressure. However, the large informal economy has been able to pass on costs and they are not under pressure.
MLA: Which businesses within your own portfolio are best poised for growth in 2012?
EM: I think people want to look and feel good so personal care items will do better. Home care is evolving at a rapid rate and all the segments of the pyramid have been addressed by us and the competitors. Soups will do well, and noodles have had explosive growth. In the last five years we have had to increase our capacity twice. Noodles are now being eaten by children and adults; it is the cheapest way to consume calories.
First published in the Nov-Dec 2011 issue of Aurora.
First published in the Nov-Dec 2011 issue of Aurora.