Unilever aims for China growth

29 March 2011

BEIJING: Unilever, the consumer goods giant, is seeking to increase its sales in China, with particular opportunities coming from the food category.

Speaking to the Financial Times, Alan Jope, Unilever's chairman, Greater China, outlined the organisation's aggressive plans.

"The aim is to increase business in China fivefold in the ten years from 2009," he said.

"That's a measure we will hold ourselves to. But no battle plan survives first contact with the enemy, so we have every detail worked out."

Having experienced year on year revenue growth of between 15% and 20% during the recent past, the firm's annual Chinese sales now stand at €1bn ($1.4bn; £881m).

Given the owner of Knorr and Hellmann's currently generates €44bn a year globally, it unsurprisingly has big ambitions for its operations in the world's most populous nation.

One area of likely expansion is the food sector, which provides 55% of Unilever's turnover on an international basis, but only 25% in China.

As greater numbers of increasingly affluent - and busy - they seek convenient meal options, there is significant potential to greatly expand, or even create, demand in a range of segments.

Knorr, Unilever's stock brand, may prove a case in point, according to Jope.

"The soup market is 100bn litres a year and that's all made from scratch," he said. "Yet if you use stock it's more convenient, tastier and more nutritious."

Another key strategy is extending penetration into lower-tier cities and rural regions, although the unique personal and financial needs of these customers demands a nuanced approach.

Urbanisation is also fuelling change, and Jope identified metropolitan hubs including Hefei, Shenyang and Changchun as possessing tremendous promise.

"These are all growing like a weed. And most of your readers have probably never heard of any of them," he said.

In a parallel trend, modern retail formats are quickly gaining ground, with chains such as Wal-Mart, Tesco and Carrefour locked in intense competition.

Turning to marketing, Jope suggested the "explosive growth of digital media" has yielded an important means of engaging consumers.

Boosting in-house innovation capabilities is equally essential to meeting the requirements of Chinese buyers.

While acquiring successful domestic brands and companies is a viable proposition, Jope argued the ratio of price to earnings was comparatively unfavourable.

"Multiples are high so the cost of acquisitions is high," he said.

In an indication of the weight now carried by China, Unilever has issued what is often dubbed a "dim sum bond" made available in Chinese currency, and attempting to raise 300m yuan ($45.7m).

The Anglo-Dutch operator says it typically takes a 30% share of core categories in emerging nations, as multinational and local rivals divide the rest.

However, research firm Euromonitor estimates that in the Chinese detergent sector, two leading indigenous players attract a combined 35%.

By contrast Unilever and Procter & Gamble claim 8.5% apiece, showing the scale of the challenges and possibilities which await going forward.

Data sourced from Financial Times; additional content by Warc staff