Heat is on but Unilever keeps cool

Sue Mitchell
June 13, 2014
The Age
Unilever Australia chief executive Clive Stiff says Australia’s $111 billion food and grocery market is one of the most challenging in the world, but increased competition is good for retailers, consumers and suppliers alike.
The local market is getting tougher and supplier profit margins have fallen across the board, the former top Procter & Gamble and Goodman Fielder executive said.
”I’d say there is a degree of competitiveness in Australia that was certainly not here five or 10 years ago,” said Mr Stiff, a 28-year veteran of the fast-moving consumer goods industry in Australia, the UK and France.
Unilever ranks as one of the world’s biggest consumer goods companies. Its brands include Dove soap, Lipton and Bushells tea, Rexona deodorant and Streets ice-cream, and it appears to have bucked the trend in the past year.
”But we do believe that a good competitive environment is much better than the contrary; it allows us to put our marketing skills and our research and development skills to play. I’d much rather have a competitive marketplace than a sleepy marketplace,” he said.
”In a sleepy marketplace there’s a risk that suppliers get lazy, and that’s not a good thing. If we want to make sure that we’re around for the long term we need to be working hard on our innovation and our cost structure and our people.”
According to a KPMG report commissioned by the Australian Food & Grocery Council, supplier profit margins fell to 7.6 per cent in 2013 from 9 per cent in 2012 and 12.2 per cent in 2010, making local suppliers far less profitable than their overseas peers. The KPMG report points the finger at rising energy and labour costs, as well as higher investment by suppliers in discounts, rebates and promotions for the major supermarket chains.
Suppliers are now handing over $1 in every $4, or 25.6 per cent of sales, on ”trade spend”. But they see very little return on this investment, with industry sales falling 1.2 per cent a year since 2010 and volumes virtually flat, while Woolworths and Coles are enjoying solid sales and earnings growth.
”The grocery industry has seen a significant increase in promotional activity and the KPMG report highlights a large percentage of that has been funded by suppliers,” said Citigroup analyst Craig Woolford.
”The [fast-moving consumer goods] industry is at a crossroads where manufacturers have one or two choices, they cut their costs or they respond and look for R&D or marketing investment to try and protect their brand power against the major retailers.”
After a period of earnings volatility from 2010 to 2012, the company, which has annual sales of about $1.6 billion, had four consecutive quarters of growth in 2013.
Mr Stiff, who took the helm in April 2012, attributes the turnaround to a renewed focus on sustainable growth while watching costs and investing in innovation and marketing to build category sales as well as gain market share.
While other suppliers are closing plants and moving offshore, Unilever is investing in local plants. It plans to close a laundry powder plant in New Zealand, import base powder from Thailand and ”finish” products in Sydney.
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