Fortune News | Feb 19,2022
Q: Unilever was among the top 20 taxpayers a few years ago. However, it did not even reach the top 40 last year. Why?
Stefan Cloete: We paid a record level of taxes last year - 85pc more than in 2021. Almost double. If we were omitted, other companies might have paid much higher taxes than in previous years. That might be a reason or an oversight from a committee acknowledging who gets the recognition.
Q: The blockade of the Suez Canal and the pandemic has disrupted Unilever’s supply chain across the globe. The global online sales increased 61pc during 2021 due to lockdowns, but Unilever secured nine percent of its revenues through online sales while having 25 million outlets in 190 countries.
It was undoubtedly tough for everyone operating in this environment over the last few years: all businesses were impacted globally. The Suez Canal blockade played a very small part in the biggest scheme of things. The pandemic greatly impacted supply chains and the ability to source products worldwide; it massively affected the products and outlets where consumers buy the products. So both supply chains and consumers were impacted
Unilever East Africa and Unilever Ethiopia are in a very fortunate position that we have invested in production capability and capacity. We have a large factory in Ethiopia in an Eastern Industrial Park in the Dukem area. Everything sold in Ethiopia is locally produced. Equally, for the rest of East Africa, we have a big factory in Kenya that supplies the Kenyan and some other markets in East Africa.
During the pandemic, we increased the amount of stock to cover five or six months since we knew there was disruption, delays, and unavailability of sourcing with some of the raw packaging material. With local production, we were more shielded from supply chain interruptions instead of relying entirely on importing finished goods. We tried to mitigate this by increasing the level of safety stock cover that we have in our factories. On average, we would keep two or three months’ worth of stock at the end of the raw packaging material we need to produce our products in our factories.
Q: Unilever sells products manufactured in Kenya in some parts of East Africa. Does that mean it includes Ethiopia?
We do not sell products in Ethiopia that are manufactured in Kenya. Everything sold here is manufactured in Ethiopia. My ambition is to continue investing in our manufacturing capability in Ethiopia. Our vision is to serve the Ethiopian market and export some local products to other East African markets and markets beyond.
Q: With relatively less internet access in Ethiopia, how are you planning to overcome the setbacks from the past couple of years?
Globally, the trend of people choosing convenience and turning to e-commerce channels to make purchases accelerated exponentially during the pandemic. It was less relevant and applicable for Ethiopia since it is one of the lowest levels of urbanisation of all countries on the planet, at about 18pc. E-commerce does not work with a population that is not highly urbanised because of delivery costs and accessibility to infrastructure and logistics. It helps when people are densely populated in specific areas. Access to the internet and the penetration of smartphones to order products online is a challenge. We did not see a significant increase in our e-commerce sales in Ethiopia. The key focus in Ethiopia is to ensure we make our products easily accessible to consumers.
Our pride is in ensuring that we take care of the communities we operate with and we contribute positively to the communities. We have created a network of about 5,000 social entrepreneurs in rural areas, primarily women, that previously did not have the opportunity to have formal employment. They sell our products to their family and friends and earn income. They even reach consumers that are not commercially viable through critically distributed trucks because the volume is too little and the distance is too far. That does not mean that in the long term, we do not believe in e-commerce or that we do not believe it should be applied in Ethiopia; it will absolutely as urbanisation increases which it will.
Q: Procter & Gamble is your competitor in the global market. When their net sales increased by 4.8pc in 2020, your company saw a 2.6pc decline in total turnover. Ethiopia is part of the whole. Why is your company not operating optimally in Ethiopia and East Africa Region?
P&G’s global results was about five percent growth last year. We were almost double the growth of P&G the previous year. P&G does not have a factory producing washing powder in Ethiopia. They import because they have not been based in manufacturing facilities like Unilever. Neither have they invested in manufacturing capability in other parts of East Africa.
We are much more skewed in our business contribution to developing emerging markets than our other global multinational competitors. There are other big multinational companies which we also compete with. This is an indicator that Unilever is more interested in investing in developing emerging markets than our competitors.
Ariel’s market share is about five percent in Ethiopia. Sunlight’s market share is about 40pc. And Omo’s market share is about 20pc. We are 60pc in total as Unilever in washing powder while Ariel is at five percent. You can see that it is almost incomparable, and they were much more prominent before. Because they do not manufacture locally, they are more impacted than us by all the imports.
Q: About eight of the 400 brands are manufactured locally. Isn’t six years sufficient time to achieve more than this?
The intention and strategy is to introduce more brands and products in the long run. We do not intend only to have eight brands forever. The most important work to do right now is prioritisation. It is a choice not to complicate the business too much by adding too many brands because it creates a lot of complexity, not to mention the addition of costs. We believe there is a lot of opportunity to sell more of our current products and do market development for our existing portfolio.
I will give an example.
We opened the Signal factory in 2019 with 100pc female engineers. Females ran it entirely because we believe in gender diversity and empowering women. From your own experiences and observations, there is a big opportunity to educate and get more people to brush their teeth with a toothbrush and toothpaste. The number of people who use these regularly is very small compared to other markets. The opportunity for us to continue talking about this product and brand, advertising, creating awareness and getting more households to use our current products, we believe is the right strategy to do.
Q: Due to cancer-causing chemical contamination, Unilever was alerted to recall its aerosol dry shampoo products like Dove and Tresemme in the US and Canadian markets. There are also reviews concerning safety on the Lifebuoy brands. Does that mean there may be unidentified quality issues with other products too?
There are two things Unilever is not willing to compromise at all. The quality of our products is the heart of our importance and the safety of our people. We have the highest levels of standards that you can think of in the industry. However, there could be incidents where things sometimes go wrong, but we learn from all our mistakes.
We have measures and control in place; clear programs, governance and checkpoints to always adhere to the highest standard to protect the brand and company. We have departments dedicated to understanding the consumers we serve, what is unique to them, and their needs. Our Consumer Market & Insights department continuously visits consumer homes and makes inquiries about the experiences not just with our products but generally in life to identify where there are gaps for us to meet or problems to be solved.
Let me use Sunsilk shampoo as an example.
We launched Sunsilk shampoo over a year ago in Ethiopia. You would not find this product anywhere else in the world since the formulation was uniquely designed by our research and development department through extensive research for the different hair types in Ethiopia.
Q: There is much chemical colouring, added sugar, additives and preservative chemicals in the food and drink packaging industry. Do you believe depending on processed food and beverage products for daily consumption is healthy? Is it compatible with the statement on your LinkedIn profile, “I am 100pc about life,” and your company’s self-expression in the same platform, “Unilever improves its consumers’ lives and communities around itself”?
We do not sell processed or fast foods at Unilever. What we sell in Ethiopia are Knorr stock cubes composed of natural herbs and spices to flavour your dishes and make them taste great. The food and nutrition business unit at Unilever focuses on two major things: Ensuring that we help create a sustainable living through influencing our extended supply chain and educating many about regenerative agricultural methods in sourcing our raw and packaging materials. We collaborate with farmers to ensure our final product is healthy, safe, and uncontaminated by harmful chemicals.
Having done the research, we consulted with the Ministry of Health about what we identified as crucial micronutrients deficient in the Ethiopian diet - zinc and iodine. We incurred additional costs to include and fortify our Knorr stock cube by adding extra zinc and iodine that boosts the body and mind of our end users. We have also partnered with the Ministry of Education and launched a school program that creates awareness of the importance of a diversified diet, adding some greens to your plate, like Gomen. We also teach children how to grow their vegetable gardens at home.
Q: Foreign investors in Ethiopia’s food and beverage industry source 62pc of their inputs from the local market and 23pc for an average of all sectors. In 2022, Unilever sourced only 17pc of its inputs.
There is a need and opportunity to increase localisation. We have identified local entrepreneurs and taught them how to produce and supply us with the items we need for our factory. We even help fund sourcing the items required to make the raw material we need. We plan to reach 56pc of locally sourced inputs by the end of this year. But when you compare Coca-Cola, Heineken, or BGI with Unilever, the contrast is like apples and oranges. If you look at Coke, the concentrate is imported from Coca-Cola Global. The main ingredients are locally available compared to some of our products.
Let us take something like fragrances; Lifebuoy, Sunsilk, and Lux fragrances. It is impossible to source locally because Ethiopia has no fragrance sources. All our cleaning materials and most of the chemicals used in those products are unavailable in Ethiopia. We have to import them.
Q: Unilever upholds its corporate social responsibility through its pilot project, “Eating for Good,” at 15 schools and is prepared to scale up to 80 schools nationwide. How much is sufficient for a corporate to contribute as it utilises community resources? Do you believe Unilever is adequately giving back to the community?
We believe that brands, companies, and individuals with a purpose grow faster, last longer, and thrive than those without. Our view of contributing back to society and the environment is through multiple stacks of models. It is done mainly through creating job opportunities, building market skills, paying taxes, and using our brands as a force for good, while positively impacting communities.
By selling more Knorr cubes, we are getting more people access to the micronutrients in their diet that they would not otherwise have; already contributing to society by creating healthier livelihoods, and preventing the stunted growth of young children. We hoped to reach 80 schools by the end of this year compared to last year.
We give back with Lifebuoy by making the soaps available at affordable prices to the masses for health and hygiene. We launched a new Lifebuoy 20 grams for inflation is tough in Ethiopia. This soap is cheaper than the previous 70 grams.
At the same time, we have created 7,000 jobs here directly and indirectly while investing in training programs. We are sending some of our brightest young team members to go and work in other markets in the world to learn different skills and experiences that can bring change back to Ethiopia. We have planted more than 5,000 trees in Dukem town as Unilever Ethiopia.
We think that the significant impact is through our brands. But the more products we sell, the more scale we have, and the more opportunities we have to give back to the communities that we serve.
Q: How are you coping with inflation and the current forex shortage?
Inflation is not good because we see many products becoming unaffordable for consumers. Its level is currently very challenging for everyone.
We are making our products into formats and formulating them in a way that tries to make them more available. We used to sell 350ml and 700ml bottles of Sunsilk; now, we are selling many more packages so that people can buy one wash of shampoo and one wash of conditioner by buying Sunsilk. Our long-term ambition is to have volume growth and not a price-growth-driven strategy.
The forex crunch is equally challenging for all businesses in Ethiopia. We are addressing that by enhancing our efforts around localisation, creating this as a hub for exports of products to generate forex.
Q: Do you hope to create more employment, considering the increase in unemployment like there are more than 15 million unemployed people out there, and about two million new graduates coming out of universities?
We are only part of the solution; we cannot fix everything. We can contribute because it will require a lot from many people, including the government, to address the need that is out there. We want to increase our contribution and impact year after year by continuing to grow and invest in this country. The bigger we are as a business, the bigger impact we can have. We have a long-term commitment to Ethiopia. We continue to invest in our factory, and in our people as well as collaborate with the communities and the suppliers to create opportunities for job creation.
PUBLISHED ON Mar 18,2023 [ VOL 23 , NO 1194]
Fortune News | Feb 19,2022
Radar | Jan 19,2019
Commentaries | Jan 09,2021
Radar | Sep 27,2020
My Opinion | Jun 19,2021
Editorial | Jun 25,2022
Fortune News | Aug 10,2019
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