Unilever Porter’s 5 Five Forces (2021)


Company Overview:

Unilever is a British-Dutch company that supplies consumer goods and food products. As of 2012, Unilever’s shares were divided into the following classes: 47% for UK investors, 30% for US investors, 12.5% each for employees and shareholders in the rest of Europe, 6.25% among other European countries, and 1% for non-European countries. The company owns over 400 brands, among them Axe/Lynx, Dove, Hellmann’s, Klondike, Knorr, Lipton’s Tea, Lux/Radox, Omo/Surf and Vaseline.

The company has 149,000 employees in more than 100 countries. The European Union accounts for 63 percent of Group sales, followed by North America with 23 percent. Asia-Pacific makes up 14 percent of total sales, while the remaining regions make up 2 percent each of Group turnover. Unilever’s highest turnover is from the Personal Products division, which contributes 44 percent of total turnover. Food products make up 40 percent, while Home Care and Refreshment division contribute 14 percent and 1 percent respectively. Unilever’s overall performance has been disappointing for many years now: the company has paid relatively low dividends and its shares have not risen as fast as those of some other FMCG companies. Let’s go over the Porter 5 Forces of the company.

 

 

Unilever Bargaining Power of Suppliers:

 

Outsourcing and importing chemicals and raw materials have become a common practice; Unilever does not have much bargaining power with suppliers as the company is too large to be concerned about this aspect. When it comes to price negotiation, low supplier profit margins might force them to accept the price levels suggested by Unilever if they wish to maintain a long-term business relationship with the company.

 

Unilever Bargaining Power of Buyers:

 

The traditional retail structure in many countries is inefficient and highly fragmented; Unilever has more bargaining power than retailers in this respect, so prices might increase once we go down the supply chain. Companies have to research the market thoroughly before entering new countries, as there are many small players that do not have much buying power.

 

Unilever Threat of New Entrants:

 

New entrants in Unilever’s markets will face strong incumbency barriers given the company’s scale and distribution channels. However, globalization has given marketing and financial tools to new market players, so this barrier has been lowered.

 

Unilever Threat of Substitutes:

 

The threat of substitutes is very high: Unilever products might need a few years to become integral parts of the daily lives of consumers; given that there are many low-cost alternatives available on the market, it would be difficult for Unilever to convince customers that they should pay more for its products.

 

Unilever Porter’s Five Forces Conclusion:

 

Unilever faces little competition in most markets as it holds such a strong position due to its size, and it’s focus on consumer health and environmental issues. However, we cannot rule out buyers’ bargaining power as this can be greatly enhanced by technologies such as global positioning systems (GPS). Similarly, new entrant threats can be mitigated by past mistakes made by new companies that wished to enter the FMCG market. However, substitutes remain a real threat; Unilever should focus more on healthy and sustainable options and less on proving its price leadership and size.

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