The beautifully appointed new headquarters of Unilever's African operations overlooks a rocky beach just north of the South African port city of Durban. It seems a million miles away from the giant slums that circle Nairobi, the small mud-hut villages of rural Ghana, or the squatter camps that line the main roads into Durban, with their shacks of corrugated iron. But within the open-plan, colour-coded offices, and in meeting rooms called "Bubblegum" and "Playdo", bright young things are putting the marketing of Omo, Knorr stock cubes and Sunsilk hair products to Africa's desperately poor at the core of a massive strategy. The goal is to double Unilever's already strong sales in the world's most disadvantaged continent.
The food, soap-suds and personal-care giant has been selling soap in Africa for over a century. It incorporated its first company on the continent in 1904 and is planning a big celebration next year, which it hopes to tie in with the 10th anniversary of free elections in South Africa. From the 1920s until it dismantled it in the early 1990s, Unilever dominated trade in places such as Nigeria and Ghana through the West Africa Company, which would sell you anything from washing powder to trucks.
These days, Unilever Africa is a much more focussed beast. Eschewing the rather patronising definitions of Africa used by most multinationals, it defines its market as sub-Saharan Africa, an area of 657 million people with a cumulative GDP of just $1,160bn (£736bn), or the equivalent of $1,760 per person, though many millions survive on a tenth of that. Unilever sells into 48 countries, is on the ground in 14 of them, and had a turnover of €1.8bn (£1.25bn) last year - an increase of 18 per cent on 2001 and 4 per cent of Unilever's global sales.
A good half of this is in South Africa, by far the region's most developed and affluent country. And while that country is still delivering good returns, the sights of Unilever's hyperactive African boss, Doug Baillie, are set firmly on the north.
He sees Unilever's already strong position in "black Africa" - where it is the number one in laundry, skin and oral care, deodorants, spreads and cooking products, and captures 67p of ever £100 spent by consumers (compared to a world average of just 20p) - as a springboard to deliver the "Path to Growth" strategy that Unilever has set for all its operations.
"We want the consumer to have to make an active choice not to buy Unilever products," says Mr Baillie. To achieve this goal, he has a series of "must wins" for his people. These include filling in the "white holes" in the group's marketing and distribution, particularly in West Africa; developing a range of attractive haircare products for black people; and targeting the very poorest consumers. Selling to the hundreds of millions who survive on less than $1 a day is a tactic that few, if any, of its rivals would dare attempt.
Two strategies stand out in this battle for thin wallets. The first is the "small unit packs/low unit price" concept. This was developed initially at Hindustan Lever, the giant Indian company quoted on the Mumbai (Bombay) stock exchange, where Unilever has a controlling 51 per cent. What you do is package, say, Omo washing powder or Blue Band margarine in small sachets and sell them for less than the equivalent of 10¢ (US) a packet.
Lups & Sups, as it is known at Unilever, is a refined version of the grand old technique of moving consumers up the value chain. The idea is that once a poor African buys a 10¢ pack of Omo, they could well go for a larger pack when they become more affluent. This strategy also stops local traders buying a 1kg pack of Omo and selling the powder in bags from a stall. Anthony Simon, the head of marketing for Unilever's food division, says: "The loyalty of poor consumers to a brand is at least as strong as a more affluent one."
The problem is making it all worth while for Unilever and the consumer. Bayo Ligali, the head of the company's consumer goods operation in Kenya, admits that the gross margin on the Omo packet sold by his business for five Kenyan shillings (about 4p) is just 30 per cent, while it is 40 per cent on a 1kg box of the powder. The packaging has to be made cheaply or else there is hardly enough Omo to make it worth buying.
And the product must be distributed cost effectively. In India, this worked well because the population is one billion, much of it concentrated in urban areas. The most populous country in Africa is Nigeria, with 120 million people.
Unilever is also making life hard for itself by doing a "brand migration" on one of the key products in the under 10¢ range: bouillon cubes. Having bought Bestfoods two years ago, it is rolling out the US group's Knorr as a global brand. But in Africa, Unilever has Royco, which, as insiders point out, has been outperforming Knorr for years. The migration has yet to start but the Lups & Sups strategy is already well under way, and now represents 15 per cent of Unilever's sales in Africa.
As ambitious as Lups & Sups, and more contentious within Unilever, is its "popular foods" concept. Mr Baillie believes this will create a new €1bn segment by selling basic foods enriched with the likes of iodine, vitamin A, iron, zinc and other micronutrients - an idea backed by Unicef, various non-governmental organisations and some ministries of health. So far, the company has launched iodinised salt in Ghana, to great success, and wholemeal maize flour in Kenya, to a mixed response. All the products will be branded under the Annapurna name, another import from Hindustan Lever, and priced so they are no more than the basic staples they are supposed to replace.
But the problem is, how can Unilever sell products so cheaply and still make the 16 per cent margins required under its "Path to Growth" strategy? One way is to use third-party manufacturers so Unilever has no cost of capital, but even Mr Baillie admits this could be a hard sell at Unilever's headquarters in London and Rotterdam. "We have not yet had that fundamental debate," he says. "But I think we should look at it quite differently from any other part of the business."
Speaking in Kenya last week, Antony Burgmans (pictured right), the Dutch joint chairman of Unilever, was blunt: "The 'popular foods' strategy has to be financially viable ... It has to have a certain margin ... We want an operating margin of 16 per cent across our businesses by the end of 2004. We will tolerate a spread down to maybe 13 per cent, but we would not accept 8 per cent."
He is, though, committed to the continent: "Many people think you can't do business in Africa and business is miserable. But I think it's high time to show them it is something different."
The message is clear to Africa's poor: Unilever is ready to treat you just like any other consumers, but you have to pay your way.
Tea plantations strain principles
High in the Kenyan hills, 120 miles north-west of Nairobi, Unilever's commitment to corporate social responsibility faces one of its sternest tests. There, surrounding the small town of Kericho, its subsidiary, Brooke Bond East Africa, owns Kenya's largest tea plantations, producing just over 10 per cent of the country's tea exports.
But that is not all. It employs 18,000 people in Kenya and another 6,000 in Tanzania, and these workers have about 100,000 dependants. In Kericho, the company provides 22 primary schools, supports a clutch of secondary schools, and owns 17,000 homes, two hospitals, four health centres and three hydroelectric power stations. It also buys tea from over 300 small-scale farmers in the area and processes it at its factory. By virtue of being the largest and longest-standing employer - Brooke Bond has been in Kenya since 1925 - it is, to all intents and purposes, Kericho.
This gives Unilever a bit of a headache. "In an ideal world, we would not be running a town of 18,000 people," admits Anthony Simon, the head of marketing for Unilever's food side.
What also gives it a headache is the price of tea. The fall from $2.11 (£1.34) a kg in 2000 to $1.55 last year, along with the strength of the Kenyan shilling and a hike in wages imposed by Kenya's industrial relations courts, has slaughtered Brooke Bond's profits. Richard Fairburn, the chief executive, responded by getting rid of a third of the company's managers last year. But will he and his bosses at Unilever be thinking of something more radical?
The problem is that Brooke Bond is a cornerstone of Unilever's much-trumpeted corporate social responsibility agenda, specifically in sustainable agriculture. Tea is one of five raw ingredients - along with palm oil, peas, tomatoes and spinach - where Unilever will force its growers to adopt best practices for things like the use of pesticides and impact on the community. And Brooke Bond has been given the challenge of becoming a beacon for sustainable agriculture, so Unilever can show its suppliers how it can be done.
But the financial pressures are making this quite difficult. Unilever insists it will not sell the Kenyan tea plantations. It has set up a research centre there which has fed into a host of successful new products, including Lipton's Cold Brew ice tea, and could play a key role as Unilever tries to attack the Chinese market. Executives from all over its food business were in Kericho last week for a pow-wow entitled "Leveraging natural vitality into Lipton's". This all points to Unilever holding on to its tea estates - for now.
However, there is another alternative. In Kenya, tea is picked by hand, with workers paid just 159 Kenyan shillings (about £1.55) a day for back-breaking work (though Brooke Bond argues that social benefits are worth 50 per cent on top of the basic wage). But in Argentina, Australia and a host of other tea-growing countries, they use harvesting machines that do the work of up to 350 pickers.
Mr Fairburn admits that mechanisation could increase Brooke Bond's profits by £300 a hectare, or nearly £3.5m a year, but says: "We are not going to introduce full mechanisation into Kenya because of the social consequences."
His boss, Unilever co-chairman, Antony Burgmans, is not so sure. When visiting Brooke Bond last week, he said: "At this moment, mechanisation in tea is not an issue. But if it is a rule-breaking change that transforms economic viability then we have to look at it."
Mr Fairburn believes there could be a halfway house. Brooke Bond is looking at handheld pickers, which are a little like hedge trimmers. The company might sell the machines to tea pickers, lending them the money so they can, in Mr Fairburn's words, "set up their own small businesses".
In this way, maybe, Unilever can start making a good return on tea growing again while sticking to its principles.Reuse content