“It is not a fringe business, it is half of the business.”

Thursday, December 15, 2005

Squeezed between tenements and a grinding dual carriageway, Unilever is building the future of its global business in the the biggest slum in Sao Paolo.

The building is a splash of powder blue in a drab world of corrugated iron and grime. The Omo Community Laundry is a temple of cleanliness in the middle of Heliopolis, a notorious favela, or slum, that is home to 150,000 Brazilians.

You could dismiss it as public relations, free washes for the unwashed. But it’s a lot more than corporate social rigmarole because for Unilever the thousand or so women who register for free two-hour slots on the shiny factory-fresh machines are part of their core market.

This is about selling soap even if not a single packet is vended or given away at the Omo Laundry – the women bring their own powder. The mission is to sell a wholesome and desirable world of perfumed fragrance and pristine white linen, a world a million miles from the favelas and one that no slum-dweller could possibly afford.

Still, many Heliopolis women buy the product even though it is dearly priced. Omo sells for about 15-20 per cent more than Ariel, its main rival. But the Unilever brand, known as Persil in the UK, still dominates the Brazilian market. On supermarket shelves in Sao Paolo’s rich and poor neighbourhoods, Omo packets are elbowing rivals into a corner.

No laundry brand in Britain could aspire to such pricing power but developing markets are different and, according to Patrick Cescau, Unilever’s chief executive, they are the company’s future. “Do the maths,” he says. “In purchasing power terms, developing and emerging markets are already bigger. Every company sees it and everyone is going there.”

Adjusted for purchasing power the dollar spend of consumers in Asia, Africa and Latin America was $15 trillion in 2000, roughly equal to the spending of North Americans and Europeans, Unilever says. By 2010, consumers in developing and emerging markets will have raced ahead of the developed world. Small wonder that the battle for consumer hearts and minds is getting nasty in Brazil, where Procter & Gamble, which makes Ariel, has slashed prices by 30 per cent in an effort to steal Omo’s crown.

Unilever says it has held the line, retaining its 75 per cent share of the Brazilian market although at some cost in margin terms. It is a necessary cost, reckons the Unilever chief, and will have to be recouped in savings.

The cuts are likely to be felt in the old markets of Europe, where Unilever has started to outsource bureaucratic head office functions such as IT and human resources. Unilever’s centre of gravity has shifted south and east, says Harish Manwani, head of Unilever for Asia and Africa. The move is not only in terms of markets but in ideas, where Unilever reckons it has an edge in its understanding of customers and what motivates them.

Faced with savage discounting, you might expect a soap merchant to cut the price but Unilever’s Brazilian marketers did something unexpected. Working with the local office of Lowe, the ad agency, they worked up a campaign with the message that dirt is good.

Instead of stain removal at low prices, the Brazilian TV clips showed nice kids getting dirty, on the beach, in muddy fields, playing sports, all packaged with an airy-fairy message about freedom, learning and creativity.

It was a success and the Brazilian campaign did a world tour, recently arriving in Britain. It suggested that in Brazil, for the moment at least, Unilever seems to be winning the argument that local knowledge can head off a powerful American interloper. Instead of defending the price, Unilever reinforced its brand. It didn’t matter that Omo was a bit dear if it played a tune that everyone enjoyed.

Janine Dodge, an Omo brand manager in Brazil, suggests that for Brazilians, poverty in itself is not such a stigma. How you look is what counts. “It’s very important to look and feel attractive,” she says. “People will say, ’I am poor but I dress well, I have clean clothes and I look good’.”

Striking the right chord means playing lots of different notes, Manwani says. A typical developing country is a pyramid with a few very affluent at the peak and a mass of deprivation at its base but Unilever reckons that some of its best business is done among the poor. “Most of our competitors look at the top but our strategy is to work the entire pyramid,” he says.

His business is not only about taking market share but building the market from the bottom. He gives as an example the development of the shampoo market in India, converting millions of people from cleaning their hair with a bar of soap. When Unilever launched Sunsilk in India, the take-up was modest until they switched from trying to sell $2 bottles of shampoo to 2 cent sachets.

It was a process of reverse engineering, Manwani says. Having established what the consumer could afford, Unilever then created a manufacturing process that could produce the sachets at low enough cost to yield a satisfactory margin. Hindustan Lever’s local knowledge helped. Because many Indians oil their hair, they cut the cost further by removing conditioner from the shampoo, which only reduced the product’s performance.

Manwani will not reveal the margin but insists that selling shampoo in tiny sachets makes good money. “It is not a fringe business, it is half of the business.” He accepts that the return might be less than some top of the range products but Unilever is building markets, not parachuting in foreign products.

Nowhere is that more true than in food products, where local habits and tastes can make or break a product launch. Unilever itself learnt the lesson when it launched Slim-Fast, the diet drink, hoping to cash in on the body vanity prevalent among affluent Brazilians.

It fell at the first hurdle. The product requires users to adhere to a disciplined weight-loss programme. “Brazilian consumers were not ready to walk into that box,” says Rick Andrews, head of the Latin American food business.

Still, Unilever reckons that the Heliopolis washerwomen are teaching them something that has relevance even in rich countries, where the market is polarising between premium-priced and deep-discount retailing.

Even in Europe it is about playing the right tunes to the right audience, Cescau says. “What consumers want is quality or value. They don’t want what is in the middle. We need to drive quality at one end and introduce value at the other end.”

Source: The Times (link opens in a new window)