‘Efficient consumer response’ may not sound sexy but to Antony Burgmans it’s the key to the future of consumer goods giant Unilever. So why do Burgmans and around 3,000 others value ECR so highly — and will it really make a difference?
TO turn around a business with 295,000 employees, more than 1,000 brands and £28.9 billion in global sales, and which has temporarily fallen out of favour in the City, you’d have thought a tight grip on the helm would be necessary.
But Unilever’s Antony Burgmans, joint chief executive of the Anglo-Dutch consumer-goods giant alongside Irishman Niall FitzGerald, prefers a lighter touch. The Dutchman seems remarkably at ease as he struggles to put the firm on course to meet its self-imposed target of 5% to 6% annual growth by 2004.
Burgmans was last week in Glasgow to chair the Efficient Consumer Response Europe conference. The three-day jamboree was attended by senior executives from across Europe, with smaller delegations from countries such as Argentina, Israel, Russia, South Africa and South Korea.
The 3,000 delegates came to discuss how fast-moving consumer-goods companies can more effectively collaborate with the supermarket chains to iron out inefficiencies in the supply chain.
One obvious way is through the use of information technology and by sharing information that once would have been deemed commercially sensitive. This means that if, for example, Tesco Milngavie runs out of Flora margarine, Unilever is automatically alerted, and another multi-pack arrives from its factory in Purfleet, Essex.
Burgmans said ECR Europe was launched in 1996 by a group of people, including himself, who were “very disgruntled with the poor relationships between retailers and manufacturers. These were hostile and destroying value.”
“I passionately believe that constructive, sound business relationships should prevail over adversarial, destructive relationships. Internally, [Burgmans chairing the conference] gives a signal in Unilever that customers are important,” he said.
“With this event, we have tried to create a forum where retailers and industry can discuss these matters. People are realising that we need each other. We need the retailers for the distribution of our brands and they need us to make sure their shops are attractive and people actually come into their shops to buy the brands.”
Some delegates still wondered whether consumer-goods firms and retailers would ultimately be able to bury the hatchet. Others questioned the huge fees charged by management consultants — but Burgmans believes great strides have already been made.
He admitted that further psychological hurdles need to be leapt. “The biggest challenge which we set six years ago is to change the mindset from suspicion to trust.”
While the world’s leading retailers — including Wal-Mart, Ahold, Sainsbury’s and Tesco — now insist on sharing information with suppliers, Burgmans said some smaller retailers may still be worried about sharing secrets with their one-time adversaries.
“ECR [Efficient Consumer Response] has come a long way in ten years, creating major efficiency improvements in the supply chain,” said David Lang, an investment analyst at Investec Henderson Crossthwaite. “The alternative is the old adversarial relationships, the sort of thing you’ve got in France.”
Burgmans believes that Unilever’s decision to embark on a brand cull — which will see 1,200 of its 1,600 brands axed within five years — demonstrates that ECR plays a very important role in corporate strategy.
Focusing on a minority of more profitable brands that are believed to have the greatest growth potential will actually help retailers. They can be safe in the knowledge that Unilever is not going to try to foist some dogs on them. Brands that Unilever has killed off in the UK market include Radion, the odour-eating detergent launched in 1991, and the margarines Blue Band, Echo and Krona.
“By [focusing on 400 brands], we will become far more efficient suppliers to the retail trade,” Burgmans said. UK brands whose survival seems guaranteed include Persil washing powder, Domestos lavatory cleaner, Birds Eye frozen foods, and Magnum ice creams.
Unilever is also committed to cutting staff numbers by around 25,000 and to closing down about 100 plants over the same five-year period. “We have closed 28 factories in the last year, we’ve reduced headcount by 8,000 last year and removed 630 brands, so we’re getting there. We will also dispose of businesses if they’re underperforming, such as Elizabeth Arden and the European bakery business.”
Nevertheless, Unilever has not lost its appetite for acquisitions. Last June, the company shelled out £13.4bn to buy the US-based Bestfoods, mainly because it was tempted by Knorr soups and stock cubes and Hellmann’s mayonnaise. The deal propelled Unilever — which owns the brands Ragu, PG Tips and Colman’s —to the number-two slot in global food production, behind Swiss-based Nestle.
Burgmans said: “We sold 17 brands in soups and sauces because of the Bestfoods acquisition — for competitive reasons. But we got a hell of a brand back — Knorr.”
Burgmans said that the acquisition will generate cost savings of £200 million this year. The deal will lead to the closure of 30 factories around the world. Whether or not this will include the Hellmann’s plant in Paisley remains to be seen.
The plant was founded in the 1850s by corn starch manufacturers Brown & Polson. In 1993, 345 jobs were lost there as Bestfoods transferred production of its Knorr range to continental Europe. The Paisley plant now has a staff of just 64 and produces only Hellmann’s mayonnaise. A Unilever spokesman said a decision on the plant’s future would be taken in the third quarter.
Unilever made an aggressive push into emerging markets in the 1990s and Burgmans is confident it will reach break-even in China by 2002. Over the past eight years, the consumer giant has been rapidly scaling up its activities in the country of almost 1.3 billion people.
“We’ve built leading positions in toothpaste, in shampoo and soaps. We’re building in tea, ice cream and soy sauce, with the aim of building Chinese leaders,” said Burgmans. “But you don’t conquer China in 10 years.”
The focus on emerging markets led to problems in late 1999, when City investors were unimpressed by Unilever’s “money’s no object” approach to seeing off an onslaught from arch-rival Procter & Gamble in Argentina, Brazil and Chile. The US firm had been seeking to topple Unilever from its dominant position in the South American washing-powder market. Burgmans said: “It cost a lot of money but we have seen them off. We’ve held the positions we wanted to keep.”
He believes that, among the categories in which Unilever operates, those that show the most promising global growth include shampoos and conditioners — where Unilever owns brands including Organics, Sunsilk and Timotei — and skincare, where its branda include Pond’s and Vaseline. He added that Unilever’s deodorants — such as Dove, Sure and Lynx — are “doing very well”.
One anomaly within the group is that it has a dual head office, employing a total of 1,800 people — but split between Rotterdam and Blackfriars in London. Burgmans said there is no intention to change this structure. “The dual structure has been viable for more than 70 years and has proven its resilience.”
Have investors and City analysts taken the “Path to Growth” message on board? Burgmans said: “It’s taken a while to communicate but I think they have. Generally, people now know about it. They’re starting to follow it and we’re building up to credibility as they see both the pace of growth of the leading brands and our operating margins increasing.”
At a results presentation earlier this year, Unilever co-chairman Niall FitzGerald predicted that growth would be further fuelled by new products. He pointed to £725m of spending on research and development last year and £3.98bn on advertising and promotions.
Burgmans added: “ECR is about making the whole supply chain more efficient. If we go to our customers and say we’re only going to come to you with leading and strong brands which will give you excellent turnover per square metre, it’s going to help the efficiency of both of our operations. When retailers hear about this, they’ll give it a big tick.”
This article was published in the Sunday Herald on 20 May 2001