Unilever simplifies Portuguese production

Related tags Unilever Portugal

Unilever Portugal has restructured its joint venture with local
food manufacturer and retailer Jeronimo Martins, a further step
towards the simplification of the company's business units.
Chris Jones reports.

Unilever currently has a 40 per cent stake in FimaVG foods, a joint venture with Jeronimo Martins and a throwback to the 1950s when foreign investors in Portugal were required to have local partners. For half a century, this venture worked well, allowing Unilever to benefit from its local partner's market knowledge and retail contacts.

But the acquisition of the Bestfoods business in 2000 meant that Unilever found itself with two separate Portuguese operations - the Fima joint venture and the stand-alone Bestfoods company - making for an unnecessarily complicated route to market.

As a result, the two companies have agreed to merge the operations of Fima and Bestfoods into one unit, rebalancing their respective stakes in the firm to 49 per cent for Unilever and 51 per cent for Jeronimo Martins.

Unilever will pocket €80 million as a result of the merger, which is still subject to regulatory approval and should be completed by the end of the first quarter of 2005.

Unilever's strong brands in Portugal include Knorr soups and sauces, Maizena flour and Alsa desserts.

Unilever spokesman Trevor Gorin said that the deal was the best solution for the two Unilever businesses in what was a small and relatively unimportant market for the Anglo-Dutch company. Unilever does not give country-specific sales figures.

"We have been looking at means of simplifying our global business for several years now [the five-year Path to Growth programme was launched in February 2000] and the move in Portugal is part of that process,"​ he said.

"The Portuguese business is not huge, but there are still cost savings to be found by merger the two parts, at least in terms of supply chain, back office and administrative functions."​ Gorin added that the Bestfoods factory in Portugal would remain in operation "for the time being"​, suggesting that further consolidation of the Portuguese business - and potential job losses - could be a possibility in the future.

The changes to the Portuguese business are not likely to be mirrored by similar restructuring elsewhere, Gorin said. "We have other joint ventures in other countries, such as Hindustan Lever in India, which continue to work very well and which are adapted to the specific demands of the market in which they operate.

"The Portuguese solution was the right one for that market, but it will not necessarily be the right one in other countries."​ He added that the deal was one of the final elements of the Path to Growth programme, which has seen the disposal of 140 businesses rather than the start of a new phase of restructuring.

The success of Path to Growth has been mixed. Unilever is undoubtedly more focused on a range of core brands than before (400, down from 1600, and accounting for 93 per cent of sales in 2003 compared to just 75 per cent in 1999) but the performance of those brands has not perhaps lived up to the company's - or analysts' - expectations.

The target of the Path to Growth programme was to generate annual growth of 5-6 per cent, but the food business in particular has fallen well short of that, with growth of 3 per cent between 2001 and 2003, prompting a more reasonable growth expectation of 3-5 per cent by 2010.

More worryingly, perhaps, the latest quarterly figures showed a 4 per cent drop in food sales due in part to unfavourable comparisons with 2003 (when the hot summer boosted ice cream and ice tea sales) but also to a 10 per cent drop in health and wellness food sales - a sector where most other companies are keen to invest because of the growth potential - as the SlimFast weight loss brand was eclipsed by the low-carb Atkins phenomenon.

Analysts have not yet gone so far as to declare the Path to Growth strategy a failure - many of the factors depressing growth are largely outside the company's control (such as the poor summer weather) and there are still a number of businesses which could be sold to raise further cash (such as the underperforming frozen food operations).

But with some of its core brands in perennially low-margin sectors (such as frozen food) or notoriously fickle one (such as ice cream, which is dependant largely on good weather), the company will have to step up its R&D efforts to ensure an even broader spread of products and categories which will allow it to offset such temporary setbacks as the Atkins effect and return to growth in the longer term.

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