Unilever USA to Eliminate 5 Brands from Portfolio

Case Type: operations strategy; growth.
Consulting Firm: Ernst & Young (EY) Advisory first round full time job interview.
Industry Coverage: household goods, consumer products.

Case Interview Question #01120: Our client Unilever is a global consumer packaged goods (CPG) company co-headquartered in Rotterdam, Netherlands, and London, United Kingdom. Its products include food, beverages, cleaning agents and personal care products. One of the oldest multinational companies, its products are available in around 190 countries. For this case, we’re focusing on Unilever’s U.S. business only.

Unilever USA owns over 50 brands. Recently, it is looking to shed half of its brands in an effort to boost growth, simplify its operations, be more nimble, and cut costs. How would you decide which brands to eliminate in order for Unilever to reach its growth targets? What are the additional considerations that the client should be aware of?

Possible Answers:

1. Case Overview

The client Unilever is looking to exit any industry or brand that it does not have a market leadership position in. Make sure the interviewee grasps this motivation, and it informs his/her analysis of which brands to eliminate. Bonus points for the interviewee who appreciates why the client is willing to cut its brand portfolio — in order to become more nimble in responding to consumer trends.

2. Additional Information

* The client Unilever is a large, multinational CPG company, with ~$6B in annual sales for its U.S. operation.
* Assume Unilever USA has a 10-brand portfolio spanning beauty, personal care products, baby care, cleaning supplies, pet food, etc. Client wants to shed 5 brands.
* If asked about any increases in costs, say there has been nothing unusual, but that Unilever will benefit from eliminating the costs associated with maintaining “unproductive” brands.

3. Detailed Analysis

Question #1. How would you choose which 5 brands to divest from the 10-brand portfolio? Show Exhibit 1.

Exhibit 1. Unilever USA’s Brand Portfolio

** A proxy for brand equity, measured on a scale of 1-5, where 1 is perceived as the as cheapest and lowest-tier brand in that market, 5 as the highest-tier brand.

* Are some metrics more important or relevant to Unilever than others?
* Reiterate that size of the business may not matter — a billion-dollar in sales brand can go on the chopping block if Unilever does not have a market leadership position in that space.

Possible Answer:

The interviewee’s criteria for which brands to eliminate should be similar to the criteria he/she will see in Exhibit 1.

The interviewee should point out the following observations from Exhibit 1:
* Top 5 brands are bringing in ~80% of sales revenue.
* Quickly identify the obvious market leaders for Unilever USA (Warrior Two Detergent, Triangle Diapers) across all the metrics.
* Acknowledge the trade-offs of eliminating smaller brands that may be higher-margin, have strong brand equity, or give Unilever access to a certain retail channel.
– Interviewee does not need to calculate the annual profit of each brand; he/she can just point to the trade-off inherent in divesting smaller brands that may have with higher margins.
* Pet food is probably not strategic fit with CPG’s overall focus on personal care products.

The client Unilever might look into eliminating the following 5 brands (and give the rationale):
* Downward-Facing Dog Food — does not have a market leadership position.
* Bird of Paradise Feed — does not have a market leadership position.
* Headstand Hair Color — relatively small annual sales and low consumer brand perception, despite being high-margin.
* Soapvasana — relatively small annual sales and low margin, but strong consumer brand perception.
* Sun Salutations Soak — relatively small annual sales and low consumer brand perception.

The interviewee should name some risks associated with divesting each of these brands, such as:
* An exit from the Pet Food market means there is less portfolio diversification for Unilever — and Downward-Facing Dog Food is a large brand in terms of annual sales.

Question #2. After proposing to sell the 5 brands identified in Question #1, if the interviewee does not dive into next steps, prompt him/her to discuss:
* How to calculate the sale price for the 5 brands?
* How to evaluate potential buyers?

Possible Answer:

To calculate the sale price — interviewee can suggest a Discounted Cash Flow (DCF) analysis or a Comparables analysis.

Potential buyers are:
* Other CPG firms such as Procter & Gamble (P&G) and Nestle.
– Pro: Less aggressive in price negotiations than private equity (PE) firms
– Con: May become more competitive vis-à-vis Unilever; may end up leveraging Unilever brands’ retail channels or hiring Unilever employees.
* PE firms specializing in turning around “orphaned” CPG brands
– Pro: Do not directly compete with Unilever
– Con: Traditionally, aggressive in extracting value from the deal.

Question #3: Suppose Unilever divests the 5 brands you identified. Propose a strategy that will drive company growth post brand-rationalization.

Possible Answer:

This part of the case is broad, and tests the interviewee’s ability to tackle ambiguity in a structured way.

A strong candidate may suggest levers for growth such as:
* Appeal to new customer segments in the same distribution channels:
– Demographic trends — brands that target Baby Boomer or Millennials, which are growing segments
– Social-economic segmentation — for example, grow Unilever’s market share in premium or all-natural products.
* Look for new distribution channels:
– Brick-and-mortar — undertake co-branding campaigns with major big-box retailers; pharmacies; Costco/Sam’s Club, etc.
– E-commerce — grow Unilever’s market share in Amazon.com, Soap.com

4. Performance Evaluation

This case tests the interviewee’s ability to:
* Sift through a lot of information quickly and ignore the extraneous data.
* Put him/herself “in the client’s shoes” as the CPG client undergoes the process of brand rationalization, and refreshes its growth strategy (intentionally ambiguous prompt).

A good candidate will drive the case after the 5 brands are eliminated, discussing the potential buyers and the growth strategy, and will deliver a “Recommendation and Next Steps” slide that succinctly ties the whole case together.