Friday, 16 January 2009

Business Week on Unilever's Laundry business

Unilever's Laundry Biz Is Greener, and Growing

Its sustainable detergents, Surf Excel and Small & Mighty, are launched in developing markets. Now they're driving growth in Europe, too

When Unilever (UN) challenged its scientists to come up with a detergent that uses fewer resources, greener materials, and less packaging, few thought it was possible. Yet Small & Mighty, the industry's first super-concentrated liquid detergent, launched in October 2005 in a partnership with U.S. retailer Wal-Mart Stores (WMT), 18 months ahead of rivals such as Procter & Gamble (PG). What started as a means to boost Unilever's green credentials now is opening up avenues of innovation that are helping to drive growth in the company's once-lackluster laundry unit. Since rolling out Small & Mighty in Europe in January 2007, more than 30 million bottles have been sold.

The virtue of the product is that consumers can wash the same amount of laundry with one-third the detergent. Smaller packaging means each bottle uses 55% less plastic, enabling retailers to stock three times the number of bottles in the same space, saving on labor and out-of-stock costs. There's big savings for Unilever, too, in manufacturing and transportation. The company says it saves 500 million gallons of water and 150 million pounds of plastic each year. And the smaller bottle means Unilever can transport three times as much product in every truck, saving 26 million gallons of diesel each year. "It's a good example of how good environmental practice is good for the company's bottom line," says Keith Weed, Unilever's group vice-president for home care.

Soapmakers such as Unilever are under pressure from both retailers and consumers to go green in the same moment that the cost of commodities used in manufacturing is skyrocketing. Complicating the manufacturers' dilemma is market research that shows consumers want more environmentally friendly products but don't want to pay more for them or compromise on performance. At the same time, a myriad of new laws banning many traditional chemicals has reinforced the need for detergent makers to find biological alternatives.

Biodgradable Enzymes

To come up with a solution, Unilever went back to nature. At the company's research and development labs in Northern England at Port Sunlight and in Mumbai and Bangalore, scientists experimented with new biotech ingredients such as enzymes that use less expensive oil-based materials than traditional chemicals. These enzymes, which are biodegradable, replace petroleum-based ingredients with plant-based ones. They not only produce less carbon at the factory and in the washing machine but also offer improved performance at lower water temperatures.

Detergent makers have long used enzymes in products but have only recently discovered that enzymes deliver additional environmental and other benefits. For starters, enzymes weigh less but work just as well as bulkier chemicals. That means Unilever can use fewer ingredients in Small & Mighty's formulation, helping to cut manufacturing costs. Because such biological ingredients work in a different way from chemicals, "they are opening up new possibilities in terms of making products more efficient and sustainable," says Keith Rutherford, Unilever's R&D director for sustainable cleaning and vitality at Port Sunlight.

Much of Unilever's knowhow in creating more earth-friendly products comes from its experience in developing markets. Its Surf Excel Quick Wash, launched in 2004 in India, uses half as much water as traditional brands, saving consumers two buckets of water a day, or an estimated total of 14 billion liters each year. That's an important innovation for consumers in the dry southern states of India, where clothes are washed by hand and water is scarce. Sales of the brand are up 27% in the first six months of 2008 in India, where Unilever boasts a 40% share of the detergent market. Moreover, Unilever's detergents for use in these markets are formulated for use in cool water: Many people in developing countries do not have access to hot water.

Getting Out of Hot Water

Now such insights are helping to fuel innovation for Unilever in developed markets, whose consumers are becoming more environmentally aware. "Washing temperatures are coming down in the developed world, and our experience in the developing world is helping to drive innovation globally," says Mike Pilkington, who heads Unilever's R&D in Port Sunlight.

Unilever aims to use that knowledge to boost growth in its $8.2 billion laundry business in Europe and emerging markets. In July 2008 the company sold its U.S. laundry business for $1.4 billion to U.S. private equity firm Vestar Capital Partners. "Unilever was at a significant scale disadvantage in laundry in the U.S. vs. P&G, with very little prospect of reversing that position," says Dresdner Kleinwort consumer goods analyst Warren Ackerman. In the U.S., top player P&G had a 62% market share, he notes, more than five times larger than the No. 2-ranked Unilever. Globally, Unilever still trails P&G, with 20% vs. its 27% share, respectively. "Unilever is using its exit from the U.S. to focus on developing markets where it is the clear leader," Ackerman says.

Unilever promptly moved its R&D out of the U.S. and opened new labs in India. Today nearly 40% of Unilever's laundry sales come from emerging markets. And with five-year average growth rates of 8.3% in emerging markets compared with just 0.6% for developed markets, that figure is expected to grow. According to analysts, Unilever's strong focus on sustainability, coupled with innovative launches such as Small & Mighty and Surf Excel Quick Wash, have revitalized the business. The turnaround in the laundry division brought largely by Small & Mighty "is one of Unilever's biggest successes," Ackerman says.

Capell is a senior writer in BusinessWeek's London bureau .

Original article here