Unilever (NYSE:UL) is looking to double its revenue in Africa to close to €6 billion within five years, by tapping rising incomes through expanded distribution network, new product introductions, and lowered cost structure to stay more competitive. Africa presents a huge untapped market opportunity for global consumer goods companies as GDP per capita continues to grow at 4-5% annually, which is the primary driver for FMCG growth in early stage markets like Africa. Unilever is the second largest consumer goods company globally after Procter & Gamble (NYSE:PG).
Vast Growth Opportunities For FMCG In Africa
It is estimated that GDP per capita is the single most important driver of global growth in the consumption of fast-moving consumer goods (FMCG) and accounts for almost three-fourth growth across 60 major fast moving product categories, particularly in young markets like Africa. African GDP per capita its expected to grow close to 4.5% annually this decade, which is likely to boost consumer spending by more than 35%. Also, with ~2% population growth and continued urbanization, almost 220 million new African consumers are likely to enter the market by 2015, indicating significant growth opportunity for the fast-moving consumer goods industry. ((Africa’s rapid growth creates vast opportunities for FMCG companies, Economic Times, August 2010))
Key To Africa: Deep Distribution Network & Low Cost Structure
Unilever currently generates €3 billion in revenues from Africa, with a focus on major markets of South Africa and Nigeria and smaller markets such as Kenya, Ethiopia and DR Congo. Betting on rising demand, Unilever plans to double its sales in the region within five years by tapping rising incomes through expanded distribution network, product innovation and lowered cost structure to stay more competitive.
Unilever is targeting both low and high ends of the African consumer market and is looking to push deeper into rural areas and Western African markets. It also aims to bring in more of its existing products to African countries, especially hair products from the United States. However, price competition is very crucial to spur volume growth and expand market share in Africa, and one of Unilever’s major targets is to invest in reducing its operating costs.
We have a $32.30 Trefis price estimate for Unilever stock, at a 4% discount to the current market price.