Innovations And Growth In Emerging Markets Likely To Drive Unilever’s Deodorant Business In Future

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Unilever

Unilever (NYSE:UL) is the second largest consumer goods manufacturer in the world, second only to Procter & Gamble (NYSE:PG). With total revenues of of around $58 billion, each business pursued by the company has significant impact on the world’s market.

The major divisions for Unilver include the Personal Care and Food segments, with combined revenue of over $30 billion . The former has had the tougher time of the two.  There has been a considerable decline in its food revenues due to struggling brands and divestitures, which has led its food revenues to decline by almost 25% since 2010. On the other hand, Personal Care has done better, with its Antiperspirants and Deodorants segment (revenues of around $4.9 Billion in 2015) growing nearly 20% rise over the same period. The key products for Unilever in this segment are Axe, Dove, Degree, Sure and Rexona. We estimate Unilever’s deodorant and antiperspirant businesses contribute 13% of its EBITDA by 2021. Key factors here include its innovation, as well as higher penetration in the regions with hot climate.

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See our complete analysis for Unilever here

Innovations

Unilever, with its investments in R&D, came up with compressed deodorant cans in 2013.  These require 25% less packaging and 25% less aluminium, thereby reducing the costs of the products and increasing the margins [1]. After this innovation, the company’s deodorant EBITDA margin increased by around 2 percentage points in 2014. Although Unilever has not applied for the patents, due to the environmental benefits of this technology, the company is well using this innovation for their marketing and advertising campaigns to penetrate deeper into the markets.

Growth In High Temperature Regions

High temperature regions offer a good potential for deodorant makers as people tend to sweat more and require the use of fragrances more often. Brazil, with an average temperatures of around 61 degree Fahrenheit,  ranked second in the world with a deodorant market of  around $2.2 billion, the US being the leader with sales of over $3 billion. According to Mintel, the top four out of the five fastest growing deodorant markets are in Asia and include India, Vietnam, Indonesia and China. All these regions have relatively higher temperatures as compared to European and North American countries. This, combined with huge untapped rural and urban populations in these areas, make them the ideal regions for growth of this industry. Unilever, with a global deodorant market share of around 30%, sits in a favorable position to exploit this opportunity. Around 58% of Unilever’s revenues came from the emerging markets, which include the mentioned countries. Therefore, this larger exposure to developing world should add considerably to its deodorant earnings in the future.

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Notes:
  1. BusinessGreen []