Unilever Treats Europe Like Asia: Smaller Packaging, Cheaper Products

UL: Unilever logo

Amid the worsening global macroeconomic headwinds and weak developed markets, emerging markets have driven Unilever‘s (NYSE:UL) revenue growth and have helped it hedge its exposure to troubled European markets. The consumers giant will now apply the marketing strategies it has learned from its emerging markets business to drive future growth in Europe.

View our detailed analysis for Unilever here

Jan Zijderveld, head of Unilever’s European business, took note of the recessionary environment in the continent and recently warned that poverty will rise in the region as a result of the ongoing debt crisis. As consumers transform their shopping habits amid the financial crisis that has left Greece stalled in recession for the past five years, Unilever has already started to change the way it sells some of its products. For example in Spain, which is reeling under the effects of the highest unemployment rate in the developed part of the world, the company is selling Surf detergent in packages for as few as five washes.

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Last month, Unilever said that “continued sluggish economies and fragile consumer confidence had hampered growth” in the developed markets. Revenue from European countries grew by 0.2% in Q2 compared with a modest growth of close to 16% in Asia and other emerging economies. Unilever’s emerging markets growth was primarily driven by markets like India, China, Turkey and South Africa — and it now accounts for 54% of the group’s total turnover.

Although the company’s profitability still falls way behind the largest European rival, Nestle, its shares have been trading at a ratio to earnings not far behind. Even on the consumer goods front, Unilever has fared much better than its main rival, U.S.-based Procter & Gamble, whose profits have more or less stagnated in the past three years. Last quarter, the Europe-based consumer goods giant exceeded Wall Street estimates as growth of personal-care products and Asia helped offset declines in Europe.

We have a $37 Trefis price estimate of Unilever stock, 5% ahead of the current market price.