Mark Ritson on branding: Fewer brands means better results

There were no surprises last week when Unilever announced that it would cut 20,000 jobs, close 60 factories and divest a number of its brands over the next four years. While chief executive Patrick Cescau did not directly point the finger at the growing power of retailers when he described Unilever's decision to streamline its global operations, the power of own-label was at the heart of the announcements.

In the past decade, retailer consolidation and the preponderance of own-label goods have placed Unilever, Procter & Gamble and Nestle under extraordinary pressure. In many of the categories they compete in, own-label goods from players such as Tesco, Carrefour and Wal-Mart now take a value share of between 30% and 50%. That leaves the big manufacturers battling each other for an ever-shrinking pool of consumers. And they have realised that to win in this much more competitive context, they need fewer brands and greater focus.

A decade ago the 80:20 rule applied particularly well to most FMCG companies: 80% of their profits were derived from about 20% of their brands. Today, bigger and more efficient retailers have forced companies such as Unilever to question this ratio and adjust their operations accordingly. Less has always meant more when it comes to brand portfolios, but thanks to own-label, less means more than it used to.

Fewer brands means less bureaucracy, which means more customer orientation. Until recently Unilever operated as two distinct companies with two boards of directors managing separate divisions in the Netherlands and the UK. Outside of its head offices the inefficiency continued, with each country split into three distinct operating divisions, each of them managing various brands.

It is an example of the dreaded matrix of marketing inefficiency: multiply 100 countries by three divisions by 20 categories by 1400 brands and you get a very poor result.

For Cescau, this structure created a strategic indolence that contrasted with Unilever's streamlined retail customers. 'If you have 250 people between the chief executive and the market, it is just like a dinosaur,' he said. 'Somebody is biting you at the tail and by the time it goes to your brain, half the body is gone. So we have considerably de-layered the structure. There is now one person between the head of Brazil and myself and one person between the head of India and myself.'

Aside from strategic focus, Unilever's brand consolidation also means that marketing investment and innovation strategies can be devoted to brands that will respond best.

There is no doubt that the global success of Dove in bodycare and Magnum in ice cream confirm the potential power of brand focus for Unilever. Both these categories were once peppered with an international smorgasbord of Unilever brands that prevented the company from investing significant resources in world-class marketing campaigns and then leveraging the results across every major global market. Today you are as likely to see the Dove 'Real Women' beaming at you from a poster in Rio, or on Oprah, as you are on a British billboard.

Unilever has already signalled that it eventually hopes to halve the number of categories it competes in from 20 to 10. So far it has demonstrated impressive discipline in exiting once-invaluable categories such as frozen foods (by selling off Birds Eye), and it is apparently set to exit another former cash cow when it divests its US detergents business.

Until recently, the gap between the slightly dusty, bureaucratic Anglo-Dutch Unilever and the tight, focused retailers that it supplied was growing ever larger. Under Cescau, the gap is closing and he sees Unilever's path clearly: 'Now, we are trying to be as good as the best everywhere. Always. So we are being more disciplined in the way we work.'

30 SECONDS ON ... 'ONE UNILEVER'

- When Patrick Cescau took the helm in 2005, he quickly began to address the challenges of a tough market and more aggressive rivals, taking out management layers to make communication more immediate, speed up decision-making and allow it to move out of areas where return on investment is limited.

- The aim of the 'One Unilever' scheme is to simplify the business and generate savings by bringing national operations together so that there is a single management team in each country.

- Cescau believes the combination of the restructured organisation and the 'One Unilever' programme is improving the firm's effectiveness and allowing it to build on local strengths while exploiting its power as a global operation.

- Unilever is now focusing on three areas of growth: developing and emerging markets, personal care and healthy-living products.

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