Unilever sniffs growth opportunities in deodorants
The consumer goods company is pursuing an aggressive expansion policy in a market it already dominates.
Unilever (UL) owns two of the biggest names among deodorants: Axe and Rexona. Together with other brand names marketed under its Dove banner, Unilever controls more than 40% of the world's deodorant market -- making it the most powerful player in the segment by far. Rather than resting on its laurels, however, Unilever is pursuing an aggressive expansion policy, focusing primarily on emerging markets for sales growth.
Unilever's leading position in the deodorant space is the result of years of product innovation and effective marketing. The company's potent marketing machinery is best displayed in promotions for its Axe range of products, and the company continues to pump more money into improving its product visibility and shutting out competition.
The latest in its long line of Axe promotional campaigns promises to send 22 consumers of the recently launched Axe Apollo line of deodorants into space on a commercial suborbital space plane in 2014.
Understandably, ambitious efforts like these have their repercussions on the company's cost structure -- Unilever's ad spend ballooned by around $500 million in 2012 alone. At the same time, efforts like these should also bolster investors' confidence in Unilever's ability to hold on to market share, especially in the face of intensifying competition from other consumer-goods companies such as L'Oreal (LRLCY) and Proctor & Gamble (PG).
Scaling production to meet demand in emerging markets
Another key reason why Unilever remains the company to place your bets on in the deodorant space in the near future is because Unilever wields incredible influence in emerging markets. Unilever remains way ahead of its close competitors in terms of established distribution channels and historical brand recognition in these regions. The company earns the majority of its revenues (more than 55%) from emerging markets and is very well-entrenched in regions such as South Asia and Africa. Thanks to rising levels of disposable income and demographics highly skewed towards a younger population (the primary target for Unilever's advertising campaigns), these are precisely the regions which are expected to drive deodorant sales in the future.
According to a report by Global Industry Analysts, emerging markets such as the Asia-Pacific can offer growth rates of nearly 5% for the deodorant industry. Unilever is very well positioned to capture a major chunk of this growth, and the company's recent performance drives home the point. The company's personal care division (which includes deodorants) delivered a resounding 7% growth in sales volumes over 2012, with underlying net sales growth standing at an impressive 11%.
Investors would also be delighted to know that the company is working actively to scale up deodorant production in emerging economies. For example, in 2011, the company decided to invest nearly $500 million in Mexican production facilities over a five-year period, in order to cater to the Latin American region. The initial investment included a new state-of-the-art deodorant plant in Mexico worth around $100 million, which helped the company double its output in the region. The company also announced its intention of opening a new deodorant plant in India in February this year, emphasizing its South Asia focus. This new production facility will cost the company around $65 million, spread over a period of about three years.
According to our estimates, deodorants account for around 10% of Unilever's share value. We currently value Unilever's share price at around $40, which is in line with the market price.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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