In February, Unilever announced a 1% rise in full-year 2008 turnover to €40.5bn, with a 7.4% growth in underlying sales offset by exchange rates, disposals and acquisitions. Where do you see the beverage division of Unilever right now?
Didier Dallemagne: The beverages category in Unilever covers mainly our activities in tea, both leaf and powder. We also have a fast-growing, soy-based beverage business (brand Ades) in Latin America. Additionally, and not reported within the Unilever sales, we have a global partnership with PepsiCo for our Lipton ready to drink teas in the form of two joint ventures – one for North America, and one for the rest of the world (except Japan). In Japan, we have partnerships with two very strong companies: Suntory and Morinaga.
Having said this, for the purpose of this interview, we’ll focus on our tea business, including our joint ventures (JV).
In terms of brands, Lipton represents about 60% of our leaf tea sales and is complemented by strong local brands such as PG Tips (UK), Lyons (Ireland), Saga (Poland), Club (Chile), Brooke Bond (India, Pakistan, Russia), or Bushell’s (Australia) to name a few. In RTD, our focus is on Lipton.
Unilever’s beverages category is in a very strong place, both in relation to the markets in which we compete and regarding the different types of beverages we sell. In particular, our tea-based beverage business performed well over the last year. Lipton, for example, showed total sales of more than €3. 5bn in 2008.
Our leaf tea business has been performing particularly well, showing double-digit growth over the past year, with a good balance of volume and price. Consumers have acknowledged the inherent goodness of tea, both for its natural origin and the fact that it can deliver an unlimited variety of tastes in limitless formats.
Our JV businesses with PepsiCo are strong and have delivered around 20% CAGR for the last four years. The past year was very strong for our international JV, while it was integrating the Unilever European Lipton Ice Tea businesses. The North American JV saw a year of consolidation after three years of fantastic growth.
The category continues to gather momentum as consumers move into ‘better for you’ products. Iced tea is one of the fastest growing beverage categories worldwide, showing double-digit growth for several years, and leaf tea is growing at close to double digits. Our brands are strong and, being a major global player in tea, we have a strong range of innovation opportunities to generate good growth in the coming years.
What are the latest launches in this sector?
Dallemagne: We’ve had a large number of innovations in tea, which speaks generally of the appeal of the category, but to talk of a few specifics, our innovations are focused on leveraging the intrinsic goodness of tea.
Founded in the research we lead on tea, we’re particularly excited by our ‘body shaping’ proposition called Lipton Linea. This is based on naturally enriched green tea catechins, which have been shown in a number of studies to help reduce visceral fat (found around the abdomen). This product is available in hot and cold formats (tea bags and RTD) in six European countries. The availability in both formats is appreciated by the consumers, and gives Lipton a unique advantage. Lipton Linea will be rolled out to other countries in and beyond Europe, with launches already scheduled in Russia and China.
In North America, we have three big innovations for 2009:
We’re also excited by our pyramid tea bags, which continue to show robust growth across Europe and increasingly the rest of the world. With more room to move inside the bag, we have been able to create some fantastic hot tea products with larger leaves, larger fruit pieces and a more exotic range of tastes, which consumers are looking for in the modern tea world.
What has been your most successful promotional event?
Dallemagne: Leading the way in building a more sustainable industry has been a priority for us at Unilever for a long time. The commitments we’ve been making on our tea plantations for many years are testimony to this.
We’ve recently become the first tea manufacturer to engage with the Rainforest Alliance, and we’re actively involved in encouraging tea plantations to think more sustainably. We have committed to sourcing all our tea bag tea in western Europe from certified suppliers by 2010, and worldwide by 2015. This is a major commitment, with far-reaching, positive consequences for the people on the plantations and for the environment.
Driving an increased consumer awareness of the importance of sustainability through working with NGOs like the Rainforest Alliance is a demonstration of our commitment to our consumers’ future well being and the tea industry as a whole. The commitment is important, but making consumers aware of it is essential too, and we use brands such as Lipton and PG Tips as a vehicle.
We promoted the message heavily in advertising and promotion in the UK (‘Do your bit’ with PG Tips) and the rest of western Europe (‘Your small cup can make a big difference’ with Lipton Yellow Label). We were very happy to see consumers responding to the call to action, and our brands strengthening. In the UK, for example, we grew volume, value and market share on the back of this activity. In Italy too, we saw a considerable lift in sales and share of Lipton. Doing good business while ‘doing good’ is completely aligned to Unilever’s corporate mission.
On a different note, in some regions like south Asia and the Middle East, a large proportion of tea comes in packets, and one of our key objectives is to encourage consumers to trade up to tea bags. We’re educating consumers to ‘customise their cup’; to decide the strength of their favourite beverage by using teabags in countries where tea is generally prepared for everyone at the same time.
What does Unilever provide that other companies are just not doing?
Dallemagne: Unilever has an inherent knowledge and understanding about the ways in which tea can be brought to life in great consumer propositions that generate value. We see this as a distinct competitive advantage.
The strength and unique positioning of Lipton, the largest brand across leaf and RTD, gives scale and credibility to our iced tea proposition, which no other brand has, and modernity to leaf tea.
This, combined with our second-to-none knowledge and science of tea, our superior capabilities to unlock the goodness of tea – this fantastic ‘super drink’ – gives us the edge over our competitors.
The JV structure is a unique way in which Unilever and its partner PepsiCo (together with the Pepsi bottling network) have led the development of RTD tea across the globe. The JVs are leveraging Unilever’s trademark and tea expertise/research capability combined with PepsiCo’s soft drinks capability, portfolio and distribution reach.
We also have a unique portfolio of brands in leaf tea present almost everywhere in the world, with Lipton as global leader, often complemented by strong local brands.
How do you see your target market?
Dallemagne: The answer to this question depends on which brand and platform we’re talking about. We believe in having a tightly articulated target audience defined by the differentiated benefit that any particular product delivers.
Speaking holistically, we talk to the increasing number of people who are placing a greater emphasis on the benefits of natural products and an improvement in their personal well-being.
Using the example of our largest global brand, Lipton, we target young-minded people all over the world (of varying ages) who are interested in making small, healthier choices every day to improve their overall quality of life. The brand doesn’t pretend to be an overnight ‘miracle cure’ for an unhealthy lifestyle, but regular inclusion into a beverage repertoire will deliver the benefits of enjoying great-tasting products and also ‘doing good’ to yourself. But you’ll understand that Lipton Linea or Lipton Alpha have more tightly defined target groups related to the unique benefits they provide.
For RTD tea more particularly, we still have a large opportunity to increase penetration, even in our most developed markets. For example, in the US, penetration is at 45%, having increased 10 percentage points over the last three years. However, categories like juice drinks, carbonated soft drinks and bottled water have 90+%, which is the vision for where we can take RTD tea.
What are the big issues for the beverage division right now?
Dallemagne: We’re not short of ideas. Tea is a fantastic beverage with lots of opportunities to innovate towards more goodness, more pleasure and more sensations. But we can’t do everything at the same time and we need to prioritise our innovations.
While the underlying category momentum has been building for a few years now, we feel that we still have a huge opportunity to increase its relevance by further showcasing the magic of tea and how it can contribute to a genuinely improved sense of well-being. This is a big theme for us because we think that by growing the industry, we cannot only generate value, but also positively impact the lives of millions of consumers.
With this comes an increasingly competitive environment as other large beverage players try to find a way into a category in which they perhaps don’t have quite as much expertise as we do. This will naturally pressure us to continue to build and leverage our expertise to stay ahead of the competitive curve.
The current economic environment offers a wealth of opportunities for in-home occasions and products, in our case tea especially, as consumers trade the expense of going out for treats to be enjoyed at home.
Where next, both in geographic terms and new product development?
Dallemagne: We want to offer the fantastic benefits of tea to our consumers in all relevant forms: tea bags, RTD and powders.
As far as geographies are concerned, we already have an impressive global footprint, with leadership in most markets across hot and cold. Lipton Ice Tea is present in about 60 countries through our JVs, and we want to increase that footprint.
In terms of NPD, we have a number of projects in the pipeline. All of our future innovations will remain in line with the underlying vitality positioning that I’ve previously discussed, and they will leverage the intrinsic goodness of tea.
Where do you hope to see Unilever Beverages in five years’ time?
Dallemagne: Aside from having sustained the great growth and value contribution we have been delivering, I’d like our beverage business to be recognised as being closely connected with improving the lives of our consumers. Whether this is through the great feeling they get when they enjoy an ice-cold bottle of Lipton Ice Tea on a hot day, or from the reassuring fact that they’re contributing to the environment by having a steaming cup of Rainforest Alliance-certified Lipton Yellow Label.
We want to build our business by owning a healthy refreshment (better for you than soda, more exciting than water), together with leveraging the power of tea leaf to bring more functional benefits to consumers.
I want us to build Lipton into an icon for healthy beverages all over the world. The brand certainly has the potential to get there!
Didier Dallemagne is the R&D vice president for Unilever Global Beverages, manufacturer of the popular brands Lipton and PG Tips.
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