Unilever CEO warns of tough 9-10 months ahead
The Business Standard sat down with Mohammad Zaved Akhtar, CEO and Managing Director of Unilever Bangladesh, to find out how the FMCG giant is tackling the current economic headwinds
Amid ongoing economic headwinds and rising uncertainty, companies and CEOs are seeking new strategies to ride out the storm.
According to Mohammad Zaved Akhtar, CEO and Managing Director of Unilever Bangladesh, the key to weathering the storm lies in having a solid financial foundation built on three pillars: cash reserves, savings and efficiency.
By conserving cash, companies can maintain financial stability and prepare for future challenges, by implementing cost-saving measures they can reduce expenses and increase profitability, and by focusing on efficiency they can optimise their operations and improve their bottom line, he said.
"There may be a new surprise in the next month, or the second or third quarter of this year… nobody knows. The next 9-10 months will be very difficult and we have to be prepared for that," he said.
To tackle these unprecedented adversities, businesses would need to be resilient and ready to absorb more shocks.
The CEO predicts that the economic situation in Bangladesh will improve in the fourth quarter of 2023, as global demand is expected to decline due to a slowdown in Europe and challenging conditions in China. He also believes Bangladesh will not fall into recession, as the country continues to grow despite domestic and external economic challenges, and is estimated to grow at 5.5% in fiscal 2022-23.
Zaved, who has been with Unilever for 23 years, said previously they used to make business plans for one year, but now they are compelled to do it for six months because of so much uncertainty and instability in the external environment.
A more concerning issue is rising inflation, which according to him, may further erode consumers' purchasing power, which will impact their sales.
Now Unilever is saving more than in any time before, by changing processes – from procurement costs to improving efficiencies – to work in a better way.
He said Unilever saved 10% of its total turnover in 2022 by efficiently managing its entire value chain. Usually, the company saves an average of 7-8% of its turnover per year. Even then, he said Unilever Bangladesh's profit margin got hit last year because of the unprecedented level of inflation of raw material prices.
Why he thinks volatility will ease from Q4 of 2023
Europe has slowed down significantly and the International Monetary Fund on 30 January projected that GDP growth in the EU will bottom out at 0.7% this year.
Also, the situation in China has been increasingly getting challenging for the last few years, which has brought down the confidence of businesses.
He said these two broad reasons are likely to lead to a decline in global demand, which will lead to a fall in the prices of commodities in the international markets. Also, the inflation rate will drop.
For example, he said crude oil price has come down now from its peak and vegetable oil prices also softened, which indicates that prices of commodities will ease further from the fourth quarter of 2023, he said hopefully.
FMCG market, consumption and low hygiene standards in Bangladesh
The market size of FMCG in Bangladesh, in terms of gross sales value, stood at around $4 billion at the end of 2022. If converted to local currency, it amounts to over Tk 40,000 crore.
Despite the entry of over 30 companies into the FMCG business, Unilever's stake is still more than 50%, according to its CEO.
FMCG has 28 categories of products, which include packaged foods, beverages, toiletries, over-the-counter drugs and similar consumables. These products are sold fast because of their short shelf life.
Despite Bangladesh's consistent economic growth for over a decade, per capita FMCG consumption is lower than in many countries. "Our per capita income is higher than in India. But per head consumption of FMCG is only $24, 45% less than India's $44," Zaved said.
Per capita FMCG consumption in the Philippines is $100 and it is very high in the Scandinavian countries and North America, he said, adding, "Our general hygiene level is very low. Consumers in Indian metropolitan cities are more conscious than us."
Also, education and disposable income matter, he said, citing an example of facewash, which is used very little in Bangladesh. Also, people do not use soap or shampoo every day. Toothpaste consumption falls significantly during the month of Ramadan.
Though Unilever has been present here in Bangladesh since 1964, soaps – Lux, Lifebuoy and Wheel - were its main products till the early 1990s. In line with steady economic growth and rising purchasing power of consumers, Unilever launched personal care products, such as moisturizers, shampoo and toothpaste. Subsequently, Unilever introduced new products that include facewash, dishwash and Pureit, a water purifying machine.
But the journey was not smooth and Unilever had to woo customers by offering extra incentives.
"We used to give a free brush with toothpaste to create awareness among users," said Zaved, recalling his time as the brand manager of Pepsodent, a toothpaste brand of Unilever, back in 2000.
At the time, penetration of oral care was only 16% and it has shot up to 85% now because of rising awareness, he said.
As FMCG consumption is very low in Bangladesh, Zaved sees further scope for Unilever. "Our opportunity is immense in Bangladesh despite the entry of new local competitors," he said.
Unilever will continue to invest in Bangladesh
Zaved said the opportunity in FMCG is longer term and he sees this industry continuing to grow in the country. With that in mind, Unilever invested an average of 20 million euro (Tk200cr) per year over the last three years. To materialise the opportunity, Unilever will continue to invest in Bangladesh, he said.
Rising prices, a concern
After two years of the Covid-19 pandemic, the Russia-Ukraine war that began in February last year rattled the world. Prices of commodities – from energy to food, fertilizer and industrial raw materials – have skyrocketed and hit the consumers with decades-high inflation.
In his 25-year career in the FMCG market, he has never seen such a level of inflation of raw materials. He said his boss did not see it in his 40-year career.
Some raw material prices surged by over 100% and it is 20-50% for all materials.
"It was a very difficult time last year. You cannot pass all the prices on to consumers as they can exit the products and buy another," he commented.
If consumption falls, volume will drop, which will push up cost of production, Zaved said, adding that devaluation of taka has served as a double whammy, as they import raw materials in the US dollar.
Plastic management a big concern
Almost all the products of Unilever use plastic and the company admits that plastic management has become a big challenge not only for them, but also for the entire world.
Zaved said they have taken a strategy – less plastic, better plastic and no plastic – which is being implemented gradually.
In 2022, Unilever recollected 44% of the plastic it disposed of by selling products. "We have set a target to recollect 100% of our plastics by this year," he said.
In addition, Unilever will set up refill machines at small grocery shops across the country to reduce the use of plastics, he added.