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Tea Unilever

In: Business and Management

Submitted By inox2411
Words 2305
Pages 10
Samir Lakhani
Stephen Martinek
Mahek Parikh
Unilever Group Submission

Unilever is a consumer goods company that has a variety of product types to serve consumers across the globe. For this case, Unilever’s tea brand, Lipton, is focused on sustainability for the production of their tea production. Sustainability is defined as a method of using a resource so that the resource is not depleted or permanently damaged. In other words, it is focusing on a production method that is sustainable long-term. Currently, Unilever has about 25% of their tea from Rainforest Alliance Certified farms, which brought forward gains in the environmental, social, and economic sustainability of tea production. It was one of the few brands of tea that was able to have ethical practices while growing beyond a niche market into a larger market share. However, Unilever is looking to source 100% of its agricultural raw materials sustainably (Rainforest Alliance certified) by the year of 2020. This is a lofty and ambitious goal that requires a supply chain transformation, as nearly 8 million tons of commodities across 50 different crops are required for production. There are multiple reasons for this action: to have ethical production practices, to make their brand favorable to customers, and to increase the longevity of their farms. However, they will bear costs of having to increase the market price and convincing their suppliers to be certified. For example, the firm would have the challenge of convincing smallholders across the world the benefits of attaining Rainforest Alliance Certification. Also, Unilever has to prove to their suppliers that by attaining 100% sustainability, they would gain a market advantage for their tea.
Typically, goods produced sustainably or even with the environment in mind typically serve a niche market at higher prices rather than a large market share. Unilever will have to continuously combat this risk in order to stay relevant with their typical consumers. On the bright side, Unilever can use this sustainability approach as a way to differentiate from the competition. Despite potentially high costs, there are many possible returns for Unilever by maintaining 100% sustainability: a drive towards savings over the course of the long run, product innovation for Unilever, and a differentiation across the company’s portfolio of products, which will aid in their competitive advantage as competing firms work to certify their producers as well. Beyond the aforementioned benefits, having 100% sustainability would create a company better suited for survival in the future as stated by the CEO of Unilever, Paul Polman. Polman mentions in the study that some of the world’s problems include food security and resource management. By being a sustainable company they are preventing themselves from running into resource management problems that are relevant to the near future. Technically, it’s an updated version of recycling and conscientiousness on the business scale. Overall, they have committed to 100% sourcing for all the reasons mentioned.

The challenge Unilever faces with becoming 100% sustainable is trying to align the short-term and long-term goals of their brand. They can continue to produce tea at a lower cost but harm the environment (short-term) or comply with the Rainforest Alliance certification standards and increase sustainability (long-term). They decided to focus on the long term and pursue the Rainforest Alliance certification in several markets. By 2011, all Lipton Yellow Label and PG tips tea bags were certified in Europe. This means that the tea bags were completely sourced by Rainforest Alliance-certified estates. Their goal was to have all of Unilever’s tea sustainably sourced through the Rainforest Alliance Certification. However, Unilever had to pay a premium. In 2011, they paid approximately €0.08 per kilogram, causing a 15% increase in the market price. Additionally, Unilever paid Rainforest Alliance a participation fee for finding certified suppliers, costing Unilever €0.0089 per kilogram. They also spent €200,000 per year to train farmers in conjunction with the Rainforest Alliance. As they continued certification, they were able to certify their own estates in East Africa. They made adjustments in their farms to comply to certification standards and contribute to Unilever’s long-term health. As a result, employees typically earned 2.5x more than local agricultural minimum wage in the Kericho estate. At this estate, they saw some of the highest yields in the world, up to 4 tons per hectare. Richard Fairburn, former managing director of Unilever Tea in East Africa, stated that the sustainability was good and made long-term financial sense. Thus, the certification not only benefitted Unilever, but Kericho and other small-hold farmers in East Africa as well. Though it seems drastic, most changes did not require huge changes in practice or much investment for Unilever and farmers. Only a few changes were expensive, such as buying new equipment for pesticides. From a marketing perspective, the campaign has been a success in most places. “Project Sunshine” was implemented in Australia to show consumers the effort Lipton was making to better the environment. This resulted in an increase in market share by 6% and an increase in average purchase value per occasion by nearly 4%. In Italy, Lipton Yellow Label gained new customers and a 2% increase in market share through their marketing efforts of the certification. Unfortunately, in France the efforts were unsuccessful. They ran many advertisements, changed the packaging, and attempted to educate consumers about their efforts. However, the French did not like the packaging change and preferred tea without the Rainforest Alliance seal. There was no change in market share. Similarly, efforts in the United States did not result in increased market share because of the lack of investment and the fact that customers were not willing to pay a premium for the eco-ethical product Overall, the Rainforest Alliance certification has been successful for Unilever. From the case, many farms saw yield gains of 5%-15% while average income increased by 10%-15%. Though costs are high now, the benefits of establishing a sustainable supply chain will not only boost their reputation for having environmentally friendly production practices, but also lower their costs in the future. This is a proactive approach to avoiding environmental harm in the future. Most of their advertising campaigns have been successful and we believe they are learning from experiences in France and the United States. Although they were not able to benefit much in these two countries, they did not incur significant losses from the campaigns.

There are many differences in the Indian market that must be considered before Rainforest Alliance Certification is pursued there. First, it is important to analyze previous Unilever campaigns in various countries, as much can be learned from looking at their successes and failures. Part of the reason the French campaign failed was due to the lack of clarity in Unilever’s marketing message. Certification was initially only announced on the inside of packs sold at retail stores, making it more difficult for consumers to link the advertisements to the products. Unilever’s portfolio in France was much more diversified than it was in the U.K. and Australia, so the marketing team had a difficult time creating a campaign to satisfy the majority of the products. France’s last problem was the lack of investment of the marketing sector, with only 10% going towards supporting the Rainforest Alliance. The insufficient investment was also detrimental to the failure of the United States campaign. Although there was a good ROI and a promising campaign, the investment was relatively small and effects were insignificant as a result.
India stands out because although it is a large tea producer, production consists of many small farms. Unilever is not as dominant of a buyer as they were in other countries; 67% of the Indian market is sold as unbranded loose black tea, and less than 2% of the market is represented by tea bags. Many of the success stories were in countries where Unilever had large purchasing power in market, so the Hindustan Unilever may be at a disadvantage. In addition, Indian consumers are not as concerned about sustainability as consumers in Western markets. It may prove difficult to conduct a marketing campaign if customers are not motivated to change. India should conduct some research to see what will drive tea consumers to make their purchases. Research can be very helpful, for example in Turkey, Unilever was able to target their strong national identity to create a successful campaign. In the U.S., research discovered that consumers were moving towards green products, but did not want to pay a premium. Another difference when considering certification for the Indian market is the increase in competition. Other firms are now using Rainforest Alliance Certification and other third party certifications to attempt to differentiate as Unilever was. Unilever must work quickly or uniquely in the Indian market to continue to create a competitive advantage.
Converting small domestic producers will be yet another challenge Unilever must overcome. Conflicting rules between the Indian government and the Rainforest Alliance is the main reason conversion will prove to be so difficult. In terms of child labor, kids as small as age 14 can work for tea producers, yet the Rainforest Alliance has a restriction of age 15. Also, pesticide use, specifically the use of paraquat, is allowed in India, yet it is forbidden by the Rainforest Alliance. Unilever must find a way to work past these restrictions if they want to pursue certifications of Indian farmers.
Duplicating the successful supply chain changes in Kenya will be tough to do in the Indian market. Unlike in Kenya, there are no government-sponsored initiatives to help Unilever. The KTDA and IDH assisted in training farmers, which led to drastic growth in sustainable farming practices. Unfortunately, these types of programs are not easily accessible in India. Farmers are also free to sell to any factory and are not contracted to Unilever like in other countries. Lastly, there is no sense of personal empowerment for the Indian farmers to produce a sustainable product. In Kenya, farmers want to create a farm of good health to assist future generations. For these reasons, it would be very difficult for Unilever to copy what they did in Kenya to their Indian market.
There are alternatives that can be implemented to attempt to resolve some of these issues. One alternative is for Unilever to create customized goals tailored to India’s local practices. The company can expand on these goals over time, and eventually reach a level worthy of certification. Another alternative involved acquiring partners, like how Kenya received support from the Kenyan Tea Development Agency. Hindustan Unilever can work with non-governmental organizations to gain awareness and properly market their products. The last and most valuable alternative, in our opinion, is for Unilever to pursue industry wide initiatives.
There are two ways to compare these alternatives. The first is to look at how these strategies impacted campaigns in other countries. As we stated earlier, much can be learned from looking at the results of previous campaigns. The second way to compare is to see if Unilever can leverage India’s current situation in implementing the particular strategy.
Unfortunately, Unilever has not had to create customized goals for any particular country. Although they have highly tailored campaigns, each producer was able to pass the stringent Rainforest Alliance metrics in the past without compromise. Not having past experience will increase uncertainty, and the delay in gaining certification may not be worth it. The second alternative involves partnering with other organizations to succeed in the market, which has been done successfully in the past. The problem is, there is no clear choice of organization that the Hindustan Unilever should partner with. The Indian government will not be of much help because of conflicting rules, so Unilever must rely on non-governmental organizations. If the company did some research and found a worthwhile partner, this alternative could be very successful, but differences in the Indian market make it difficult to do so. The last alternative is for Unilever to pursue industry-wide initiatives, which may prove very valuable to Hindustan’s future campaign. They can market their new vision to Indian consumers with the help of the existing Sustainable Living Plan. Unilever observed that awareness and appreciation are both high when India is faced with a local, tangible environmental issue. With the Sustainable Living Plan, Hindustan Unilever is already working towards a goal that both interests the public and aligns well with the sustainable Rainforest Alliance certifications. If Unilever can communicate the direct benefits of sustainable tea farming to Indian consumers, this campaign can be as successful as the ones in the U.K., Australia, and France. It is also unlikely that the Sustainable Living Plan will become a target for scrutiny among activists because it has already assisted the community in a tremendous way.
Therefore, we believe that Unilever should pursue Rainforest Alliance certification for its tea business in India. Despite the challenges and fact that the Indian market is much different than others Unilever has come across, it seems to be a risk worth taking. By leveraging the Sustainable Living Plan that has already improved the lives of the Indian community, Unilever can work towards the goal of 100% sustainable sourcing. They can use the successes of previous campaigns to their advantages, like using their large market share of nearly 30% to more easily sway consumers. In addition, Unilever can avoid the flaws used in previous marketing campaigns, such as a lack of clear message and investment in the project. Sustainability is a long-term approach to benefit the future of not only Unilever, but also the world as a whole as they attempt to reduce environmental harm and promote safe working conditions. The implementation of the Rainforest Alliance certifications in India will push the company and world towards a better future.

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