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Unilever’s warning for all packaged goods brands

September 27, 2004

Last week’s disappointing financial results from consumer goods giant Unilever worried investors, but it also probably sent a shiver up the spines of other packaged goods companies. Unilever reported a slowdown in sales caused primarily by the increase in oil prices, but also alluded to the considerable threat posed by private label. Unilever has already rationalized its brand portfolio, but there might be even more cuts planned for the poor performers.

As the threat from private label looms large, Unilever’s major response will be to invest more money in advertising. But with increased TV advertising costs, Unilever will need help to find newer, smarter and more imaginative ways to communicate with consumers.

Currently, the threat posed by Wal-Mart is their “clout” and ability to drive down prices by squeezing margins. To date, Walmart has yet to develop strong brands of their own, but that could quickly change if it starts to invest more money in advertising to build the equity of its private label brands.

Wal-Mart only has to look at Unilever’s home country, the UK, to see the power of private label. Here, grocery retailers Tesco and Sainsbury’s even run their own banks.
Business Times Article

Sainsbury’s and Tesco’s success partly came from the power of ubiquitous distribution, but also from creative advertising that built strong, amicable and trustworthy personalities for each brand. Following this line of argument, we can expect greater advertising investment in the medium term from both Wal-Mart and their partners’ competing brands.

In the short term, Wal-Mart is likely to continue to use its existing tools. For example, IT at Wal-Mart allows the company to compare sales hourly and to adjust promotions on the fly.
Information Week Article

Just the formidable power of Wal Mart’s IT is enough to keep packaged goods companies awake at night, without even thinking about the potential nightmare scenario of Wal-Mart advertising its own brands.

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