General Certificate of Secondary EducationFoundation Tier and Higher TierJune 2010

Business Studies 3132/PMSpecification A

Pre-release Case Study

To be opened and issued to candidates on Monday 1 March 2010

NOTICE TO CANDIDATES

You will be given one copy of this Case Study for use during your preparation for the examination, which you may annotate as you wish, but which you will not be allowed to take into the examination.

You will be provided with a clean copy of the Case Study, along with the question paper, for use in the examination.

You are advised to carry out your own research using this Case Study. It is the business concepts and ideas raised by the Case Study which should be researched.

DO NOT ASK THE COMPANY FOR MORE INFORMATION.

Your teacher is encouraged to give assistance as required.

3132/PMG/T50823/Jun10/3132/PM 6/6/6/3/

F&H

2

G/T50823/Jun10/3132/PM

There is no source material printed on this page

3

G/T50823/Jun10/3132/PM

Turn over

UnileverWeb pages

www.unilever.co.ukwww.benjerry.co.ukwww.potnoodle.com

Source: Images, with the kind permission of Unilever

4

G/T50823/Jun10/3132/PM

Background

Unilever is an Anglo-Dutch multinational company with headquarters in both Holland and the UK. In Holland the company is known as Unilever NV and in Britain it is called Unilever plc.

Unilever was created in 1930 by the merger of British soap maker, Lever Brothers, and Dutch margarine producer, Margarine Unie. Both businesses used palm oil as a key ingredient in their products. The two companies decided to merge because they recognised that they could import palm oil much more cheaply if it were bought in large quantities.

Unilever is a conglomerate and owns many of the worlds consumer product brands in food and drinks, cleaning materials and personal care products. The company has bases in more than 100 countries and sells in 150 countries. Most of Unilevers income comes from Fast Moving Consumer Goods (FMCG). These are relatively low priced products that are sold quickly.

Both the Dutch and UK branches of the company share the same board of directors and operate as a single business. The company has two share prices though, one for Unilever NV and one for Unilever plc. Unilever employs about 200 000 people throughout the world and has a global turnover of more than 40 billion.

Until the 1970s, most of Unilevers business was based on products that contained oils and edible fats. Unilever has diversified by buying several businesses that were not edible oil based. By 1980, soap and edible fats counted for far less of Unilevers profits than was the case in the 1960s.

Each of these 12 Unilever Brands have a global turnover in excess of 1 billion

Knorr Hellmanns Lipton Flora Blue Band Walls Omo Surf Dove Lux Rexona Sunsilk

Unilevers Mission Statement

Unilevers mission is to add vitality to life. We meet everyday needs for nutrition, hygiene and personal care with brands that help people look good, feel good and get more out of life.

5

G/T50823/Jun10/3132/PM

Turn over

History

In the 19th Century, general standards of hygiene in Britain were poor. People found it difficult to keep themselves and their houses clean because, for many, soap was very expensive.

Lever & Co was started by William Hesketh Lever and his brother, James, in 1884. Their father ran a grocery business which sold soap, as well as many other items. Soap in those days was sold in long bars that had to be cut into smaller pieces when the customer got home. William recognised that he could add value by offering bars of cut, wrapped and branded soap in his fathers grocery shop.

The two brothers took over a small soap works in Warrington, Cheshire. The business manufactured Sunlight Soap, which was made with vegetable oils rather than animal fats.

The business outgrew the Warrington factory and Lever & Co moved to larger premises. A factory together with a workers village was built on reclaimed marshland by the River Mersey. The area became known as Port Sunlight. The location was thought to be suitable as it was next to the river, which allowed ships to get close to the factory.

In 1890, the business became known as Lever Brothers Ltd.

Lever Brothers quickly established a good reputation for being an ethical business. The company set up projects to improve the lives of its workers and created products that benefited society. Soap and other cleaning materials made by Lever Brothers also improved hygiene.

By 1911, the company had established its own palm plantations in West Africa and the Solomon Islands. Lever Brothers also acquired other soap companies, including A&F Pears.

Early Packaging of Sunlight Soap

6

G/T50823/Jun10/3132/PM

Marketing

Unilever currently owns about 400 brands, which can be split up into four categories:

Savoury, dressings and spreads Ice cream and beverages Personal care Home care.

Unilever uses television extensively to promote its products and to reinforce its brands. It also uses sponsorship, both to advertise its name and to set out its core ethical values.

Heartbrands

Unilever is the worlds biggest ice cream manufacturer with an annual turnover of more than 5 billion. Most of its brands are sold using the Heartbrand logo. The distinctive double heart was launched in 1999 (and slightly modified in 2002) in order to increase international brand awareness. Although the logo is common worldwide, each country retained the local brand so that customers would be familiar with the product. In the UK, Unilever kept the Walls brand.

The Heartbrand Logo

Unilevers major competitors include

Procter & Gamble Nestl Kraft Foods Mars Incorporated Reckitt Benckiser

7

G/T50823/Jun10/3132/PM

Turn over

Two Examples of Unilevers Brands

Pot Noodles

Instant snacks, Pot Noodles, were introduced to UK consumers in 1977. The product is targeted in particular at the young male market, using humorous and sometimes controversial advertising.

The product has developed since its introduction. New flavours have been added and salt content reduced to make the snack healthier.

In 2008, Unilever announced that it intended to close the factory at Crumlin in South Wales, where Pot Noodles are made. Following negotiations with unions, however, Unilever decided to keep the plant open and to invest 1 million in automated machinery.

Ben & Jerrys

Ben & Jerrys is a popular ice-cream brand at the luxury end of the market. The business was bought by Unilever in 2000. Unilever has chosen not to sell Ben & Jerrys ice cream using the Heartbrand logo.

Ben Cohen and Jerry Greenfield created the business in 1978 after they had learned to make ice cream by taking a correspondence course. The two partners decided to franchise the brand in 1981, allowing other businesses to use its name. In 1995, Ben & Jerrys expanded to Europe, followed by Japan in 1998.

Ben & Jerrys ice cream is made using batch production methods. The unflavoured ice cream is made in 5000 litre containers. The ice cream is then moved to 2500 litre containers where the flavours are added. The equipment is then cleaned for another batch to be produced.

8

G/T50823/Jun10/3132/PM

Stakeholders

Unilever says that it has been involved in a growing number of projects to obtain its raw materials from sustainable sources. Unilever also believes that it has a responsibility to support the local communities in which it operates.

Local communities

In 2007, Unilever contributed 89 million to local communities in the form of cash contributions and other support. This helped fund more than 14 000 community projects around the world. About two-thirds of this funding went on long-term community investments. The rest was given as charitable donations in response to urgent local social needs.

Employees

When Lever Brothers moved its soap making business to Port Sunlight, it built good quality housing for its employees. Unilever states that it continues to take an interest in its employees. The company is concerned that its workforce represents the communities in which it is based. Having a diverse set of employees, Unilever says, helps the company to understand its customers. Unilever has a policy of giving fair consideration to all job applicants regardless of such things as gender, nationality, race, creed and disability.

Unilever ensures that its employees are trained to do their jobs safely and efficiently. The company also tries to ensure that its employees enjoy a healthy work/life balance.

Unilever has recently decided to outsource some of the work of its human resource department to another organisation.

Outsourcing

Using another company to take responsibility for certain aspects of a business.

9

G/T50823/Jun10/3132/PM

Turn over

Ethical Business Practice

Unilever states that it measures its success by acting with the highest standards of corporate behaviour towards our employees, consumers and the societies and world in which we live.

Unilever has tried to behave in an ethical manner. From 1996 to 2009, Flora sponsored the London Marathon. Unilever has promoted the use of free-range eggs in its Hellmanns products. The company ensures that it pays a fair

price for the tea it buys for its PG Tips brand. Dove Soap has also tried to raise the self-esteem of women with its Campaign for Real Beauty.

Palm oil is still an important ingredient in some of Unilevers products. Palms are grown in Asia, Africa and Central America, in some of the poorest rural areas of the world. Many people rely on growing palms and extracting its oil for their incomes. Money made from selling palm oil is also used to regenerate some of the poor areas in which it grows. For example, funds made from palm oil were used to pay for a hospital in Sierra Leone, in West Africa.

The demand for palm oil has expanded in recent years. Some of this increase is due to the growth in the economies of India and China. Palm oil is also being increasingly used as an ingredient in livestock feed and for biofuels.

Palm oil production has an environmental impact. Environmental pressure groups, such as Greenpeace, point out that tropical rainforests are being destroyed to make way for palm plantations. Animal habitats are being destroyed as a result of deforestation.

Unilever says that not all of its products use palm oil. It points out that the company has a long history of promoting sustainability of resources, particularly with tea and fish. It also states that it is leading the search to find ways of making palm oil production sustainable.

Source: Copyright Guardian News & Media Ltd 2008

Economic Factors

Unilever operates in many countries. The company accounts are given in euros, so costs, revenues and profits need to be converted into this currency. Unilevers profits are affected by changes in exchange rates.

The global recession and credit crunch, that started in 2008, meant that many businesses had to find ways of maintaining demand for their goods. Many jobs have been lost as businesses attempt to reduce their costs.

Doves Campaign for Real Beauty

Environmentalists protesting outside Unilevers headquarters

10

G/T50823/Jun10/3132/PM

Finance

Unilever publishes its accounts in euros.

Table 1

Details of Unilevers finances extracted from the Company Accounts.

All figures are million.

2008 2007 2006Turnover 40 523 40 187 39 642Cost of Sales 21 342 20 558 20 093Net Profit 5 285 4 136 5 015

Non Current Assets (Fixed Assets) 24 967 27 374 27 571Current Assets 11 175 9 928 9 501Current Liabilities 13 800 13 559 13 884Total Capital Employed 22 342 23 743 23 188

Breakdown of turnover and profits by region: Western Europe, Americas and Asia/Africa

Chart 1

20076 000

8 000

10 000

12 000

14 000

7 000

9 000

11 000

13 000

15 000

2008

Unilever: Turnover by Region

Turnover: million

2006

Key: Western Europe Americas Asia/Africa

11

G/T50823/Jun10/3132/PM

Chart 2

20071200

1600

2000

2400

2800

1400

1800

2200

2600

3000

2008

Unilever: Operating Profit by Region

OperatingProfit:

million

2006

Key: Western Europe Americas Asia/Africa

Issues for the Future

Unilever has to make a profit in order to keep its shareholders happy. It also wishes to maintain its ethical reputation for which it is known.

Consumers are becoming concerned about the environmental effects of continuing to produce large amounts of palm oil. However, palm oil production generates incomes in some of the poorest areas of the world.

As a multinational company, Unilever is influenced by exchange rates. This is a particular concern as the business has headquarters in two countries that do not share the same currency.

The world has recently experienced a global recession. Keeping the business profitable without having to make large numbers of employees redundant is a concern.

END OF CASE STUDY

12

G/T50823/Jun10/3132/PM

There is no source material printed on this page

Copyright 2010 AQA and its licensors. All rights reserved.