Prudence pays off for Unilever Bangladesh

Foresight and smart policies can help a company keep its operations going smoothly and make profits, even when others hit the rocks with Covid-19 shocks snapping supply chains.

Take the case of Unilever Bangladesh for an example. The multinational joint venture company – the Bangladesh government owns nearly 40 percent of its shares – sensed long before many other companies that Covid-19 would affect businesses, including the supply chain.

The company started looking for alternative sourcing hubs to China from the beginning of January when many companies had not even heard of the coronavirus, let alone consider its impact. It anticipated that the demand for its products, such as soaps and handwash, would spike.

That advance thinking has paid off for the company. It did not need to keep its factories closed for a single day. Its factories worked round the clock – three shifts a day, to cater to the growing needs for personal and household hygiene products that have been in high demand due to the coronavirus.

Despite a massive slowdown in sales of the company's beauty products, it has successfully avoided a fall in total revenue income by cushioning the slowdown with sales of the cleaning items. 

"We were aware of Covid-19 at the beginning of January because some of our raw materials come from China, Indonesia and Malaysia. So, our team started working on alternative sourcing hubs of the materials," Kedar Lele, chief executive officer and managing director at Unilever Bangladesh, told The Business Standard in an interview recently.

"Our products have never gone out of stock in this pandemic time," said Kedar Lele, the 44-year-old CEO of the largest fast-moving consumer goods or FMCG in Bangladesh.

He stepped in beforehand as he knew that the supply chain and the import of raw materials were always at risk in Bangladesh. Businesses here have learnt to live in volatilities and congestions and time does not work in Bangladesh, he noted.

"You [have to] plan plenty ahead of time. Because of such factors, all of us use much larger safety stocks. So, in the first eight weeks, despite the disruptions, most businesses had enough stocks to survive," said Kedar.

Over a period, while the supply side improved in China, port congestions in Chattogram loomed as a new challenge for them in February and March. Things got further acute when West Bengal announced a lockdown from March 22 since Unilever Bangladesh depends for around 40 percent of its raw materials on India.

Hundreds of trucks were stuck at both the Benapole and Petrapole ports in Bangladesh and India respectively as there were no customs officials, no loaders and nobody at the ports. The situation negatively impacted Unilever's sourcing of raw materials, especially for packaging.

It was at that point that Kedar Lele began thinking out of the box. Since his stint in Bangladesh began in 2017, he had been trying for over two years to convince both Bangladesh and India to allow the import of bulk raw materials by train, but that was not happening.

Finally, it happened two weeks ago as a cargo train came from India, where Unilever Bangladesh brought in nearly 1,200 tonnes of much-needed raw materials.

"We imported raw materials in 22 bogies, taking 60 trucks off the roads. Why does Bangladesh not use the railway as a means of carrying raw materials in bulk? It can unclog the roadways," he said.

How he understood Covid-19 might disrupt supply chain long before others  

Apart from looking for alternative hubs for importing raw materials in early January, Unilever Bangladesh had begun work from home on March 17 – 10 days before the government went for the national holidays.

"Are you over-cautious?" people questioned Kedar Lele. "Many people were calling me very pessimistic."

Then he revealed the advantage of doing work for a big multinational company or MNC across a global spectrum.

"MNCs help you understand the extent of a crisis or opportunity by looking at the rest of the world. We were very clear that we had to do things this way as offices are not designed in a way that helps maintain social distancing," said Kedar.

Advantages of Unilever in Bangladesh and business during Covid-19

Unilever is blessed with portfolios. It has 22 brands in 10 to 11 categories covering hygiene, home and personal care, beauty and food and beverages. Unilever has been growing at a compounded annual growth rate of 11 percent a year for the last decade. It has over 50 percent market share in the categories it operates in Bangladesh.

Although Covid-19 has negatively impacted businesses of all types, it has hardly had any significant effect on Unilever. More than 50 percent of Unilever's portfolios were not affected because of hygiene and food products, according to Kedar.

A small portion has been affected as womenfolk are not going out to buy beauty products as they do not need cosmetics at this time of the pandemic.

On the other hand, demand for handwash has gone up substantially. According to him, around 30 percent more consumers are now using liquid handwash compared to pre-Covid-19 times. Its Lifebuoy brand is the market leader in the handwash category in the country.

Kedar said he had seen double-digit growth for soaps and detergents too. Interestingly, Unilever's tea sales have also gone up in recent times.

Quoting a research report, he said consumers now buy Unilever products amounting to around Tk8,000 crore a year.

"I am satisfied with our overall business because it did not decline," Kedar said.

Restriction on promotional expenses is anti-business move

The restriction on promotional expenses at 0.5% of turnover is one of the most draconian and unthoughtful proposals in the budget, according to Kedar.

In the normal course of business, companies deploy a number of promotional activities to increase demand for their products and services. Globally and in Bangladesh (till the enactment of the Finance Act 2020), the actual expenditure in this head was allowed as a business expense, he added.

The magnitude of this expense is driven by a company's business plan, execution of long-term strategy and competitive landscape. It is especially in the FMCG sector that promotional costs are a prerequisite for a company to maintain sustainable growth and ensure shareholders' return.

"Imposition of allowable limits upon such an important business expense will act as a show stopper in the company's growth agenda and will impact both government and shareholders' returns adversely," he concluded.