Unilever Plc: Innovation, Brands And Sustainability

unileverIn 1885 in Liverpool, William Hesketh Lever and his brother James bought a small soap works. They made a soap from vegetable oils, and named it “Sunlight”.

Thus they created the first of Unilever’s (LSE: ULVR) (NYSE: UL.US) famous brands. Their innovation, bar soap made from vegetable oils and produced cheaply on an industrial scale, may seem mundane, but at the time it was as revolutionary, and as successful, as the iPhone is today.

Constantly innovating, and constantly building brands

What William Lever soon realised was that research and development could make the difference between a mediocre and expensive product and a product that was cheap, attractive and effective.

He realised that he had to invest in innovation to make the best products, and also in marketing to appeal to the consumer. This concept, of investing in research and then building a brand through marketing, is the basic principle which has driven Unilever’s growth from a Liverpool soap maker to a global consumer goods giant.

In 1929 Lever Brothers merged with Dutch company Margarine Unie, to form Unilever. The merger made commercial sense because the main raw material of both companies was palm oil. It is for this reason that today Unilever is a company that is part a homecare, health and beauty company, and part a food company.

Rather than palm oil, these days it is perhaps this marriage of commercially-relevant innovation with big-budget, multi-channel marketing that binds this company together.

Whether you are talking about Comfort fabric conditioner, Lynx deodorant or Magnum ice cream, each of Unilever’s products is carefully designed, developed and marketed to the consumer. Research adds value to the products, and marketing builds premium, sexy brands. Then by taking these brands around the world, from mature markets such as the States and Europe to emerging markets such as Brazil, India and Nigeria, Unilever multiplies its profits.

A sustainable approach to success

But there is more to this company than innovation and brands. In the early years of Lever Bros, William Hesketh Lever built a village for his employees, which he called, appropriately enough, ‘Port Sunlight’. This sense of social responsibility has extended to the present day, through the company’s policy on sustainability.

Modern consumer goods giants such as Unilever and Procter & Gamble have realised that, in a world where the population just keeps growing, and each person in this world is consuming more and more, these companies have a responsibility to source and manufacture their products responsibly and sustainably. So Unilever aims to make products that improve health and well-being, it aims to reduce the environmental impact of its products, and it aims to enhance the livelihoods of its employees.

This three-pronged approach of innovation, brands and sustainability is working: the company is steadily growing revenues and profits, and its share price over the past decade has performed well. This approach is one of the reasons why this company has been around nearly a hundred years, and it could be around a hundred years more.

The commercial world can change very quickly, and the fortunes of a company can change just as fast. Unilever is one of very few companies which I would be happy to hold until the day I retire.

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> Prabhat owns none of the shares mentioned in this article. The Motley Fool owns shares in Unilever.