Online Extra: Unilever Indonesia's Long Reach
By Frederik Balfour
The prospect of operating a distribution network across the far-flung Indonesian archipelago of 17,000 islands might seem daunting. But not for Unilever Indonesia , which has extended its reach so far that it claims to have at least one of its products in 95% of Indonesian homes. Its offerings, which include household brands such as Lux Soap, Sunsilk shampoo, Pepsodent toothpaste, and Rinso detergent are sold in more than 600,000 outlets, from the gleaming modern malls of Jakarta to grass-roof huts in the distant villages of Lombok. "Logistics is a challenge, but I see our network as our competitive advantage," says company President Maurits Lalisang.
By offering small-pack sizes of many products such as laundry detergent and shampoo costing just a few cents, Unilever has ensured that its brands are affordable to virtually all of Indonesia's 200 million consumers. That strategy, which grew out of the Asian economic crisis of 1997-98, has helped drive steady growth for the company, which reported a 20% growth in earnings in the first half, to $114 million on sales of $668 million.
Ranked No. 1 of Asia's Top 50
That's just the latest stellar performance for Unilever Indonesia. The company, a Jakarta-listed subsidiary of Rotterdam-based consumer products giant Unilever , sits at the top of BusinessWeek's ranking of the top 50 Asian companies. And now that it's No. 1, Lalisang is looking to keep growing. He predicts low-double-digit growth for the full year.
Unilever Indonesia isn't just focusing on the local market. Low wages and a hardworking labor force have not only helped keep margins strong but also have enabled Unilever to use its Indonesian manufacturing plants to export products such as Close Up toothpaste and Lux soap to neighboring countries in Southeast Asia. The company now ships its Walls ice cream and Lipton tea brands all the way to Australia.
But despite Unilever's commanding presence in Indonesia—where it has operated for 75 years—the company is bracing for more competition in cities and larger towns where traditional wet markets are giving way to modern supermarkets and megastores. "If a company wants to enter Indonesia, of course they will attack us in the modern sector," says Lalisang, who predicts this sector could account for 60% of the market by 2011, vs. about 40% today.
Targeted Marketing and Quality Control
Another key to its continued success is the company's "micromarketing" approach, which avoids a one-size-fits-all strategy. For example, Unilever Indonesia aggressively markets hair conditioner in the city of Makafar, where salt from the sea warrants greater need for such products, as opposed to Jakarta, where demand for hair conditioners is less significant.
One constant challenge is battling counterfeiting and ensuring food safety. Because Unilever does not outsource its manufacturing, quality assurance at the origin is controlled, which is why the company was not adversely affected by the recent scare about toothpaste from China. However, with such an extensive distribution network—some products change hands 10 times before reaching the consumer—the risk of counterfeits slipping into the supply chain is always there.
Balfour is a correspondent in BusinessWeek's Hong Kong bureau