HOMEWORK ASSIGNMENT #2 TO: FROM: RE: DATE: Karl Schmidt Jared Sessum Sustainable Tea at Unilever, Harvard Business School January 29, 2013 This memorandum addresses the following questions based on information found in the Harvard Business School case study on Unilever: Why did Unilever commit to sustainably source 100% of its tea? Has Rainforest Alliance certification been success for Unilever –why or why not? What should Unilever do with its tea business in India? Why has Unilever committed to sustainably source 100% of its agricultural inputs? Does this make strategic and economic sense?
WHY DID UNILEVER COMMIT TO SUSTAINABLY SOURCE 100% OF ITS TEA? The “Sustainable Living Plan” was rolled out by Unilever in 2010 as a document outlining the company’s commitment to improving the health of its employees, suppliers, and customers, while also reducing environmental impacts and sustainably sourcing 100% of their agricultural raw materials used in production. Our world faces enormous challenges with regards to food security, reducing poverty, sustainability of resources, and climate change, as well as social, economic, environmental development.
Unilever CEO Paul Polman realized the interdependent hardships that we all will experience if these issues go unchecked and implemented the Unilever plan with the hope that meeting the company’s ambitious goals would encourage product innovation, drive savings, and increase differentiation across the company’s portfolio of products. HAS RAINFOREST ALLIANCE CERITFICATION BEEN SUCCESSFUL FOR UNILEVER? Unilever’s decision to pursue certification was relatively easy one considering the fact that the approach to sustainable agriculture by Rainforest Alliance was in-line with the goals established by Unilever.
A great deal of success has been experienced by Unilever through their Rainforest Alliance Certification initiative. There have been increases in sales and market share, positive impacts on the environment, but most importantly, a sense of empowerment for the farmers who are able to maintain sustainable agricultural practices while living healthier and creating a farm that can be passed on to future generations. Customers of Unilever have historically expected the highest quality tea so the implementation of Rainforest Alliance certification was also wellreceived by consumers of Unilever products.
The following is a breakdown of some of the gains realized by Unilever in the first year of implementation of Rainforest Alliance Certification: In the U. K. , PG tips market share increase 1. 8 points, 6% sales increase, purchase repeat rate 44% to 49% In Australia, market share increased by 158 basis points from 24. 2% to 25. 8 %, sales rose by 11% In Italy, sales increased by 10. 5%, market share increased 2% points, increased buyer base In the U. S. , the marketing campaign spread awareness of the benefits of the certification but this did not relate to a significant effect on overall market share for Unilever products.
HOMEWORK ASSIGNMENT #2 January 29, 2013 Page 2 WHAT SHOULD UNILEVER DO WITH ITS TEA BUSINESS IN INDIA? There is tremendous growth opportunity in the tea market in India for Unilever. However, there are at least two critical factors that could be substantial roadblocks to Unilever reaching 100% sustainably sourced tea from India. The first issue is that there is no organizational model to train and rollout the farming practices that will be required in order for farmers to reach Rainforest Alliance certification.
Without established government sponsored cooperatives to provide training, such as the case in Africa, the quality of training and standards varied dramatically from farm to farm and factory to factory. The other main issue related to Unilever’s sustainable farming practices in India is that child labor and pesticide use by farmers were in direct conflict with Rainforest Alliance standards. While the UN’s International Labor Organization set the legal age for employment in developing nations at 14 years old, Rainforest Alliance certification required that farms do not employ anyone under the age of 15 years old.
In addition, the highly toxic pesticide Paraquat was widely used in tea production. Options for Unilever to address these challenges would be to work with local NGOs for training and implementation of sustainable farming practices, implement industry-wide initiatives, and introduce alternative standards based on and tailored to India’s local growing practices which can be used as a stepping stone towards future Rainforest Alliance certification.
It may also be beneficial for Unilever to implement a national public marketing campaign based on education of Rainforest Alliance certification principles, sustainable agriculture practices, and specifically sustainably sourced tea. With tea bags and green tea emerging as growth segments in the India tea market, Unilever can gain a competitive advantage by becoming the leader in sustainably sourced tea and marketing the high quality products that will result from agricultural practices established by certification.
While branded coffee shops are another growth area, Unilever may find value in collaborating with, and selling to, these coffee shops as most also carry tea as an alternative option for customers. Helping to establish and working with NGOs will expedite the flow of information and training required to implement sustainable agricultural strategies. Deployment of a training force to the regional tea companies will have the greatest impact for Unilever in India. WHY HAS UNILEVER COMMITED TO SUSTAINABLY SOURCE 100% OF ITS AGRCULTURAL INPUTS? DOES THIS MAKE STRATEGIC AND ECONOMIC SENSE?
In order to meet the goals set under the Sustainable Living Plan, Unilever would need all of their agricultural raw materials to be sustainably sourced, including the paper and board used for tea packaging and tea bags. Positive environmental impacts, increased market share, and improvement in the lives of hundreds of thousands of farmers have been realized since Rainforest Alliance certification was launched in 2007. These factors led to increased sales in many markets and justified the plan to sustainably source its agricultural inputs.
However, most of Unilever’s competitors have implemented certification strategies of their own which has lessened the competitive advantage that Unilever realized in the early stages of their sustainability strategy. In Western markets, sustainability has become more of a cost of doing business in order to keep up with the competition rather than an investment to gain market share and fuel growth. Being a leader in sustainably sourced tea has set up Unilever to overcome challenges with implementing the Sustainable Living Plan in emerging markets and applying sustainable agricultural practices in other areas of their business.
Lessons learned early on in the process of implementation will allow for Unilever to be a step ahead of the competition when applying the certification process to other HOMEWORK ASSIGNMENT #2 January 29, 2013 Page 3 agricultural raw materials associated with their business. Improving the health and well-being of the lives of Unilever’s employees, suppliers, and customers is worth the cost associated with their sustainability goals. In addition, reducing the environmental impact associated with greenhouse gases, water usage, and waste makes strategic and economic sense for everyone.
