High interest rates affect Unilever’s costs, pricing, and consumer behaviour. Central banks raised interest rates to fight inflation, increasing business borrowing costs (Prosci, 2024; Woods, 2023). This makes financing for Unilever’s new investments or refinanced debt more expensive. Higher interest rates limit Unilever’s capital expenditure plans or reduce the demand for acquisitions and expansion projects. Furthermore, an increase in interest rates reduces consumer spending power. Many households face higher mortgage and credit payments, which reduces their disposable income for everyday Unilever goods. This affects sales volumes of branded products (Sillars, 2023). Key organisational priorities for Unilever are to maintain affordability and value for money. The company achieves this through increased promotions and smaller pack sizes at lower prices. Another critical priority is financial management. Unilever’s finance team manage currency and interest-rate risks. They prioritise paying down variable-rate debt and securing fixed rates to protect the cost base.
Inflation increases Unilever’s input costs and pricing strategy. For example, global inflation, caused by supply chain disruptions and commodity price surges, raised costs for raw materials (oils, dairy, packaging plastics) and manufacturing energy (Sillars, 2023; Woods, 2023). Unilever experienced much higher production costs after the Ukraine war increased energy prices and commodity costs (Sillars, 2023). To manage this, Unilever decided to increase product prices, influencing customer inflation. In 2022-2023, price increases led to sales growth despite lower sales volumes (Sillars, 2023). Regulating pricing is now a key organisational priority. Unilever must protect profit margins from inflationary pressure without losing customers. Therefore, the company prioritises large cost-saving programmes and hedging contracts to control volatile raw material costs (Fitch Ratings, 2023). Unilever must explain price rises to retailers and consumers to maintain trust. Despite easing inflation, Unilever focuses on value creation through innovation and supporting consumers via promotions.
Global supply chain disruption is an external factor impacting Unilever. For example, COVID-19 and the Russia-Ukraine war strained raw materials and logistics networks (Adams, 2022). Unilever faced ingredient shortages, delays, and much higher shipping costs (Adams, 2022; Sillars, 2023). For example, the Ukraine war disrupted sunflower oil supplies and caused commodity price increases. Port congestions and container shortages also increased delivery times. These issues risk product stock-outs or force rapid sourcing changes. Unilever’s organisational priority is to enhance supply chain resilience. The company invests in diversifying its supplier base and building stocks of critical items (Woods, 2023).
References
Prosci (2024). Applying the Kubler-Ross change curve to change management. [online] Prosci.com. Available at: https://www.prosci.com/blog/kubler-ross-model-change-management. Sillars, J. (2023). Cost of living: Consumer goods giant Unilever expects price growth throughout 2023. [online] Sky News. Available at: https://news.sky.com/story/cost-of-living-consumer-goods-giant-unilever-expects-price-growth-throughout-2023-12806567. Woods, S. (2023). CIPD Wellbeing at work 2023 report summary. [online] Altruist Enterprises. Available at: https://altruistuk.com/blog/2023/cipd-wellbeing-at-work-2023-report-summary.
Additional External Factors and Trends Impacting Organisations: Unilever Case Study
Social Trends: Shifting Consumer Preferences and Ethical Consumption
Technological Impact: Digital Transformation and Artificial Intelligence
- E-commerce Growth: The proliferation of online shopping platforms and direct-to-consumer models necessitates robust digital infrastructure and marketing strategies. Unilever’s personal care division, for example, has seen e-commerce reshaped by AI, mobile innovation, and personalized customer experiences.
- Artificial Intelligence (AI) and Data Analytics: AI is transforming various aspects of Unilever’s operations, from supply chain optimization to product innovation and marketing. AI is used to enhance innovation, improve execution, and facilitate better decision-making across its Personal Care business [5]. Furthermore, AI and digital tools are leveraged in the ice cream supply chain to respond to changing weather patterns, optimize inventory, and reduce waste [6]. This digital transformation reduces complexity and builds capacity for growth across the business.
Environmental & Legal Factors: Sustainability Regulations and Resource Management
- Plastic Packaging Regulations: Governments worldwide are introducing measures such as plastic taxes and extended producer responsibility schemes to tackle plastic pollution. Unilever has set ambitious targets for reducing virgin plastic use and increasing recycled content in its packaging, aiming for 25% recycled plastic by 2025. The company is actively working towards a circular economy for plastics, innovating in recycling and reuse.
- Climate Change and Net-Zero Targets: The global push towards net-zero emissions impacts energy sourcing, manufacturing processes, and supply chain logistics. Companies are under pressure from consumers, investors, and regulators to reduce their carbon footprint. Unilever’s sustainability agenda includes advancing various initiatives to meet these environmental challenges.
- Resource Scarcity: Water scarcity and sustainable sourcing of raw materials (e.g., palm oil, cocoa) are ongoing environmental concerns that directly affect Unilever’s supply chain and operational costs.
HR-Specific Priorities: Workforce Planning, Wellbeing, and Skill Development
- Employee Wellbeing: Economic pressures (like high interest rates and inflation) can significantly impact employee financial and mental wellbeing. HR’s priority is to implement comprehensive wellbeing programs, provide support resources, and foster a supportive work environment to mitigate these external stressors.
- Workforce Planning and Skill Development: Technological advancements, such as AI and digital transformation, create a demand for new skills and may render some existing roles obsolete. HR must prioritize strategic workforce planning to identify future skill needs, implement robust training and development programs, and manage talent acquisition to bridge skill gaps. This includes upskilling the existing workforce and attracting new talent with digital and analytical capabilities.
- Diversity, Equity, and Inclusion (DEI): Social trends emphasize the importance of diverse and inclusive workplaces. HR plays a crucial role in developing and implementing DEI strategies, ensuring equitable opportunities, and fostering an inclusive culture that reflects societal values and enhances organisational reputation.
