Why Has Unilever Committed to Sustainable Tea?

Why has Unilever committed to Sustainable Tea?

The business model for Unilever’s Lipton Tea brand represents a solid example of the challenges the company faces as a whole. Tea is highly popular worldwide but serves markets that are globally diverse with fragmented supply chains. Tea is sourced from agricultural products with labor intensive practices. The low switching costs for the consumer eliminates barriers for competition resulting in the commoditization of tea. To succeed in this traditional business model required on-going cost reduction. Measures taken to reduce costs in the tea industry negatively impacted workers’ well-being and actually lowered productivity. Pesticide use and farming techniques intended to increase productivity were destroying the land. In short, Unilever saw the supply chain of tea on an unsustainable path, and the long term viability of its business model threatened. Furthermore, Unilever CEO Paul Polman recognized that when he combined these challenges with the unknown impact of climate change and the anticipated increase in demand due to forecasted growth in the global population, the long term viability of Unilever’s overall business was at risk. Something had to change.

In 2010, Unilever announced this change through their “Sustainable Living Plan” initiative. In short, Unilever was committing its company to improving the health and well-being of their consumers, reducing the overall environmental impact of their products, and sourcing 100% of agricultural material sustainably by 2020. Michiel Leijnse, global brand director for Lipton Tea, believed that Unilever could leverage this concept of “sustainability” beyond the practical aspect of product availability to become a driver for product differentiation. By wrapping the entire company brand around this initiative of “sustainable living,” Unilever could leverage the much needed transformation of its supply chain into brand equity with consumers. In short, Unilever was committed to Sustainable Tea because it aligned good business practice with a solid marketing strategy.

Has the introduction of certified tea been a success for Unilever? Why do you say that?

Given the full scope of risk the “certified tea” initiative presented to Unilever, compared with the results achieved to date, I would conclude that the introduction of the this strategy has been a success. The certification approach was clearly high risk because it would add significant cost to a commoditized product with no guarantee it would increase sales or that competition would follow. If this idea of “certified tea” did not catch on with consumers, Unilever would find itself with a higher cost basis in a market where price was dictating sales. And, although the sustainable practices may prove beneficial for the product supply in the long