Unilever’s Woes In Indonesia Carry A Warning For Its New CEO

Fernando Fernandez, who takes over Saturday as the new CEO of Unilever Plc, has a track record in emerging markets that have driven the expansion in recent years of what’s one of the world’s biggest consumer goods groups. The 37-year company veteran will need all the skills he can muster for a market where the maker of Dove soap and Ben & Jerry's ice cream faces some of its most-entrenched problems: Indonesia. 

Consider what he’s up against: At Aeon supermarket on the outskirts of Jakarta, Unilever’s Rinso detergent was recently priced at 75,500 rupiah ($4.60) against a discounted 29,800 rupiah for local rival Wings Group’s SoKlin. The capital’s food stalls that use sweet soy sauce — a staple of dishes from chicken satay to “nasi goreng” — buy Wings’ Kecap Sedaap label that’s 3,000 rupiah cheaper than Unilever’s Bango brand. Some of the corner stores sprouting across the country say they can’t directly stock Unilever goods because the company doesn’t take small orders.

Urbanization is driving consumers in emerging markets like Indonesia from supermarkets and hypermarkets to small, neighborhood mom-and-pop shops and mini marts, and inflation has fostered penny-pinching habits. That has the maker of  Persil, Vaseline and other country-specific brands struggling to re-tailor its strategy. Caught on the wrong foot by nimble local players that have eaten into its market with freebies, slashed prices and rapid product upgrades, the London-based company last month reported a 30% plunge in 2024 net income in the country — the sixth consecutive annual decline.

Unilever’s local rivals’ “game is simple: just cut the price,” said Willy Goutama, an equity analyst at PT Maybank Sekuritas Indonesia. “They are willing to operate at a loss if that means gaining market share; Unilever, like many multinationals, tends to prioritize profitability...Most of the time, Unilever is too late to react.”

For Fernandez, 58, who’s taking over after the abrupt ouster of Hein Schumacher this week, fixing operations in Indonesia is urgent. It’s among a slew of challenges, which include spinning off the ice-cream business and cutting costs, as he’s pushed by the company’s board to transform the sprawling group faster. With annual sales of around €2 billion, Indonesia accounts for just over 3% of Unilever’s global sales. But as problems in the Southeast Asian nation are increasingly mirrored elsewhere, it has become a test case for Unilever’s developing-markets operations, which rake in around €35 billion annually, or about 58% of total revenue.

Getting strategies right in emerging markets is crucial for multinationals like Unilever, Nestle SA and Procter & Gamble Co. that rely increasingly on the rising middle classes in these countries to drive growth. But a new cohort of ambitious domestic players is threatening market shares and profit margins. Local brands have already taken a majority share of the food and beverage market in Indonesia, overtaking multinationals — a trend that’s accelerating, according to a study by Boston Consulting Group. 

Multinational companies’ strategies that worked for decades in emerging markets have slowly unraveled as hungrier homegrown companies have gained in size and sophistication and as geopolitical and macroeconomic uncertainties have tipped the scales toward buying locally — from the Gaza-conflict-led boycott of western products to the emerging tariff wars being driven by US President Donald Trump. 

“Historically, MNCs led the premium segment, supported by the perception that foreign brands were superior, aspirational, and symbolized trendiness and quality. However, in recent years, that ‘halo effect’ has waned and local brands have substantially increased their quality and competitiveness,” according to consulting company Bain & Co.