Unilever’s decision to launch a home-cleaning and laundry service may have raised a few sceptical eyebrows in the City, but that will not prevent it triggering a major change in the future of the household goods industry.
The company is entering the service economy with Myhome, following its acquisition of London launderette Palace Laundry and cleaning agency Mrs McMopp.
The venture, being tested in south-west London, is part of Unilever’s strategy of bolstering falling profit margins. The company has already revealed that it plans to axe 1,200 of its leading brands and divert its marketing budget into major products to improve sales.
At the same time, a Unilever think-tank is coming up with “incubator projects” – new ventures aimed at generating greater profits. Unilever co-chairman Niall FitzGerald says he wants Myhome, which is one of the first fruits of this new strategy, to eventually capture 20 per cent of the &£1.3bn UK home cleaning market.
Myhome chief executive David Ball says: “We are testing the viability of offering a reliable one-stop shop for people who want their homes and clothes expertly cleaned.”
If successful, the company will roll out the service across the UK and, eventually, to continental Europe.
But Myhome represents a major change of direction for Unilever and the launch has led many observers to speculate that the company plans to become a one-stop shop. Unilever is not the first company to branch out into the service market – and it is unlikely to be the last.
Analysts claim the future for traditional manufacturers lies in offering a full range of services, enabling them to cut out production costs.
More and more businesses are seeking to become “weightless” – in other words they are extending their brand name to services rather than relying on traditional products, which carry huge manufacturing costs.
Centrica, which owns British Gas, the Automobile Association and Goldfish, already offers diverse services to its customer base.
British Gas’ “home services” include heating and kitchen repairs, plumbing, home security and air conditioning, and the AA offers car insurance and financial services. Meanwhile, Goldfish is poised to extend its range to include mortgages and pensions.
Virgin has already stretched its brand to cover a myriad of products and services, from soft drinks to mobile phones and online car hire. Virgin Home Services is about to spearhead the group’s assault on the telecoms and utilities market, offering a package of phone, electricity, water and gas supply.
Many observers believe the death-knell has already been sounded for “old economy” companies, which rely on mass-marketing of major manufactured brands.
Unilever’s move seems to strengthen this view. It claims it is not looking to become a one-stop shop, and has already entered new territories. It owns the Brooke Bond Ch’a tea shop outlets, which have sites in Bristol and Brighton, and is planning a nationwide roll-out. The company also has a stake in Wowgo, an Internet start-up aimed at teenage girls.
A Unilever spokesman says Myhome was chosen as a pilot venture within Unilever’s core competence, because the company has vast knowledge of what consumers want from cleaning products.
But he adds: “At this stage, there are no plans to offer services in other sectors – but we never say never. People are becoming more service-oriented and by tapping into that we can build the business.”
However, analysts claim the City is bemused by the Myhome scheme. One says: “Unilever has already got a lot on its plate. If Myhome fails, it won’t be too expensive because the market is so small. But it’s a mysterious move. Even if it makes &£200m a year – it’s neither here nor there.
“Unilever would be better off spending the capital improving marketing of its main brands.”
Another analyst adds: “If Myhome works, the logical step will be to offer a mass of home services and push into territories of other companies such as Centrica. But it contradicts the idea of Unilever simplifying its business.”
Unilever bosses admit Myhome is targeted at the “higher end” of the market, which could limit its customer base. Cleaning a one-bedroom flat will cost about &£39.99 a week – but the company believes people are prepared to pay for good service.
The company sees Myhome as another way of marketing its headline Jif and Persil brands – even though it will not directly sell products while carrying out the service.
Although the launch of Myhome has puzzled the City, an alternative view is that Unilever has found a perfect strategy to widen its margins – after all, service provision is far cheaper than manufacturing.
Household rivals, however, are also at a loss to explain Unilever’s move. A spokesman for Reckitt Benckiser, which owns cleaning brands Harpic, Windowlene, Mr Sheen and Vanish, says Reckitt has no intention of copying the move.
“That type of service does not fit with our core strategy,” he says. “We see several e-commerce opportunities for consumer portals. But to add customer services such as this is some distance from what we do.” Meanwhile, a Procter & Gamble spokesman claims it has no plans for a similar service scheme.
If Unilever’s foray is successful, its multinational rivals may be forced to eat their words – they too need to rein back on costly manufacturing to concentrate on more lucrative sectors.