HUL: Making a strong comeback?

If a series of aggressive moves and recent financial results are anything to go by, Hindustan Unilever Ltd may just have begun to respond to market challenges with a steadfast will. How does future look like for HUL? Is its strong comeback just round the corner? 

Hindustan Unilever Ltd (HUL) has planned to announce new product lines while investing in innovation to tap the new consumer demand gravitating toward premium products. To achieve this, company is making heavy investments into advanced data analytics solutions to determine demand trends and shape its market moves accordingly.

In another development, the FMCG behemoth has upped the ante for counterfeiters found copying its brand identity. This year, HUL has lodged nearly 30 police cases complaining about companies using identical logo, trademark and product descriptions on their packaging.

Some of these positive market-moves by HUL indicate the company’s new-found aggression and assertiveness in the Indian market this year. Readers would recall that the financial results for the fourth quarter ended March 2018 (Q4FY18) of Hindustan Unilever Ltd (HUL) had surprised the stock market and analysts. Surpassing analysts’ estimates in both—bottom-line as well as top-line growth—HUL posted a standalone net profit of ₹ 1,351 crore up by 14.20 per cent compared to income of ₹ 1,183 crore in the corresponding quarter of the previous year. Q4FY18 net profit saw gradual increase of 1.88 per cent from ₹ 1,326 crore of preceding quarter.

The changing tide

The scenario had not been the same for the HUL always. In the past it experienced a stiff competition from Patanjali—a name synonymous with natural and herbal-based products. Patanjali Ayurved, that started out as a small pharmacy, quickly saw a meteoric rise to challenge established players as it expanded into diverse products since 2009. Its revenue for 2016-17 crossed ₹ 10,000 crore mark from nearly ₹ 500 crore just six years ago. Baba Ramdev, the brand ambassador for Patanjali, has now set a target for ₹ 20,000 crore to be achieved during the next three to four years.

Consumer preferences for natural products like Patanjali began to impact the performance of some of the biggest personal care brands owned by HUL. It was at this time that the FMCG leader began to work on a plan—which seems to have paid off. In its company research note, ICICIdirect has reported that the company, at its annual investor meet on June 6, 2018, reiterated its positive outlook on the long term consumption story of India driven by urbanisation and premiumisation.

In the personal care segment, the company highlighted headroom for growth across categories and segments. HUL stated that compared to Indonesia, India can grow 2x+ in categories like personal wash, face creams, shampoo, deodorants and toothpastes. Seven brands of HUL have reached ₹ 1000 crore plus size. HUL outlined the key thrust areas in line with its overall strategy. To increase the mass market penetration, HUL is working on smaller sachet packets.

Winning in many Indias

For a firm that has a strong legacy of over 80 years and over 18,000 direct employees and many more indirect employees in India, a strategy to adopt new initiatives takes time and effort – both that HUL has actively invested. The blueprint of this strategy was Winning in Many Indias (WiMI) which was launched by Sanjiv Mehta, CEO since 2013. The WiMI operating framework is a planning and execution framework with which all HUL’s functions—sales, marketing, supply chain and finance—will operate.

It is perhaps this long term vision that made the company nimble enough to seamlessly battle an uncertain economy gripped by demonetisation and later by GST, a volatile marketplace, stiff competition, and a fast-evolving generation of consumers and employees.

HUL first moved from the classic hierarchical structure to a flatter organisation and empowered many of its on-ground staff to take quick decisions. It has rallied its entire workforce to be much more cohesive and collaborative—working with external partners and stakeholders. At the same time, it has invested into decentralising power and authority and empowering its young leaders  make critical business decisions. The latest annual report for FY2018 shows that the organization is becoming younger with 49 per cent of its employees in the age-group of 40 years or less, compared with 32 per cent in FY17.

Adding Hi-Tech to the portfolio

“It’s not the strongest of the species that survives, nor the most intelligent. It is the most adaptable to change,” HUL quotes Charles Darwin in its latest presentation. Realising the advantage that using data analytics can impact its distribution and sales, HUL has spelled out its digital program titled Project Maxima. The project aims to reimagine the supply chain and corner shop strategy to change the way Indians shop for groceries and retail.

As mentioned earlier, HUL will use data analytics and algorithms, to ensure steady sales volumes but drive cost efficiencies to improve margins. Two key tools – ‘Live Wire’ and ‘Jarvis’ – which use data analytics have already been adopted to improve speed and accuracy of decision making in areas ranging from pricing, promotions and advertising to trade spends.

The plan suggests that according to Project Maxima, HUL will be able to do targeted marketing within 100 metres of a grocery shop, which it will geofence for distributed marketing and offering. With this, company plans to gather and analyse data such as who visited the grocery store over the last three months, what they purchased and when they are likely to buy next time.

The company is also trying a new strategy in the online space. Recently, HUL and Amazon India announced to have co-developed a line of hair and men’s grooming products. The  new range of products will be available exclusively on Amazon India’s web marketplace, marking the first of such partnerships for HUL globally.

Rise of Patanjali

FMCG is the fourth largest sector in the Indian economy, household and personal care leads the segment, accounting for 50 per cent of the overall market. Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector.

Since 2000, HUL’s market shares in the Personal Care segment of FMCG sector has fallen from 50 per cent to 37.4 per cent in 2017. One of the reasons attributed was people were gracefully embracing herbal products. In India the herbal beauty products market alone is already at $ 2 billion, growing at close to 20 per cent.

However, coinciding with this fall is the rise of Patanjali, which had a marginal presence in the beauty and personal care market with a 0.2 per cent market share in 2011, according Live Mint. It had the highest rise in share of 1.9 per cent to become the Number 8 brand in India with a 2.1 per cent share in 2016. Patanjali’s biggest sellers in beauty and personal care include its toothpaste Dant Kanti and hair oil Kesh Kanti, along with soaps, shampoos and face-washes, all marketed under the Patanjali brand name.

Going herbal, the Ayush way

With the growing popularity of Patanjali herbal products, in 2015-16, HUL decided to revive Lever Ayush–an Ayurvedic brand which was left in the corner as it had failed to gain traction during the last decade. Launched in 2001, by the local subsidiary of the Anglo-Dutch FMCG giant Unilever, it failed to gain traction during the last decade.

For HUL, brand Ayush is seen to give a strong footing in the Ayurveda space and take the competition right at the door step of the likes of Patanjali. The company has cut the pricing for Ayush recently from mass premium to mass-economy to bring it in line with Patanjali and also roped in popular Bollywood star, Akshay Kumar as the brand ambassador for Ayush.
However early indicators, particularly from North India where Patanjali still is the leader, point that Ayush is yet to make a significant market share in the herbal market.

Given these series of aggressive moves by HUL, it would be interesting to see how future unfolds for the company in India’s highly competitive cosmetics and personal care segment, going forward.