HLL – Juggernaut- The dilemma of Growth [pic] This case study has been developed by Rajan Saxena Vice chancellor NMIMS University for class room discussion. HLL – Juggernaut- The dilemma of Growth Hindustan Lever Ltd in India is a 51. 4%-owned subsidiary of its global parent Unilever Group. Formed in 1956, the company has since expanded its operations through organic growth and mergers and acquisitions to become the largest fast-moving consumer goods company in India. Hindustan Lever is one of India’s oldest consumer goods companies with brands that are household names.
In line with the global revamp of its regional structure, Hindustan Lever also changed its organizational structure in India in 2005 with the setting up of a new management committee and the appointment of a new chairman. The company also appointed an expatriate CEO, Doug Baillie to take over the reigns of the company. This was the first time the company appointed a non-Indian CEO in around 50 years. In 2007, meanwhile, the company changed its name from Hindustan Lever Ltd to Hindustan Unilever Ltd. The new name reflects the right balance between the Indian heritage of the Company and the synergies of its global alignment with Unilever.
The new logo symbolizes the Company’s mission of ‘Adding Vitality to Life’. Hindustan Lever’s broad product portfolio spans soap, detergents, personal products and food. Soap, detergents and scourers generate roughly 46% of revenues, while the rest is largely accounted for by personal products (26%), beverages (11%), other products (2%) and exports (10%). Processed foods and ice cream and other products collectively contribute a miniscule 5% towards total turnover. The company has a significant share of most products in which it operates, with the exception of packaged food.
It is among the leading players in cosmetics and toiletries, non-alcoholic beverages and household care in India. Exhibit 1: Showing the contribution of the different [pic] The vision that inspires HLL’s 16,100 employees, including nearly 1,100 managers, is to “meet everyday needs of people everywhere-to anticipate the aspirations of our consumers and customers and to respond creatively and competitively with branded products and services which raise the quality of life. ” This objective is achieved through the 30 brands that the company markets.
Its deep roots in local cultures and markets around the world are HLL’ s unparalleled inheritance and the foundation for it’s future growth. With this wealth of knowledge and international expertise in the service of local consumers, it is truly a multi-local multinational. Background In 1888, less than four years after William Hesketh Lever’s company, Lever Brothers, launched Sunlight Soap in England, William Hesketh’s company also started exporting the revolutionary laundry soap to India and carved a niche for itself in the Indian market. The company merged with the Netherlands-based Margarine Unie in 1930 to form Unilever.
A year later, Unilever set up the Hindustan Vanaspati Manufacturing Company, its first subsidiary in India, and further strengthened its position by establishing two more subsidiaries, Lever Brothers India Limited and United Traders Limited, soon thereafter. The three companies, which marketed soaps, vanaspati and personal products, merged in 1956 to form Hindustan Lever, in which Unilever has a 51 percent stake. Since then, HLL has entered virtually every arena in the FMCG market through organic growth, diversification, mergers, and acquisitions.
Hindustan Lever benefits from deep roots in rural India. It reaches 166 million households according to the company’s own estimates. HLL is one of the largest subsidiaries of Unilever worldwide, with several Unilever managers cutting their teeth in India and rising to senior positions within the group. The company straddles all price platforms, from economy to premium, with its product portfolio ranging from personal care to packaged food. It traditionally focused on maintaining margins, hiking prices with or without brand developments or relaunches. It could do this when consumer goods were booming.
Exhibit 2 : Showing brands at various price points [pic] Core Competencies HLL is the market leader in soaps and detergents as well as hair and skin care products and is the second largest manufacturer of dental care products. One of HLL’s strengths that has greatly contributed to this success are the breakthroughs at the Hindustan Lever Research Centre. The research centre is India’s largest in the private sector. The focus on research gives HLL an edge over competitors by coming up with innovative products and processes, many of which have been patented.
Some of the researches have been in household cleaning in soaps by improving performance in removal of dirt from clothes. Studies related to improving quality in tea and enhancing characteristics like colour, aroma, and taste have enabled HLL to make better blends of tea. The company achieved remarkable success in ice-creams when HLRC developed a “eutectic mixture’ which acts as a refrigeration “battery” and thus enables sub ambient temperature distribution/vending of ice-creams. In the personal products segment, an important research finding is Fair & Lovely fairness cream.
HLL has always stressed on constant technology upgradation. In 1999, there was a change in the entire instrumentation setup of HLL Research to bring it on par with the latest research facilities in the world. The company has always focused on acquiring knowledge-based software with a view to creating knowledge-based communities in HLL Research. HLL has tied up with organizations like the Indian Institute of Science (Bangalore), All India Institute of Medical Sciences (New Delhi), National Chemical Laboratory (Pune), and Department of Physics, University of Pune, in different areas of research.
Besides, HLL has also funded research projects at the Jawaharlal Nehru University, New Delhi, and the MS Swaminathan Research Foundation at Chennai. Efficient distribution system Another factor which contributes to the success of HLL is its massive and efficient distribution system. It touches two out of every three Indians every day and reaches eighty percent of the household. Its shelf availability is 84 percent of outlets which reaches a retail foot print of 6million in the country . It has 35 carrying and forwarding agents, 2700 stockists and 80 factories.
In recent years Hindustan Lever focuses on third party production, shifting from its privately-owned plants to external production in 2005. This was mainly a cost-cutting measure, as most of the company’s plants were historically located in high-cost areas such as Mumbai City. Hindustan Lever manufactures for Indian sales and exports to Unilever companies worldwide. Fair and Lovely, for example, is only made in India and sold globally, as are Wheel and Rin. Hindustan Lever is also one of the key sourcing sites for Unilever worldwide.
The shift of several manufacturing sites to Uttaranchal and Himachal Pradesh is expected to considerably benefit the company, more than compensating for the increased logistical and administration costs of the move. The emerging hybrid customer structure (Comprising General Trade, Modern Trade and Specialised stores) requires new “route to market” approaches to service customers and distributors. The Company is equipping itself with capability and revitalising the distribution and customer service network to face the challenges of the new market dynamics.
This will ensure that HLL is competitive and meet customer service expectations fully. Table 1: Percentage of sales coming from modern trade/General trade |Year |Modern trade |General trade | |2007 |05% |95% | |2010 |10% |90% | |2025 |25% |75% |
HLL has an export portfolio of soaps, detergents, tea, tomato-based products, cosmetics, agro-products. During 2007, your Company exited from low value added Shrimps and Castor exports as a part of the restructuring exercise to improve the overall quality of the portfolio. Resultant decrease in sales is expected to be made up over time through FMCG exports i. e. HPC and F&B. HLL’s exports turnover in the year 2007 was Rs 1342 crore. Financial Performance For the year 2007, your Company achieved an overall turnover growth of 13. %; both Home and Personal Care (HPC) and Foods businesses grew by 12. 3% and 20. 2% respectively. Profit After Tax registered a growth of 14. 9%. Earnings Per Share for the year 2007 at Rs. 8. 73, reflects the growth of Net Profit (after exceptional items) by 3. 8%. The Board of Directors have recommended a final dividend of Rs. 3/- per share. Total dividend to our Shareholders for 2007 stands at Rs. 9/- per share, and includes the interim dividend of Rs. 3/- per share paid in August 2007 and Rs. /- per share paid in November 2007 as Special Platinum Jubilee Dividend to commemorate your Company’s 75th year of operations in the Country. Turnover, net of excise, in respect of continuing businesses increased by Rs. 1,614 crores and is 13. 3% higher than previous year. This increase results from more volumes sold, better mix of products, and selective price increases effected during the year. The details of Sales, net of excise, and other revenue by segments are given below: Table 2: summarized financials (In Lakhs) |2007 |2006 | |Turnover, net of excise |13717,75 |12103,39 | |Profit before tax |2184,53 |1861,68 | |Tax on profits |(415,47) |(322,01) | |Exceptional items |156,41 |315,70 | |Net profit |1925,47 |1855,37 | |Dividend (incl. ax on distributed profits) |(2331,62) | (1511,38) | |Transfer to General Reserve |(200,00) |(191,00) | |Profit & Loss account balance carried forward |197,50 |803,65 | Table 3: Revenue from the different product lines. |(Rs. n Lakhs) |2007 | |2006 | | | |Sales |Other |Sales |Other | |Soaps, Detergents &Scourers |6328,80 |45,72 |5563,41 |32,48 | |Personal Products |3614,76 |57,06 |3309,65 |50,14 | |Beverages |1520,40 |12,38 |1325,96 |4,78 | |Foods |532,98 | 4,76 |380,46 |4,45 | |Ice Creams |158,49 |2,15 |134,42 |2,65 | |Exports |1342,26 | |1278,89 | | |Others |226,88 | 58,39 |120,11 | 60,14 | Human Resources
The Human Resource (HR) agenda for the year 2007 was focused on three key areas – embarking on human resource transformation program, building organizational and individual capabilities and significantly enhancing people productivity to drive sustainable business growth. HR transformation program is a business change program and impacts ways of working in Unilever companies across the world. At the core of this program are world class info-tech platform & solutions to efficiently manage Human Resources transactions. The HR function has been simplified into three distinct streams – Business Partners, Expertise Teams and Corporate Services. Marketing The company has a strong brand equity which provides it with credibility and respect among its peer in the market .
It has created a positive motivational climate in the organization as employees take pride in remaining associated with it . It attracts the best talents and inspires respect among industry professionals . Pursuing aggressive marketing strategies ,HLL continues to be India’s most admired marketing company in FMCG sector. Competition in the Indian Market Off late there has been an overall slowdown in demand in the FMCG sector most of the companies are facing a slowdown in value terms 0n account of decreasing volumes and price reductions. HLL remains in the fore front of the Industry despite increased competition from several existing and new players.
It is a market leader in several categories like fabric care, personal care dish was Deos and packet tea to name a few(Table 6 ). It competitive landscape is very diverse as it faces competition with both local. global and regional players. Exhibit 3: HUL and its nearest competitors [pic] Cavin Kare Pvt Ltd The company is expected to continue to rely on its strong range of popular brands. While Indian consumers are becoming increasingly sophisticated and aspirational in mid- and high-income groups and urban areas, the vast majority of Indian consumers will continue to demand good quality products at affordable prices during the forecast period.
As income levels rise, poorer consumers are expected to turn initially to low-priced mass products. Consequently, Cavin Kare is expected to continue to see good growth during the forecast period. Cavin Kare Pvt Ltd started out as a small partnership, Chik India, in 1983. It was spearheaded by a young entrepreneur, CK Ranganathan, who re-christened Chik India as Beauty Cosmetics (P) Ltd and subsequently CavinKare Ltd in 1998. In Tamil, the word “cavin” indicates beauty and grace. The company’s product portfolio in cosmetics and toiletries is wide, with key brands including Chik and Nyle in hair care, Spinz in deodorants, fragrances and talcum powder and Fairever in skin care.
The company also offers niche products, such as with hair wash powder Meera, which sells mainly in Chennai and Tamil Nadu. CavinKare has 550 employees, a network of 2,000 stockists and a wide distribution system that reaches out to 750,000 outlets throughout the country. CavinKare Pvt Ltd had an overall value share of 2% in cosmetics and toiletries in 2007, with this ranking the company at 10th place. This share is mainly derived from shampoo and facial moisturisers. The company’s share shows fluctuation this was chiefly due to the company being present in dynamic product areas, as the company in contrast lost share in most of its product areas due to growing competition. The company focuses on offering quality products at affordable prices.
Its prices are considerably lower than those of many competitors, particularly multinationals, which gives it a strong advantage in attracting the majority of Indian consumers, particularly in rural areas. While its products are low-priced, however, they are generally well-differentiated. Nyle is based on herbal formulas, for example, while Chik shampoo darkens hair. Fairever meanwhile lightens skin. Godrej Consumer Products Ltd Godrej Consumer Products Ltd is a major player in the Indian fmcg market with leadership in the personal care, hair care and fabric care categories. It is also India’s second largest toilet soaps player by value with leading brands such as Cinthol Godrej Fairglow and Godrej N1. The company already has a strong presence across India in independent small grocers.
However, during the next period, it is expected to focus on expanding its presence in supermarkets/hypermarkets. As this channel becomes more significant, it will be increasingly important for players seeking to gain share in cosmetics and toiletries. In addition, supermarkets/hypermarkets would offer Godrej a chance to showcase its wide range of products in product areas such as bar soap and colourants. Beyond India, the company is meanwhile expected to continue to focus on increasing its export sales. 1 Brands Cosmetics and Toiletries Bath and shower products Cinthol, Godrej Hair care Godrej Men’s grooming products Godrej Skin care Godrej Disposable Paper Products Incontinence products
Snuggy Adult Protection Nappies/diapers/pants Snuggy Comfy, Snuggy Crown Household Care Laundry care Ezee Marico Ltd – Cosmetics and Toiletries – India The group is following the strategy of being proactive in all areas of marketing, supported by new product development and segmentation. It will continue to offer affordable basic cosmetics and toiletries during the next period , catering to mid- and low-income consumers, who are expected to see higher disposable income levels. Within its range, however, the company will increasingly offer value-added variants, enabling its brands’ loyal consumers to trade up within the brand as their income levels increase.
The company is also expected to focus on expanding its export reach during the forecast period. Its hair oil sales in Africa are expected to be a particular focus, following its acquisition of the Fiancee and Haircode brands in 2006. Marico’s business divisions are organised into three profit centres: Consumer Products, Aesthetic Services and Global Ayurvedics. Consumer Products comprises Marico’s operations in India and Bangladesh, with the division manufacturing and marketing the company’s products. Aesthetic Services meanwhile operates Kaya skin clinics in India, while Global Ayurvedics markets the company’s Sundari range of ayurvedic skin care globally from of 2006.
Marico had a total of eight factories, 31 depots, 1,000 distributors and five redistribution centres. The company had a sales team of 250 direct and 2,500 indirect sales personnel. The company is headquartered in Mumbai, with four regional offices. Marico’s distribution network covers almost every Indian town with a population of over 20,000. The company had a value share of 4% in cosmetics and toiletries in 2007, ranking fifth overall. The company’s sales are chiefly derived from hair care, notably conditioners where it is the leading player. Many players, particularly multinationals, are shifting their focus to value-added cosmetics and toiletries, in anticipation of the aspirational demands of the growing mid-income group.
Marico took advantage of this trend to acquire key basic cosmetics and toiletries brands. In 2006, it acquired Manjal bar soap from Oriental Extractions Pvt Ltd and in the same year acquired Nihar hair oil from Hindustan Lever. This latter acquisition boosted the company’s value share in conditioners by seven percentage points to 30% in 2006 and 2007. Procter & Gamble Home Products Procter & Gamble Home Products is a 100%-owned subsidiary of US player The Procter & Gamble Co. The company used to be the contract manufacturer for Procter & Gamble Health and Hygiene India Ltd but in 2005 the latter divested its detergents business by way of sale to the newly formed subsidiary, Procter & Gamble Home Products.
The rationale behind this was to reduce complexity within Procter & Gamble in India, to free up cash for the productive use of Procter & Gamble Health and Hygiene and to allow each company to focus on its respective core growth areas. While Procter & Gamble Health and Hygiene remains listed as a separate company to The Procter & Gamble Co, the new entity is a 100% subsidiary and remains unlisted in India Gamble Home Products Ltd has one plant at Mandideep, Madhya Pradesh, which manufactures Ariel and Tide. Procter & Gamble Health and Hygiene sold the plant to the company as a going concern for Rs1 billion in May 2005, thereby completely separating the two entities. Procter & Gamble’s detergents business was previously transferred to The Procter & Gamble Co in 1993.
Local manufacturing gives Procter & Gamble Home Products an edge in India, as laundry detergents is highly competitive and margins are continuously under threat Procter & Gamble is one of the leading players in laundry care in India, with two detergent brands in its product portfolio, Ariel and Tide. While Ariel is sold as an automatic machine wash detergent, Tide is positioned as an economy alternative, positioned at the premium end of the handwash detergent category. The company’s brand Ariel competes directly with Hindustan Unilever’s Surf Excel and Henkel India’s Henko. On the other hand, Tide competes with a host of economy brands ranging from Rin and Wheel to regional domestic brands The company has been active in upgrading its detergent portfolio to cater for the needs of discerning urban consumers. The company’s economy brand, Tide has been available in jasmine and rose fragrances since 2005.
In 2007 Procter & Gamble introduced a new variant of Ariel called Ariel 24 Hour Fresh, which helps retain the fragrance for one whole day after washing. The company also upgraded its Ariel range by re-launching it with added oxygen power. The continuous investment in its products has helped the company to maintain its appeal to its target audience and helped the company to grow its share in laundry care. Procter & Gamble has been active in media advertisements and regularly advertises on television for Ariel and Tide. The company ran an advertising campaign for Tide called Tide Power of Sun throughout 2007 besides its new launch, Ariel 24 Hour Fresh towards the end of 2007.
Changing Profile of Indian Consumers The rise in employment and increase in national income has increased the disposable income of households in India. As a result, consumer expenditures for basic necessities such as food and beverages have witnessed modest growth compared to the triple-digit growth of discretionary spending from 1995-2007, such as that for communications and leisure. The increase in the number of employed technology-savvy 20-year-olds has led to increased spending on electronics, Internet and mobile phones. India is the world’s fastest-growing mobile phone market and has the fourth-highest number of Internet users in the world.
With more than half of the population under 25 and single, the processed foods, eating out, leisure and fitness sectors have witnessed high consumer spending. The rise in income of the rural population has increased demand for niche products at low price points, and offers phenomenal and currently untapped potential. Firms such as HP, Nokia, GM and Tata Motors are starting to invest considerably in new ventures to harness these ‘bottom of the pyramid’ markets. According to a 2008 survey by the National Council of Applied Economic Research (NCAER), ownership of (select) consumer durable goods among non-poor Indian households is significantly higher than among poor households.
At an all-India level, 33% of non-poor households own colour television sets, 25% have telephones, 22% have refrigerators, 19% own cellular phones, nearly 7% have cars and 2% own credit cards. In contrast, 8% of poor households own colour television sets, 4% have telephones, 3% have refrigerators, 3% own cellular phones, and barely 1% have either cars or credit . Cosmetics and toiletries are expected to see even stronger growth in the future due to rising income levels and consumers’ greater access to a wide range of such products, ranging from cheap basics in small-package sizes to affordable value-added mass brands to super-premium global brands. Firms are increasingly tapping into the rural market using strategies such as smaller packs and special combination offers.
There was a slow but steady expansion in rural sales with the overall value share of rural sales rising from 28% in 2002 to 30% in 2007. Growth was driven by rising income levels in rural areas, leading to an expanded mid-income group. Players also began to focus on expanding distribution and marketing in rural areas, further supporting good growth. Basic cosmetics and toiletries tend to have the strongest sales in rural areas. Bar soap has strong sales in rural areas, for example, as it is used for a wide range of applications from bathing to laundry to household cleaning. Consequently, rural areas accounted for close to 40% of total value sales in bath and shower products. Table 4: Penetration percentage in urban /rural Category |All India |% Urban |% Rural | |Deodorants |2. 1 |5. 5 |0. 6 | |Toothpaste |48. 6 |74. 9 |37. 6 | |Skin Cream |22 |31. 5 |17. 8 | |Shampoo |38 |52. 1 |31. 9 | |Utensil Cleaner |28 |59. 9 |14. 6 | |Instant Coffee |6. 6 |15. 5 |2. 8 | |Washing Powder |86. 1 |90. 7 |84. 1 | |Detergent Bar |88. 6 |91. 4 |87. 4 | |Toilet Soap |91. 5 |97. 4 |88. 9 |
Oral hygiene was another area that saw strong growth in rural sales in 2007, with a gain in value share of 0. 5% over the previous year. This was due to many consumer education campaigns conducted by leading players such as Colgate-Palmolive, generally focused on schools and health centers. In addition, growth was assisted by the widening distribution of these products in rural areas. Urban consumers meanwhile became increasingly sophisticated and demanding in their purchasing habits. Products connected with grooming saw good growth in urban areas, with the result that urban areas accounted for a higher share of colour Table 5: Consumer Expenditures on Food and Non-alcoholic Beverages: (1995/2000/2002/2004/2006-2007) Rs billions | | | | | | | | |1995 |2000 |2002 |2004 |2006 |2007 | |Food |7,315. 50 |7,348. 30 |7,093. 90 |7,358. 20 |7,741. 30 |7,813. 90 | |– Bread and cereals |1,990. 20 |1,909. 70 |1,626. 00 |1,472. 50 |1,412. 10 |1,408. 30 | |– Meat |387. 1 |418. 4 |441. 8 |404. 7 |418. 3 |417. 1 | |– Fish and seafood |148 |262. 4 |307. 8 |337. 2 |417. 9 |441. 8 | |– Milk, cheese and eggs |1,272. 90 |1,463. 00 |1,515. 20 |1,502. 0 |1,618. 30 |1,642. 10 | |– Oils and fats |558. 9 |371. 3 |376. 2 |567. 7 |632. 4 |637 | |– Fruit |434. 9 |362. 4 |385. 2 |418. 6 |433. 1 |427. 7 | |– Vegetables |1,758. 90 |1,694. 90 |1,648. 10 |1,834. 50 |1,935. 10 |1,953. 40 | |– Sugar and confectionery |445. 7 |496. 3 |423. 6 |415 |431. 7 |435. 7 | |– Other food |319 |369. |370 |405. 5 |442. 4 |450. 8 | |Non-alcoholic beverages |160. 3 |183. 8 |231. 8 |300. 6 |352. 8 |368. 5 | |– Coffee, tea and cocoa |129. 2 |120 |121. 6 |151. 6 |152. 6 |147. 3 | |– Other soft drinks |31. 1 |63. 8 |110. 2 |149. 1 |200. 2 |221. 2 | |TOTAL |7,475. 90 |7,532. 10 |7,325. 70 |7,658. 80 |8,094. 00 |8,182. 40 | Surviving in the FMCG Market
In the midst of such tight competition, HLL is coping with competition in numerous ways. New business opportunities and extension. HLL is exploring new growth areas. It had evaluated 9 feasibility areas where it can venture and is currently experimenting in five of them. These were confectionery, consumer health care, water, direct consumer distribution, and rural marketing. HLL plans on an organic entry in the water business and further strengthen it through brand acquisitions. Consumer health care will be an extension of its current personal products business. It will sell non-prescription products over the counter. HLL is also considering entry into food retailing by piggybacking on its ice-cream business.
It plans to expand the product mix at its exclusive Kwality Walls ice-cream parlours by including confectionery and other offerings. HLL is opting for the franchisee route to open these parlours and hopes to take this concept to all cities of India. During the year2007, Moo, a milk based ice-cream product was introduced in stick and brick formats, positioned on a nutrition and vitality platform to address the calcium requirements of children. Further, a range of innovations such as ‘Cornetto Flirty Strawberry’ and ‘Cornetto Cookies and Cream’ and ‘Caramel Crunch’ have been introduced in the impulse and in-home segments In 2007, Brooke Bond ‘3 Roses’ and Brooke Bond ‘Red Label’ were relaunched with improved propositions.
A new concept tea “Taj Mahal Dessert Teas” has been launched to add excitement and image to the premium segment of our tea portfolio. A new variant in ketchup, “Chatakdar” was launched in December quarter giving a significant thrust to the Kissan portfolio In December Quarter, Bertolli Olive Oil was added to the portfolio of processed foods. Bertolli Olive oil is imported and positioned to serve health conscious consumers. Pureit is the culmination of a series of technological breakthroughs. It purifies water ‘as safe as boiled water’, providing children and families with complete protection from all waterborne diseases like diarrhoea, jaundice, typhoid and cholera.
During 2007, the product was launched in Karnataka, Andhra Pradesh, Kerala, Maharashtra, West Bengal and Delhi with good response. The rollout of Pureit to other States is continuing. Brand Portfolio Restructuring HLL, like its parent brand Unilever, plans to prune its brands and focus on the top 30 out of a total of 110 brands. These top 30 brands contribute more than 75 percent of the turnover. The rest will either be dropped, sold, migrated, or continued as regional brands. HLL is not planning to vacate any category it is present in; it is only eliminating brands. With the rationalizing of these brands, an enormous simplification is expected to take place. Brands which contribute to about 25 percent of HLL’s turnover, have been classified into three groups.
First, there are the “regional jewels”, that is, brands which are exceptionally strong in certain geographic areas. Hamam, for instance, gets about 60 percent of its volumes from Tamil Nadu where it has more than 30 percent market share. HLL will keep such brands as purely regional brands and support them heavily in these limited geographic. HLL, though tightlipped about its power brands game plan, has started to announce its list of casualties, or brands which are both small and unprofitable, and be discontinued or sold off. HLL has delisted two toothpaste variants, Close-Up Renew and Close – Up Oxyfresh, which are off the shelves; the washing powder Revel, and the rural toothpaste Aim, which will also go off the shelves soon.
Breeze, a mass market brand in the toiletries market is growing at 50 percent plus per annum. Hence, the company plans to phase out the other mass market brand Jai soap, which is now getting lesser and lesser support. Another brand that might be phased out is Moti soap which sells about 5000 tonnes a year in only one or two states, mostly during the Diwali season. Among the emerging categories, Rexona and Axe deodorants are the power brands. Rexona has been used to build the deodorant market by HLL. Axe, though launched only last year, has been doing well. However, Denim and Impulse are likely to go since they have not fared well in the market.
The Company officials are reported to the press that, “Whenever you have the same benefit and same price point there’s no advantage to me to carry two brands. So what we would do is merge those brands with some of the 30. ” The company, through intelligent communication and use of pack graphics, intends to migrate the consumers of the phased-out brands to existing brands. After almost a month of research, The Economic Times shortlisted what it considered the probable power brands of HLL. The criteria for selecting the 30 brands were the brand’s current sales, its differentiation vis-a-vis the rest of the market, and its future growth potential.
Business Concerns However, in 2002-2007, sales were flat or even shrunk marginally, as cost pressures mounted and consumers found alternate uses for money. Competition also intensified, as large profits and a huge middle-income group attracted new players’ attention. By 2004 the company shifted its strategy to focus on driving volume sales. It made price cuts and ruthlessly cut costs in operations and brand support in order to support this new strategy The HPC business is made up of Fabric Wash, Household Care, Personal Wash and Personal Care categories which include products like toothpaste, shampoo, skin care, deodorants and colour cosmetics.
In the face of an intense competitive scenario, the business for the third consecutive year grew in double digits, and ahead of market. The business had to cope with the challenge of severe cost pressures on account of unprecedented increase in crude petroleum prices and steep escalations in vegetable oil costs. High crude prices impacted a range of input prices like chemicals, packaging and freight Fabric Wash This category continued to be vigorously contested amongst the players. The brand portfolio; Surf, Rin, Wheel and Sunlight addressed the needs of consumers at different income levels. All these brands did very well and the Company’s overall market share for the category improved. Fabric Wash witnessed severe cost pressures for the fourth consecutive year.
Crude oil prices continued to rule high. Robust supply chain savings helped partly mitigate the cost impact, and selective price corrections were implemented. Personal product Personal product categories like Hair Care, Skin Care, Toothpaste, Deodorants and Colour Cosmetics offer high potential for your Company. Per capita consumption is currently low in these categories and is poised to grow with increasing income levels and awareness in personal hygiene and grooming. Competitive activity remained high across the board, with existing players offering a varied choice of brands and propositions and new players entering the arena Household Care Products
Dish wash, led by Vim, continued to grow well. The Vim Dish wash Liquid launched in 2006 has been extended nationally and has been one of the key contributors to growth. Domex offers a powerful proposition for floor and toilet cleaning and is being established through marketing initiatives and consumer communication. The brand performed well, albeit on a small base. Personal Wash Personal wash category performed well with brands like Lux, Lifebuoy, Hamam and Dove recording good growth. The category however faced cost pressure due to very steep increase in vegetable oil prices (increased almost 50% over the previous year) partly due to diversion of oils for production of bio fuels.
Margins were managed through a series of actions such as buying efficiencies, savings in supply chain and selective price increases. With a well-entrenched network of a million retail outlets, HLL has already attained optimal distribution levels. Therefore, the potential to achieve meaningful volumes in growth by expanding distribution, is limited. On the other hand, many of its competitors still have a long way to go in terms of distribution and reach, thereby making it easier for them to achieve growth in volumes by snatching away market share from HLL. Its portfolio seems to be going through a structural shift with high growth products moving to the mature category. Therefore, further penetration is unlikely, accounting for 72 percent of HLL’s revenue.
This means that margins will be under pressure in the coming years. Although HLL has been making investments, there will be a time lag before new products move into the star category. Categories like ice-cream, coffee constitute only 5 percent and are stagnating despite the company’s efforts to make them grow. Hence, no spectacular growth is expected in these product categories. Also, with increasing competition, the company will have to increase its ad spend, which will affect its margins, even though only marginally. As discussed earlier, due to intense competition and slowdown in the demand for FMCGs, HLL’s margins could come under strain.
The parent company’s decision to charge a royalty of 1 percent on a part of the turnover will also affect the bottom line of the company. Some of the sunrise categories that the company has been banking on have failed to take off. Although there have been no indications so far, other than a couple of separate joint ventures, there is a fear that the parent company may set up a 100 percent subsidiary in India to pursue future business opportunities. In the past five years, HLL has seen its profitability margins expand continuously due to improvement in operational efficiencies and working capital management. However, analysts are quick to point out that further improvement in productivity is ruled out.
Analysts estimate that sales for HLL will fall by around 3-4 percent on account of the higher revenue base and lower rural consumption of the previous year. The company’s decision to focus on 30 power brands is expected to result in revenue pressure in the short term. There is however a likelihood of the margins increasing only slightly, due to lower restructuring costs, rise in product prices, and lower input costs. Given the nature of problems HLL is facing today, it will take quite a while for the company to reconstruct its product portfolio to counter the impending slowdown. The management wonders what strategies HLL should use to increase both volumes and margins and fight off the stiff competition. Table 6: Sub sector performance Subsector |Share |Rank | | | | | |Body wash/shower gel |66. 0% |1 | |Bar soap |53. 7% |1 | |Talcum powder |62. 4% |1 | |Deodorant sprays |50. 3% |1 | |Deodorant roll-ons |44. 0% |1 | |Shampoo |46. 6% |1 | |Conditioners |2. 6% |7 | |Styling agents |4. 0% |4 | |Facial make-up |35. 4% |1 | |Eye make-up |47. % |1 | |Lip products |23. 3% |2 | |Nail products |39. 5% |1 | |Men’s shaving |1. 2% |6 | |Men’s toiletries |35. 6% |1 | |Toothpaste |23. 7% |2 | |Toothbrushes |14. 5% |3 | |Manual toothbrushes |14. 5% |3 | |Mass fragrances |25. 8% |1 | |Facial care |64. 5% |1 | |Body care |52. 0% |1 | |Sun protection |9. % |1 | Table 7: Report Card [pic] References : 1. A & M, October 31, 1999. 2. Brand Equity, May 23, The Economic Times, May 22, 2001. 3. Brockbank, Wayne, ‘This will be the Decade of the Human Side of Business’, Business Line, May 2001. 4. Euromonitor 2009 5. HLL Reports and Accounts, 2000-2009. 6. Mahalakshmi, N. , “HLL: Diminishing Marginal Returns, the Smart Investor”, Business Standard, October 2001. 7. India report (2008) Euromonitor 2009 8. The Financial Express, July 16, 2001. 9. ‘The smart investor’, The Business Standard, www. business-standard. com 10. www. bsstrategist. com 11. www. hll. com 12. www. indiainfoline. com