Company of the year: Despite a challenging environment, HUL cracks the code

The air is palpable at the Mumbai office of the country’s largest consumer goods company, Hindustan Unilever (HUL). Visitors wait patiently in the reception area for their appointments. Employees stride purposefully up and down, some on the phone, some speaking to clients who’ve come visiting. There is no time to waste as the bellwether fights competitive intensity across the board — from digital-only brands, retailers who are also manufacturing consumer goods and traditional rivals. 

In the last few years, HUL has consistently delivered on key financial parameters. Both return on capital employed (ROCE), which measures how efficiently a company utilises all available capital to generate additional profits, and return on net worth (RONW), which considers profits generated on shareholders’ equity, are at sector highs. 

For FY18, HUL’s ROCE and RONW were 85 per cent and nearly 75 per cent, ahead of peers such as ITC, Nestle, Britannia, Dabur, Marico, Procter & Gamble Hygiene & Health Care, Godrej Consumer and Colgate-Palmolive. While HUL’s five-year average sales and net profit growth was in mid-single-digits, at nearly six per cent and nearly seven per cent respectively, between FY13 and FY18, experts say that in a challenging market environment this is still commendable. 

India witnessed two droughts, a slowing of spends on the Mahatma Gandhi National Rural Employment Guarantee Scheme, and a fall in commodity prices between FY13 and FY18. The fallout of this was that growing sales and profit wasn’t easy for most fast-moving consumer goods (FMCG) companies, including HUL. The company responded to this challenge by simply going back to the basics. As Sanjiv Mehta, chairman and managing director, HUL, said in an interaction with Business Standard, “We brought focus on the ‘core of the core’. These are brands in categories that are highly penetrated. Using our ‘Winning in Many Indias’ strategy, we’ve sought to drive penetration and distribution for our brands.” 

By ‘Winning in Many Indias’, Mehta is pointing to a hyperlocal strategy that HUL has in place to address market needs. From a broad regional classification of north, south, east and west, which is a norm in marketing, HUL put in place 14 distinct clusters based on consumer profiles and segments. This approach, Mehta says, has helped the company understand consumer behaviour in different pockets and design products accordingly. 

For instance, in Punjab, HUL launched a blend of Taaza, its mass-market tea brand, after executives of the Punjab cluster saw a large base of tea drinkers sipping mostly regional teas. 

Similarly, Pepsodent clove oil and salt toothpaste was launched in southern India after insights were derived from clusters across the region for products that had the goodness of local ingredients. In Uttar Pradesh, different price points were created in detergents to shift consumers from local brands to Rin. 

Analysts say that ‘Winning in Many Indias’ has helped HUL fight local brands that are both popular and economical for consumers in those regions. 

Apart from this, the company has also focused its attention on building new categories, especially niche segments across its portfolio. This leg is also linked to the broader “premiumisation” agenda that HUL has had for years, which has seen it launch products ahead of the market, such as liquid detergents, handwash, hand sanitisers and conditioners.

Experts say that HUL was among the earliest players to push the habit of conditioning in India, following research which showed that women weren’t conditioning their hair enough after shampooing it. HUL launched conditioners across its hair care portfolio and aggressively advertised them to improve adoption. 

Mehta says, “About one per cent of the FMCG market is moving from mass and mid-tier to premium every year. At an overall level, about 28 per cent of the FMCG market is premium. Our aim would be to help consumers trade up.” 

With the FMCG market showing signs of revival over the last few quarters, experts say that HUL is best placed among its peers to capitalise on this momentum. “There are a number of things that HUL is doing besides focusing on its core portfolio,” says Sachin Bobade, senior research analyst at brokerage Dolat Capital. “It continues to push distribution aggressively, especially in rural markets. Second, it has been quick to align its portfolio to market realities after the  implementation of the goods and services tax. And third, it continues to scout for opportunities, both organic and inorganic, to grow its business.” 

While the company is in the midst of merging GlaxoSmithKline Consumer with itself after parent Unilever’s acquisition of the latter, it is scanning the landscape for good buys, said Mehta. In the last few years, the company has bought Indulekha, an Ayurvedic hair care company, and Aaditya Milk, an ice-cream brand in Karnataka.