HLL to revamp foods business this year

FMCG major Hindustan Lever plans to unfurl an initiative for the growth of its foods business in 2007. HLL executives announced that this year "will see the building blocks put in place for the company's long-term food strategy".

"In the next 12 months, the company will accelerate efforts for core foods brands and will chart the direction for the foods portfolio," said Doug Baillie, CEO, Hindustan Lever.

MK Sharma, vice-chairman, Hindustan Lever told Business Standard, "We will move from a conceptualisation stage to an implementation stage."

The market opportunity is large as the processed foods industry in the country is valued at $70 billion (Rs 3,00,000 crore), according to the ministry of food processing. However, only a fraction of this ""less than 5 per cent"" belongs to the organised sector. According to HLL executives the opportunity lies in growing the categories which are small and increasing market share in others.

For example, HLL estimates the market size for ice-creams to be around Rs 1,500 crore. However, the company has less than 10 per cent share of the segment with revenues at Rs 137 crore in 2006.

At present, foods makes up only 15 per cent of HLL's sales, while for its Anglo-Dutch parent Unilever, the foods business contributes 54 per cent of its turnover.

The renewed initiatives will be rolled out on the back of a positive showing in the company's foods business in 2006. HLL's foods portfolio brands such as Kissan, Annapurna, Brooke Bond and others delivered an overall 9 per cent growth. Ice-creams were growing in excess of 30 per cent.

In 2005, HLL had restructured its foods portfolio and the company announced that it would get out of categories such as confectionery under the Max brand, as it could not provide product differentiation over the competition.

The company could not perform well in the past when it launched ready-to-eat chappatis under the Annapurna brand. Other products that were withdrawn included biscuits (Kissan Bistix), Knorr Soupy Snax and Annapurna 4'0 clock Tiffin.

In atta category(wheat flour), the company exited unviable geographies and focused on the south and west regions as the margins are better in these markets. In the ice cream business, it focussed on key cities and not at the mass market segment. "The citadel strategy continues as it has paid off," said Sharma.

With Modern Foods being amalgamated with HLL, analysts predict that the company might get into categories such as breads, "After restructuring, Modern Foods is no longer a business that bleeds. We will try and run it as efficiently as we can and provide it the right place in our larger portfolio of foods," said Sharma.

On the beverages front, the company has taken Lipton iced tea back to the drawing board, as the product did not perform as expected despite a distribution alliance with the beverage major, Pepsi. "The structure of that business is being revised," said Sharma.

Analysts said that the company's performance in foods had not been upto expectations because the company concentrated on its branding efforts over taste of its products.

But the analysts add that the company might correct that considering its global expertise and the enormous opportunity in the Indian market.

According to HLL, close to 90 per cent of foods bought in India are unprocessed. "This provides a huge opportunity for companies to further develop this market," said Harish Manwani, chairman, HLL. Other players in the Indian foods segment include tobacco to hotels major ITC, Swiss giant Nestle and homegrown co-operative Amul.

Also, international players like Cargill, General Mills and Danone have been trying to make their presence felt in the market for sometime now.