Intense competition may keep HUL ad spend high

Intends to also move on new growth areas.

With competition intensifying in almost every consumer goods segment, including its core ones of soaps and detergents, home and personal care, and foods and beverages, the promotional and advertising spending of fast moving consumer goods (FMCG) company Hindustan Unilever Ltd (HUL) is likely to remain high.

In the quarter ended December 31, HUL saw its ad spending shoot up by 66 per cent to touch Rs 632 crore, from Rs 380 crore in the corresponding period a year earlier. This was the sharpest rise in ad spending in recent times, said its chief financial officer, R Sridhar.

“There were a number of activities we undertook in the quarter that merited attention. Plus, competition itself has been doing a lot. Our increase in ad spends was a result of this,” he said.

What had triggered this need was HUL's loss of market share in key categories such as soaps, tea, toothpaste, etc, in recent quarters. The company responded with price cuts, a relaunch of products, including its soap portfolio, in June-July and September-October 2009, launching variants of existing products, such as Brooke Bond Sehatmand in the tea category, for instance, unveiled recently to tap the mass end of the market, where the company has been unrepresented. "The market is moving to the mass and discount end. There is downtrading happening. We had to respond to it in some way," Sridhar said.

Downtrading (buying cheaper alternatives) in allied categories such as laundry and soaps has meant that HUL had to align itself to market realities in the past few quarters. It undertook price cuts in the laundry segment, for instance, in the third quarter, even as lower input costs allowed the company to pass on price benefits to consumers.

These reductions in the laundry segment pushed up volume growth for the company, even as value growth eroded at the same time. The company also saw volume growth in personal products, foods and beverages in the third quarter.

Even as the company plans to fight competition aggressively, it is keeping eyes open for newer areas of growth. Segments such as water and out-of-home consumption are areas it has identified for future growth. Sridhar said its Swirls ice-cream parlours will be increased from the current 85 to 100 in the next few months. It is also looking to increase the number of Lipton Cafes in the near future. At the moment, there are 40, he said.

Bon merges into HUL
HUL’s board has approved the merger of its wholly-owned subsidiary, Bon, with itself, effective April 1. The latter, responsible for operations at HUL’s oldest factory, at Haji Bunder in Mumbai, has not been engaged in any significant activity since 2003, the company said. “For the purpose of administrative simplification, the board of directors has, subject to necessary approvals, decided to merge Bon Ltd with the company,” said HUL in a filing to the stock exchanges.