Market disruptors are often over-played, says HUL's Sanjiv Mehta

At an overall level, about 28% of the FMCG market is premium. Our aim would be to help consumers trade up, says HUL's Chairman and Managing Director Sanjiv Mehta

At a time when the domestic fast-moving consumer goods (FMCG) market is seeing the emergence of digital-only brands and start-ups, incumbents such as Hindustan Unilever (HUL) have to adapt to the new normal. HUL’s Chairman and Managing Director SANJIV MEHTA tells Viveat Susan Pinto and Niraj Bhatt that being agile and resilient will be key to its survival. Edited excerpts:
 
Gross domestic product growth in India has been weak, but HUL has managed to grow. What has been the source of this growth?
 
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.

 

The overall market has been broken down into 14 consumer clusters. We do not have a pan-Indian approach because one size cannot fit all. We’ve also built engagement platforms for our big brands. This has helped us drive growth.
 
The second leg of our strategy is market development, which is not only about growing market share, but also building categories of the future.
 
The third leg is premiumisation. About 1 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.

 
The fourth leg is talent and building capabilities. We have notched this up. While there is some level of attrition, it is not a problem.
 
Will the demand outlook for the FMCG market change with the Centre giving sops to traders and farmers?
 
We are always circumspect about how the market will shape up, given the variables at play. Unlike other sectors, FMCG does not grow exponentially during a boom nor does it tank during a tough phase. It is resilient.
 
What counts for the market is inclusive growth. Do more people have money in their hands?

 
This comes with a stable government, when there is law and order and a sense of hope for the future. This government is at the end of its tenure. We will have to wait and watch.
 
Multinational companies (MNCs) have received prosecution notices of late. Won’t this hamper the image of the country among foreign investors?
 
I don’t think MNCs have been singled out. There is no drive against them. The government has been vocal about inviting foreign direct investment into the country. In the last few years, we’ve had a good record on that front. The government realises India has to be part of the global order.

 
A lot of new-age challengers have emerged in the last few years. How do you get millennials into your fold with these companies growing?
 
I am of the belief that it is not the big that will beat the small or the small that will beat the big, but the fast that will beat the slow. I also believe that disruptors are often overplayed and that adaptability is underplayed. An incumbent, if agile and resilient, can be a formidable force for anyone. The other thing to keep in mind is that FMCG is not a zero-sum game. There is room to grow. As a company, we keep a hawk’s eye on what is happening in the market. We do not have to be the first to enter a category, we could be second or third, but be better.

 
Will you look at acquisitions as a route-to-market in food, given that it is a big bet for you?
 
We are open to mergers and acquisitions, especially bolt-on acquisitions. There aren’t many such as GSK Consumer around. That was an once-in-a-lifetime opportunity. We will continue to scout for relevant opportunities though.
 
What is the plan of action on Horlicks? Will you relaunch Horlicks or add variants to its existing portfolio?
 
Our first job is to get regulatory and statutory approvals. The second would be to plan for integration. My brief to my team is that the combined food and refreshment business should be more than the sum of two parts. This means we are going to harness the skill sets of the people at GSK Consumer and marry them with HUL. Our objective would be to accelerate growth and drive synergies.

 
There seems to be a disconnect between HUL and the goods and services tax (GST) anti-profiteering body. Does that concern you?
 
We have been one of the most vocal supporters of GST and believe it is right for the country. We also believe we acted appropriately when it came to passing on GST benefits. You cannot change the price of consumer goods overnight. Where we took time to change the price, we suo motu offered it to the government. Had the rules been laid out clearly, in terms of passing on GST benefits, we would have complied with them. Because there are no rules, companies have ended up interpreting them in different ways. That is where issues are cropping up. We believe in the judicial system and feel it will be fair to us.

 
When will price-led growth come back? What we are seeing is volume-led growth despite the thrust on premiumisation. Is GST hindering price-led growth?
 
There is no price control in the country. Let’s get that clear. FMCG is a highly competitive market. If you are off even Rs 1, you will lose volumes and margins. There is a self-correcting mechanism in the market, which ensures equilibrium. We keep a close watch on strategic price points as well as the price-value equation. India is a price-sensitive market and we have to be conscious of this all the time. HUL’s 10-year compound annual growth rate, in terms of top line, has been 10 per cent. Sixty per cent of this has been volume growth and 40 per cent has been price-led. Volume growth has a number of benefits. It helps you get more consumers, if you are driving penetration. If you are driving consumption, existing consumers are using more. Price growth alone is not sustainable.