 "Volume growth should pick up in coming quarters: HUL CEO")
What explains low volume growth, when commodity costs were benign and you were cutting prices?
In the past 12 weeks, there are segments where there have been volume pick-up. However, there are still many parts of the fast-moving consumer goods (FMCG) market, where volume growth is still negative. If you look at urban areas or modern trade or large packs or popular pricing, or even skin cleansing, the volume growth is still negative. While there has been a pick- up in volumes in home care, beverages, rural and general trade, what we ought to see is whether this trend is sustainable. We have taken a price correction, notably in laundry and skin cleansing, in response to the fall in crude oil prices and crude-linked derivatives.
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Theoretically, it should have resulted in volumes picking up. It didn't happen because, as I pointed out, there was some pain in the system. The overall volume growth was only one per cent. And value growth was only five per cent. Plus, we had to clear our high-priced inventory in some categories, since we were cutting prices. We knew this would affect sales this quarter but took it up pro-actively. In addition, the delayed winter affected our hand and body portfolios in skincare.
How do you see the market shaping?
This is likely to be the last of the quarters where volume growth will be tepid. The slowdown has bottomed out and from the next quarter or so we should start seeing volume pick-up across segments. It is currently restricted to a few categories; it should broad-base.
With commodity prices correcting, small FMCG players have re-entered the market. How did you deal with this scenario?
We did not reduce our advertising and sales promotional expenditure. On an absolute basis, it was up Rs 48 crore, touching 12.9 per cent of net sales. That is a pretty healthy number to have. The three commodity-linked categories of detergents, skin cleansing and tea did see a lot of local players coming in, thanks to the correction in crude oil prices. So, competitive intensity increased because the sheer number of players went up.
Besides, advertising and sales promotion expenditure was stepped up by us and others. Plus, there were additional trade promotions by the new players, since that helped them gain access to the marketplace. In short, competitive activity was high during the quarter. We are agile. We reacted based on market realities and our price-value equation. The point is that consumers have to remain with us.
Is that why you focused on low-unit rather than larger packs, which you said were not growing?
Low-unit packs are a very interesting phenomenon. When the economy slowed, large-pack growth came down. A lot of consumers who were using bottles, for instance, moved to sachets. The small packs began growing in a bigger way.
The growth of large packs in volume terms is still negative. The factor of consumers having less money to spend is the key factor here. We are clear: We want to retain our market share. If consumers do not want to use large packs and are instead happy using small packs, we are more than willing to give them that option.
What is the proportion of sales coming out of small and large packs for HUL?
In the case of haircare, for instance, the proportion of small to large is almost 60:40. In skincare, the Fair & Lovely sachets are a significant chunk of the business.
In the laundry business, it is not so much about sachets but about one-kg packs. The same goes for soaps, where large packs are consumed more than small ones. In the discretionary categories, consumers are downsizing, and going for smaller packs. In the commodity-linked categories, consumers are opting for larger packs because they perceive value in that.