After spending the last one year struggling with low volume growth, Hindustan Unilever (HUL) reported a 6 per cent number for the June quarter, taking the street completely by surprise. Most had factored in volume growth to be in line with the three per cent it had achieved in the March 2014 quarter. The company's net profit rose 3.7 per cent, while all key segments saw margin improvement between 93 and 247 basis points. HUL's MD Sanjiv Mehta spoke at length about the company's performance in a media interaction. Edited Excerpts:
What did you precisely do to improve volume growth?
Our focus is on simplifying the business and making it far more agile. Gone are the days when you could make a strategy and sit back and say that you will run it for three years. The environment today is changing rapidly. You need a business that can change course very rapidly. Our response to the environment around us was to prune the number of stock keeping units in our portfolio. In six months, we have rationalised about 20-25 per cent of our portfolio. Basically we have targeted products that were non-performing. The second response was to bring the magic back into marketing with an innovative approach to it. The third was to leverage our direct coverage of three million outlets and drive sales throughput in these stores. We are also focusing on building brands in stores where the purchase decision is made. All these efforts helped us improve volume growth.
How long is your SKU rationalisation to continue?
Which are the areas you are investing in to maintain sales momentum in the coming quarters?
We are investing in foods, beauty, digital and our go-to-market infrastructure and capability. These are segments that require investment and are our building blocks for the future.
Speaking about foods, what is the agenda there since it is a small part of your portfolio at the moment?
We have a clear strategy on foods. We will continue to invest behind the category and launch appropriate products. For the last several quarters we are seeing double-digit growth in foods. In the June quarter alone, it was 18.8 per cent growth that we saw in packaged foods led by brands Kissan, Knorr and Kwality Walls. We intend to continue this momentum.
With the slowdown in premium and discretionary categories will your focus shift to mass products?
That is not something we don't intend doing. While premium and discretionary categories continue to be soft there are still segments that have done well such as facial cleansers, green tea and matic detergent powders (used in washing machines). So I don't think this allows us to ignore any segment whether up or down the pyramid. Remember consumer confidence is back, according to Nielsen. It is only a matter of time before it translates into real spending.
What did you precisely do to improve volume growth?
Our focus is on simplifying the business and making it far more agile. Gone are the days when you could make a strategy and sit back and say that you will run it for three years. The environment today is changing rapidly. You need a business that can change course very rapidly. Our response to the environment around us was to prune the number of stock keeping units in our portfolio. In six months, we have rationalised about 20-25 per cent of our portfolio. Basically we have targeted products that were non-performing. The second response was to bring the magic back into marketing with an innovative approach to it. The third was to leverage our direct coverage of three million outlets and drive sales throughput in these stores. We are also focusing on building brands in stores where the purchase decision is made. All these efforts helped us improve volume growth.
How long is your SKU rationalisation to continue?
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It will continue till the end of this (financial) year. We have to take a call on what to prune. We are not culling brands, but simply getting those SKUs out that are not performing in terms of sales. We will not vacate price points especially the magical price points in FMCG. We will simply prudently take a a call on what SKUs are working or not working for us and get the non-performers out. We innovate constantly and our portfolio gets bloated as a result. You have to then prune your portfolio accordingly.
Which are the areas you are investing in to maintain sales momentum in the coming quarters?
We are investing in foods, beauty, digital and our go-to-market infrastructure and capability. These are segments that require investment and are our building blocks for the future.
Speaking about foods, what is the agenda there since it is a small part of your portfolio at the moment?
We have a clear strategy on foods. We will continue to invest behind the category and launch appropriate products. For the last several quarters we are seeing double-digit growth in foods. In the June quarter alone, it was 18.8 per cent growth that we saw in packaged foods led by brands Kissan, Knorr and Kwality Walls. We intend to continue this momentum.
With the slowdown in premium and discretionary categories will your focus shift to mass products?
That is not something we don't intend doing. While premium and discretionary categories continue to be soft there are still segments that have done well such as facial cleansers, green tea and matic detergent powders (used in washing machines). So I don't think this allows us to ignore any segment whether up or down the pyramid. Remember consumer confidence is back, according to Nielsen. It is only a matter of time before it translates into real spending.