Minutes after declaring Hindustan Unilever's third quarter results, Unilever President Asia, Africa, Central and Eastern Europe Harish Manwani spoke to Hindustan Times about the company's strategy, how inflation is hurting its bottomline and the opportunities that the Indian market offers.
Your third quarter results have been weak on profits. What's up?
For the fourth quarter running we have delivered an underlying volume growth of double digit. The good news is that we are able to grow our business ahead of the market growth. As far as margins are concerned, in laundry we have an ongoing competitive battle which we are determined to fight. And the sudden escalation in commodity prices particularly palm oil and crude oil has hit us.
Those prices are not going to fall. Globally, inflation is rising. So, how do you plan to manage these rising costs?
The question is that going forward we have to be aware of is that the headwinds that we are now beginning to see of commodity costs are getting more intensive in terms of crude oil and palm oil. We have to do two things. One, step up our cost effectiveness and two, wherever the need we have to judiciously increase prices but without losing our competitiveness in the market.
Is the mushrooming of private labels by retailers hurting your sales?
While modern trade is a fast-growing channel, its contribution is still small. We get a lot of efficiencies when we deal with the modern retailer and there is a lot of professional engagement with the modern retail. We have a higher share in the modern trade than we have in the general trade because we have built the core competency. The business model is commercially viable for both partners. They buy centrally in fewer parts and our supply chain efficiency in terms of stocks in pipeline is less. The rotation is faster. So, no, it's not hurting us. Just the business model is different.
You have been talking about food becoming a major contributor to the company for quite some time but it has not picked yet. It is only 20% of your business in India as compared to 50% in Unilever's. Anything going wrong there?
It's the state of market development that has not yet taken off in foods. And so, the penetration levels and the state of market is more developed with the home and personal care segment and less in the food space. The good news is that certain categories such as tea and coffee are developed in India and we are strong there. All other categories are very nascent.
Is your growth tapering off?
Our interest lies in a long-term value creation. We will make sure that our brands remain relevant, our organisational capabilities remain competent in the context we operate. We have done a lot of investment in our brands. In 2010 we had 70 launches and relaunches. We are constantly building our brands to make them better and relevant. You must also remember that we operate on a very high base. Despite that, our growth is ahead of market growth.
What about long-term growth in this competitive environment?
The fact is that in one year we have grown the business in double digits, grown it competitively and added half a million new outlets (in urban and rural markets). We are focused in building our business through innovation. As far as competition is concerned, in a market such as India the biggest driver of growth is market development. Competition is good as it develops the market and with that it is our job to be able to get a large chunk of that bigger pie.
Compared to other countries you are responsible for, how does the Indian market look?
Take any category in India. There is no mature category and that's an excellent business to be in. The per capita expenditure of shampoo in India is 1/7th of China's. Face care expenditure of Thais is 25 times that of Indians. We have 55% share in the market, so we have to grow the market. In the foods business, while we are market leaders in soups, what excites me is that soup is only 2-3% of India's (consumption). We want to make soups relevant to 10% of the Indians.
Why has your profit growth rate squeezed in the past few years?
We have a category where there has been an irrational response in the market by people wanting to built the business quickly and therefore the prices are being brought down to a level that is unsustainable. We are quite clear that we are not here to lose market share in categories where we have taken 100 years to built share. So we are competing and that is hitting us in the short term.
What are you doing to come out of it?
In some of the bigger categories we are strengthening our leadership position. We will also manage within our product portfolio and categories. I personally think that it is not good business sense longer term for anybody to destroy value in an industry if you happen to have pricing that is not sustainable.
What does HUL look like in the next few years?
We are trying to built a business that is not only relevant for today but also a business of tomorrow in terms of categories, presence, capabilities and sustainability. I want to see consumers wanting to use our brands because they are the best offering they can get. Our vision is to have consumers who are delighted by our brands and we want our brands that have lived 100 years, to live for another 100 years.
You talk about sustainable growth. How will that come?
We are committed to reducing our environmental impact to half by 2020 and it is not just about sustainability of raw materials we source. We are committed to 100% of our agricultural produce coming from sustainable sources by 2020. Companies do not survive if they do not grow responsibly. We will source our palm oil from sustainable sources and by 2015 all our palm oil will be sourced from such sources. As of now we are sourcing 15% of our need from sustainable sources.