For Hindustan Unilever, the leading sponsor of popular television serials that promote its detergent brands, 2009 was like an awakening episode in a soap opera. A larger number of local rivals had entered its dominant laundry business, hitting both market share and profit margins.
Shaken but stirred to positive action, the 75-year-old consumer goods giant, which sells everything from shampoos and fairness creams to jam and tea, picked up its pieces and reworked its strategy.
HUL added 500,000 stores in 2010 — that's almost 50% of what it did in 75 years. It plans to add an equal number over the next two years, and turn its shops into what it calls "perfect stores" that display products to pull in more demand in their locations.
The result: volumes are up 12% in the last quarter, in line with the 70 product launches or re-launches that it did last year."The company's salespeople come and arrange all products in an order," Mukesh P Patel, of Mehul Medico, a retailer in Mumbai's Santacruz area told an HT reporter on a random visit. "This catches the consumer's attention."
But HUL's challenges are far from over. Its net profit margins shrunk to 11.9% from 16.5% in 2002-03. And net profit plunged 11.8% in 2009-10. The company blames it on rising input costs and a cut-throat price war by 600-odd laundry rivals who ramped up capacities even as HUL was sitting on inventories amid an oil price surge.
HUL's first step is to hold on to its market, while taking a hit on laundry product margins.
"There has been an irrational response in the market by people wanting to build the business quickly and therefore the prices are being brought down to unsustainable levels," said Harish Manwani, president Asia, Africa, Central and Eastern Europe, Unilever. "We are quite clear that we are not here to lose market share in categories where we took 100 years to build share."
In a sign of renewed vigour, the company is reaching directly to villages that have a population of less than 2,000 through its project ‘Shaktiman'. While the focus is on rural market, the company has also increased its market share in the modern retail channels, where its market share has risen by 5-6 percentage points compared with the general trade over the past three years.
"We have to be winning with the consumers of tomorrow, in the channels of tomorrow, in the segments of tomorrow and in the geographies of tomorrow," said Nitin Paranjpe CEO and managing director, HUL, explaining the fan-out. "If we are winning in them then even if they are small today, we would be leading in those areas when they grow big tomorrow."
As modern retail and rural areas steady the ship, HUL has been talking big in foods, where it faces aggressive rivals. While parent Unilever gets 50% of business from foods worldwide, for HUL, it is a humble 20%, though it is strong in coffee and tea.
"It's the state of market development that has not yet taken off in foods," Manwani said, underlining the significance of nascent segments.
Paranjpe reasons that only 5% of India's overall food business is packaged and the game is wide open and its brands strong.
HUL, happy with Knorr's soupy noodles success, will soon launch Nutrismart, a health food drink under umbrella Kissan. More products are due this year.
In personal care, in which HUL has power brands such as Fair & Lovely and Pepsodent, it is betting on growing affluence. Paranjpe said HUL must "premiumise and turbocharge" its products in personal care and beauty.
And that is the reason why Gopal Vittal, executive director (home and personal care), has diverted his focus to smaller segments with growth potential, such as hair conditioners, skin lightening, face cleansing and liquid handwash. "I spend a lot of my personal time on the things that are smaller and have a larger opportunity for growth in the future," Vittal said.
HUL, also focusing on health and eco-friendly lifestyles, is trying to build long-term competitive advantage by sourcing its raw material from sustainable sources.
"If you are close to the consumer you can lead the change of market development," said Hemant Bakshi, executive director (sales and customer development).
The knock of 2009 is still fresh in memory, but the company that has turned out many leaders is hoping its bright minds and emerging winds to lead a bounceback.
"We lost share and it was an important milestone in our history because of the lesson we learnt," said Vittal. "That has galvanised the organisation and made us more determined and consumer-centric. And more humble."
For a company that has nurtured the careers of 400 CEOs in India's corporate sector, that could be a new lesson.