The top managers at India’s largest consumer goods company, Hindustan Unilever (HUL), are on their toes these days. The company, which saw its market share in key product categories coming under pressure, has got a clear directive from Paul Polman, the CEO of its UK-based parent Unilever, that it cannot afford to lose market to competition any longer.
Mr Polman, an accomplished marathon runner, seems to be in a mood to sprint. His ‘Thirty-Day Action Plan’ across markets, including India, seeks to get executives to act quickly to fix brands, marketing and pending company issues to drive growth. The plan, which asks HUL managers to take quick decisions based on what the competition does, is likely to be discarded if it fails to yield results within a month. Mr Polman, the first outsider to be selected as Unilever CEO in the firm’s 78-year history, is firing up the system to drive volumes with the aggression he acquired during his stints with the company’s arch rivals Proctor & Gamble and Nestle.
Developing markets have contributed more than half of Unilever revenues in the first half of this year, in a first for the Anglo-Dutch multinational, which is relying heavily on markets such as India to lead it out of the economic downturn.
The past few months saw HUL losing market share in the mass market for soaps and shampoos to toothpastes and skin-care products. According to numbers released by market research firm AC Nielsen, the company has lost value market share across product categories by up to 6% year-on-year during April-May 2009. HUL’s decision to focus on premium brands such as Pond’s and Dove to improve profitability seems to have backfired at a time when consumers were hunting for value offers in a depressed market.
Unilever CEO Paul Polman has iinitiated Thirty-Day Action Plan across markets, including India. Move seeks to push executives to act quickly to fix brands, marketing and pending company issues to drive growth. If the Thirty-Day plan fails to yield results after a month, it is likely to be discarded HUL managers have been asked to take quick decisions about brands and pricing based on what competition does HUL hikes ad spends by 20%
GODREJ No. 1, Reckitt Benckiser’s Dettol in soaps, Colgate, Dabur’s Meswak and Babool in toothpastes, and Vatika in shampoos are gaining at the cost of HUL. HUL committed the error of vacating the bottom-end of the market at a time when the economy was shaken, said Nikhil Vora, managing director, IDFC SSKI Securities. “It led to the emergence of price competitors such as Godrej and Ghadi, and it will be tough for HUL to now dislodge them. Also, the cost of re-establishing brands such as Breeze on the shelf space will mean paying higher distribution costs. In addition, the price warriors have made enough profits in the mass end to take themselves to the next level of growth,” he added.
The company is now taking corrective action. In one of its sharpest ad campaigns ever, HUL has started aggressively advertising its products across all media, launched a micromarketing strategy to take on regional competitors and is now drawing up a district-wise pricing and distribution strategy. It has upped advertising spends by 15-20%.
In an exclusive interview with ET a few days ago, Nitin Paranjpe, CEO of HUL, declined to comment on any Unilever directives and moves. “Within HUL, there is a clear communication that says we will not tolerate any uncompetitiveness in any part of the market and any part of our portfolio. If anyone notices uncompetitiveness for whatever reasons, it is incumbent on them to escalate it and find a way to speedily resolve it,” he had said. In certain categories, the differences across regions are significant in terms of the nature of competition. “We will have different brands playing different roles in different parts of the country,” Mr Paranjpe said.
The country’s largest advertiser has never been so ruthless about advertising as it is now. The message is clear — minimising costs and maximising returns. It has taken several initiatives such as value-based compensation for advertising and media agencies, block buying of time on TV networks, slashing agency commissions and a global review of its media buying agencies.
Last month, HUL bought advertising space for an entire day across Star India channels — Star Plus, Star One, Star Gold, Star Utsav, Star Movies, Star World, Channel [V], Star Jolsha, Star Pravah and Star Vijay. This was followed on September 24 by a similar buying on Zee Network across its 25 channels.
“HUL’s volumes have been under pressure over the past 3-4 quarters. So, in the mass segment, the company can only grow by improving per unit consumption. The way smaller players are attacking HUL’s share — whether it’s Godrej in soaps or Tata Tea in tea — HUL has no choice, but to go all out on these parameters,” said Aashish Upganlawar, FMCG analyst at broking firm Sharekhan. The October-December 2009 and Jan-March 2010 quarters will be tough if delayed rains impact offtake, he said.
The company is closely tracking prices in the market place. “We have, for every brand, a defined strategic price and a different relative price in the market. Now, we have systems to check the pricing of a brand with respect to market, and with respect to key competitors,” Mr Paranjpe said.
Drastic measures by HUL are in the works, said an executive who asked not to be named. According to rough estimates, HUL’s ad spends are close to Rs 1,300 crore annually. Analysts say HUL’s strategies are ‘reactionary’. “As one of the largest FMCG companies, HUL should set the agenda to drive growth, it should have a five-year growth plan in place,” said Mr Vora.