HLL-Juggernaut— tHe DiLemma of...

*This case has been developed by Dr Rajan Saxena, former Director and Professor of Marketing, IIM, Indore, and Mrs Sonika Singh,Academic Associate, IIM, Indore. The case is based on published data and is meant for classroom discussions only. Copyright © 2001 by Indian Institute of Management, Indore.

HLL-Juggernaut—tHe DiLemma of growtH*

Hindustan Lever Limited (HLL) is India’s largest fast moving consumer goods company, with leader-ship in home and personal care products, foods and beverages, and speciality chemicals. The vision that inspires HLL’s 36,000 employees, including nearly 1,300 managers, is to “meet everyday needs of people everywhere—to anticipate the aspirations of our consumers and customers and to respond creatively and competitively with branded products and services which raise the quality of life.” This objective is achieved through the 110 brands that the company markets. Its deep roots in local cultures and markets around the world are HLL’s unparalleled inheritance and the foundation for it’s future growth. With this wealth of knowledge and international expertise in the service of local consumers, it is truly a multi-local multinational.

BackgroundIn 1888, less than four years after William Hesketh Lever’s company, Lever Brothers, launched Sun-light Soap in England, William Hesketh’s company also started exporting the revolutionary laundry soap to India and carved a niche for itself in the Indian market. The company merged with the Neth-erlands-based Margarine Unie in 1930 to form Unilever. A year later, Unilever set up the Hindustan Vanaspati Manufacturing Company, its first subsidiary in India, and further strengthened its position by establishing two more subsidiaries, Lever Brothers India Limited and United Traders Limited, soon thereafter. The three companies, which marketed soaps, vanaspati and personal products, merged in 1956 to form Hindustan Lever, in which Unilever has a 51 percent stake. Since then, HLL has entered virtually every arena in the FMCG market through organic growth, diversification, mergers, and acquisitions. Today, the company markets more than 110 brands in 950 packs. The products are sold in one million retail outlets, almost reaching out to the entire urban popula-tion and about 50,000 villages in India. HLL has market leadership in virtually every area of presence. It is the market leader in soaps and detergents as well as in skin and hair care products. It is also the market leader in tea, processed coffee, ice-cream and frozen desserts, tomato-based products, jams, and squashes. HLL’s gross turnover in 1997 was `83.4 billion and profit after tax was `5.8 billion. Also, HLL has emerged as a major exporter. It is a Super Star trading house, an honour that only seven Indian companies enjoy. HLL’s export turnover in the year 1999 was `1803 crore. HLL’s introduction of a variety of products from the time of its conception till date is shown in Exhibit 1. The company’s brand portfolio in various categories, like home and personal care products, food and beverages etc. are listed in Exhibit 2.

Case

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2 Marketing Management

Exhibit 1 HLL from Conception Till Date

1888: Lever soap, ‘Sunlight’, introduced in India through imports.

1918: Vanaspati (hydrogenated edible oil) launched through imports.

1930: Unilever created through the merger of Lever Brothers, UK and Marga-rine Unie, the Netherlands.

1931: Unilever registers company in India—Hindustan Vanaspati Manufactur-ing Company (HVM)— for local manufacture of vanaspati.

1933: Lever Brother’s India Limited (LBIL) incorporated in India, to market personal soaps.

1935: United Traders Limited (UTL) incorporated in India, to market personal products.UTL

How We Got There


HLL-Juggernaut—The Dilemma of Growth 3

HLL 1956: The three subsidiaries, HVM, LBIL, and UTL merge to form Hindu-stan Lever Limited (HLL).

1958: Hindustan Lever Research Centre starts functioning.

1979: Chemicals complex commissioned at Haldia, West Bengal.

1993: HLL’s largest competitor, Tata Oil Mills Company (TOMCO), merges with the company.

Erstwhile Brooke Bond India acquires Kissan, Business from the UB Group, and Dollops ice-cream from Cadbury. Doom Dooma and Tea Estates Plantation divisions merged with Brooke Bond. Brooke Bond and erstwhile Lipton India merge to form Brooke Bond Lipton India Limited.

1994: HLL and US-based Kimberiey-Clark Corporation form 50:50 joint venture, Kimberly-Clark Lever Limited.

1995: HLL and Indian cosmetics major, Lakme Limited form 50:50 joint venture, Lakme Lever Limited.

HLL acquires Kwality and Milkfood 100% brandnames and distribu-tion assets.

HLL and US-based SC Johnson and Son incorporated to form 50:50 joint venture, Lever Johnson (Consumer Products) Private Limited.

HLL soaps and detergent sales cross one million tonnes.



1996: HLL and associate company, Brooke Bond Lipton India Limited, India’s biggest firm in food and beverages, merge.

1997: HLL and Gist Brocades BV form 50:50 joint venture. Lever Gist Brocades, to market ‘Gold Seal Fermipan Instant Yeast’ for baking industry.

1998: Group company Pond’s India Limited merges with HLL. HLL acquires Lakme brand, factories, and Lakme Ltd’s 50 percent equity in Lakme Lever Limited, HLL acquires manufacturing rights of Kwality ice-cream.

Appellate Authority of Government of India absolves HLL of insider trad-ing charges, made by SEBI in 1997, in the BBLIL merger.

2000: HLL acquires Modern Foods, the first public sector company to be di-vested by the Government of India.

Source: www.hll.com

Exhibit 2 HLL’s Brand Portfolio

Home & Personal Care Personal products Soaps & Detergents

Skin care Fabric wash Fair & Lovely Surf Pond’s Rin Wheel Oral care Personal wash Pepsodent Lifebuoy Close-Up Lux Breeze Hair care Household care Sunsilk Vim Clinic Deodorants Axe Colour cosmetics Lakme

Foods & Beverages Ice creams Beverages

Kwality Walls Cornetto Brooke Bond 3 Roses Kwality Walls Feast Brooke Bond Red Label Kwality Walls Max Brooke Bond A1 Kwalitv Walls Softy Brooke Bond Taj Mahal Lipton Taaza Lipton Yellow Label Brooke Bond Bru Lipton Green Label

Popular Foods Annapurna

Culinary Oils & Fats Kissan Dalda

Source: www.hll.com



Core CompetenciesHLL is the market leader in soaps and detergents as well as hair and skin care products and is the sec-ond largest manufacturer of dental care products. One of HLL’s strengths that has greatly contributed to this success are the breakthroughs at the Hindustan Lever Research Centre. The research centre is India’s largest in the private sector. The focus on research gives HLL an edge over competitors by coming up with innovative products and processes, many of which have been patented. Some of the researches have been in household cleaning in soaps by improving performance in removal of dirt from clothes. Studies related to improving quality in tea and enhancing characteristics like colour, aroma, and taste have enabled HLL to make better blends of tea. The company achieved remarkable success in ice-creams when HLRC developed a “eutectic mixture’ which acts as a refrigeration “battery” and thus enables subambient temperature distribution/vending of ice-creams. In the personal products segment, an important research finding is Fair & Lovely fairness cream. HLL has always stressed on constant technology upgradation. In 1999, there was a change in the entire instrumentation setup of HLL Research to bring it on par with the latest research facilities in the world. The company has always focused on acquiring knowledge-based software with a view to creating knowledge-based communities in HLL Research. HLL has tied up with organizations like the Indian Institute of Science (Bangalore), All India Institute of Medical Sciences (New Delhi), National Chemical Laboratory (Pune), and Department of Physics, University of Pune, in different areas of re-search. Besides, HLL has also funded research projects at the Jawaharlal Nehru University, New Delhi, and the MS Swaminathan Research Foundation at Chennai. Another factor which contributes to the success of HLL is its massive and efficient distribution system. The operations involve 2000 suppliers and associates and 7000 stockists and agents. Its op-erations are spread across 70 locations in India. There are around 100 factories, of which 28 are in backward areas. In recent years, most of HLL’s major investments have been in A category backward areas or non-industrial districts. A few such areas where investments have been made are Khamgaon and Yavatmal in Maharashtra, Chhindwara in Madhya Pradesh, Orai and Sumerpur in Uttar Pradesh, Dabgram in West Bengal, Silvassa in Dadra and Nagar Haveli, and Pondicherry. Many of HLL’s fac-tories, including export oriented units, are ISO 9002 certified. Some of these, like the Khamgaon soap plant and the Sumerpur detergent bar unit, have been recognized the best in the Unilever group. To add to its distribution system, HLL has even acquired sick enterprises in Mangalore, Rajpura, and Gajraula and converted them into viable operations. HLL has over 36,000 employees, and has created 2 lakh indirect jobs. HLL has an export portfolio of soaps, detergents, tea, tomato-based products, cosmetics, agro-prod-ucts, leather and marine products, carpets, chemicals and fatty acids, and castor oil. Castor oil is one of HLL’s biggest exports and it caters to 30 percent of the world demand. It is also the largest exporter of tea and branded fast moving consumer goods. HLL’s exports turnover in the year 1999 was `1803 crore. HLL is one of the country’s five biggest exporters and has been recognized as a star trading house by the Government of India. It is a net foreign exchange earner. Due to its outstanding performance in exports of castor seeds, castor, oil and its derivatives, HLL received the Globeoil Gold Award. The company also received the Silver Shield from the Federation of Indian Export Organization (FIEO) for ‘Outstanding Export Performance in Superstar Trading Housing Category’ for the year 1996–97.



Financial PerformanceHindustan Lever Limited (HLL) has recorded a tax deducted profit of `316.94 crore in the quar-ter ended March 31, 2001, an increase of 20.7 percent, over the corresponding period of 2000. After including a one-time exceptional income of `22.59 crore on account of profit arising from the transfer of interest in the animal feeds business to the Godrej group, the net profit went up to `339.53 crore, which was an effective increase of 29.3 percent. HLL’s turnover (net of excise) at `2642.51 crore grew by 1.1 percent. Sales of domestic FMCG products grew by 2.6 percent. Profit before tax at `406.33 crore grew by 18.4 percent. Annualized earnings, per share of Re 1 each, is `6.17, compared to `4.77 in MQ 2000. Other income grew from `90.01 crore to `102.20 crore, reflecting efficient treasury management of surplus funds. The results include an estimated business restructuring cost of `6.25 crore charged in the quarter, compared to `30 crore in the same quarter last year. The company reviews such costs each quarter, on the basis of estimated annual spends and necessary adjustments are suitably made and disclosed. The sales performance of the company under various product categories is shown in Exhibit 3.

Exhibit 3 HLL: Sales Performance

Segment 2000 As a % of Sales

1999 As a % of Sales

% growth

Soaps, detergents, scourers 42,140 40 41,010 40 3

Personal products 18,330 17 17,650 17 4

Beverages 19,870 19 15,750 16 26

Oils and Fats (incl. Vanaspati) 6,070 6 6,130 6 –1

Ice-creams and frozen desserts 1,640 2 1,710 2 –4

Canned and Processed

Fruits & Vegetable 1,360 1 1,230 1 11

Branded staple foods 2,690 3 2,180 2 23

Speciality chemicals 2,170 2 2,330 2 –7

Animal feed 710 1 3,320 3 –79

Others 11,060 10 10,110 10 9

Total net sales 106,040 100 101,420 100 5

Source: www.moneypore.com

Human Resource ManagementHLL has one of the best HR management practices in the world. One of the key focus areas has been its stress on “team building”. A constant interaction between employees, customers, and competitors encourages a unified corporate focus. The idea is to keep the employees (including senior executives) in touch with external realities that confront the company. This facilitates the understanding of value creation on behalf of the employees which in turn facilitates a better response by them. Every man-agement trainee of HLL is sent to the field and spends time with customers. This helps him to keep in touch with the market-place and inculcates a sense of not only business obligation but also a moral obligation to work harder. This also motivates the individual to understand the purpose of the company and what it stands for.



MarketingThe company has a strong brand equity which provides it with credibility and respect among its peers in the market. It has even created a positive motivational climate in the organization as employees take pride in remaining associated with it. It attracts the best talents and inspires respect among industry professionals. Pursuing aggressive marketing strategies, HLL continues to be India’s most admired marketing company in the FMCG sector. HLL has, in fact, emerged as Asia’s most admired company. Tables 1 and 2 give the relative positions of marketing companies in India and Asia.

Table 1 India’s Top 10 Most Admired Marketing Companies

Company Name 1999 Position 1998 Position

HLL 1 1

Coca-Cola 2 7

Cadbury 3 8

Pepsi Foods 4 3

Colgate—Palmolive 5 9

Nestle 6 5

Britannia 7 4

ITC 8 6

Amul 9 10

Lakme Lever 10 11

Source: A&M, November 30, 1999.

Table 2 Asia’s Most Admired Companies

Company Name Max score 7

Hindustan Lever 6.52

Singapore Airlines 6.46

Sony 6.46

Reliance Industries 6.41

Microsoft 6.37

Jollibee Foods 6.30

Pohang Iron and Steel Company 6.16

Toyoto Motors 6.16

Ayala Corporation 6.10

Larsen and Toubro 6.09

Honda Motors 6.06

Coca-Cola 6.06

Taiwan Semiconductor Mfg Company 6.05

Acer 6.03

Last year, the club had 21 members, or 33 percent more

Source: Far Eastern Economic Review, December 1999—January 2000.



Hindustan Lever continues to be among the top 200 marketing spenders. In the diversified industries category, according to the A&M Survey Report of October 1999, it ranks only next to Reliance. Its sales in December 1999 were `10,978.31 crore and its marketing spend was `8.64 crore. Hindustan Lever continued to be the top advertising spender, having spent about ̀ 715 crore for this purpose in 1999 and `669 crore in 1998–9.

Rank Company Ad Spend Rise in Spend

1 Hindustan Lever 715.40 46.45

2 Colgate—Palmolive (India) 193.98 31.36

3 Bajaj Auto 90.24 30.21

4 McDowell and Company 108.94 22.89

5 Hero Honda Motors 46.81 20.80

6 Godfrey Phillips India 85.15 20.12

7 Marico Industries 58.68 19.73

8 Mahindra and Mahindra 34.92 19.09

9 Britannia Industries 77.01 18.61

10 Ranbaxy Laboratories 40.93 18.29

Source: Abstracted from A&M, October 31, 1999.

Changing Profile of Indian ConsumersThe urban Indian consumer has undergone radical changes over the years. This has largely been shaped by media and technology developments in the Indian market. Due to the convergence of tech-nologies like electronics, computers, telecom, and broadcasting, newer media have developed which have brought about qualitative changes in conventional mass media like the press, radio, television, cinema, and so forth. Television is now one of the cheapest sources of entertainment. Cable TV as a mass medium has already become very popular but in future there is scope for more personalized and interactive services like direct broadcast satellites (DBS) and direct to home services gaining ground. The print media is witnessing a change due to the Internet. The Indian consumer has become more Internet savvy. The Internet grew at very fast pace and took just 4 years to achieve a user/subscriber base of 1 million. This can be credited, in great measure, to the emergence of cyber cafes in semi-urban areas. Therefore, companies are now taking e-initiatives to target these consumers. Companies are now tapping rural markets to widen the consumer base and gain volumes and tailor-ing brands specifically for these markets. There are approximately 700 million people in rural areas and more than one-third of the population is exposed to television in one form or another. Big players like HLL are laying thrust on building brands in these markets as more and more rural consumers insist on buying brands rather than products. Changing patterns in rural consumption can be gauged from the fact that rural spending on consumer goods has increased over time. The latest figures from the NCAER demographics survey shows the following consumption patterns.



Table 3 Rural Consumption

Consumer expendables Rural share (percentage)

Tooth powder 78.85

Cooking medium (Oil) 65.78

Tea 58.02

Toilet soap 57.25

Washing powder 54.83

Hair oil 47.24

Talcum powder 43.12

Tooth paste 38.94

Packaged biscuit 38.24

Shampoo 25.37

Table 4 Rural Consumption

Consumer durables Rural share percentage

Radio/Transistor 79.20

Bicycle 78.08

Wrist watch (mechanical) 75.59

Fan (table) 65.89

Sewing machine 64.34

TV (B and W) 62.65

Cassette recorder 55.03

Wrist watch (quartz) 54.00

Pressure cooker 51.51

Fan (ceiling) 50.36

Thus, today, companies are formulating different strategies to capture both urban and rural markets.

Competition in the Indian MarketOff late there has been an overall slowdown in demand in the FMCG sector. According to one analyst, most companies are facing a slowdown in value terms because of price reductions and not on account of decreasing volumes. The growth rate has slowed down considerably over the recent past, and is likely to remain so for a while. HLL has been losing market share continuously. In the last quarter of 2001–2, it witnessed declining volumes in all major product categories. Even though HLL still remains the market leader and the number one player in the `80,000 crore FMCG market, it is facing stiff competition from focused players in different product segments. In food products, availability of cheap generic substitutes is hampering growth. Britannia has been gaining



market share and has seen continuous growth in volumes with the impressive performance of ‘Tiger’ biscuits. HLL’s prime growth drivers, like personal care products, are also witnessing slower growth. Companies like Godrej Soaps, Nirma, Smithkline Consumer, Tata Tea, and Cavin Kare are gaining mar-ket share at HLL’s expense in their respective product categories. This is likely to affect both the topline and the bottomline, since personal care products are high margin products. Even rival P&G, has under-gone restructuring efforts which could result in a significant upswing of their fortunes. The Indian arm of Colgate–Palmolive bought off the entire oral hygiene business of Hindustan Ciba Geigy for `1.31 billion, taking over Cibaca Top and Cibaca Flouride toothpaste brands, and the Supreme, Standard An-gular, and Deluxe Transparent toothbrush brands. Colgate’s market share has more than doubled, from 33 to 68 percent. Colgate further lured the rural consumer by offering low priced products in small and convenient packs. The competition in the FMCG sector is increasingly becoming a market share game. Small gains made in market shares are significant in a market characterized by intensifying competi-tion and polarization. Nirma has been successful in upgrading its product, packaging it, and offering the value of a branded product, and has used extensive advertising for this purpose. Nirma Lime Fresh, launched in 1997, was head-on competition for Liril. Nirma’s advertising was directly in league with the famous Liril advertising campaigns, and thus the brand scored over Liril. Manikchand and Silviniya shampoos are other smart local players, especially the latter, which surprised its MNC rivals with its sachet offer. Domestic players like Dabur, Marico, and Nirma have extremely strong brands. Nirma continues to gain volumes by passing on cost-benefits to the consumers. Dabur has been able to fight competition successfully through its herbal positioning. These companies have, in recent years, placed a great deal of importance on brand building and marketing, backed by huge advertising budgets. In the ice-cream business, HLL enjoys a 50 percent market share . However, this is mainly through mergers and acquisition of companies like Milkfood ice-creams and Kwality. The total ice cream mar-ket is worth `1000 crore, 60 percent of which is in the organized sector. It is facing tough competition from Amul Icecreams, which offers the same quality ice-creams at much lesser rates, thus offering value for money. The company plans to increase its overall ice-cream sales by introducing a low priced softy ice-cream at an affordable price of `5. The ice-cream business is highly capital intensive due to cold chain requirements, and the creation of a network of cold chains at the distribution points is a time consuming task. However, to fight competition, it is introducing the concept of exclusive Kwality Walls ice-cream parlours and it has recently opened two such outlets in Bangalore.

Ambitious Strategies of Some Major CompetitorsCavinKare Ltd Chennai-based Cavinkare Limited has launched the Fairever skincare cream, taking dominant HLL’s Fair & Lovely by surprise. Fair & Lovely had a 97 percent market share but Fairever has already garnered a good 14 percent share of the roughly ̀ 650 crore fairness cream market. The company has also entered the toilet soap market with the launch of its Meera herbal soap. It is planning to introduce a range of other soaps as well as detergents, thus directly competing with Nirma, Procter and Gamble (P&G), and HLL. In the hair care segment also, it launched its Chik brand through the small pack sachet route, and has picked up a sizeable market share—roughly 15 percent of the ̀ 840 crore shampoo market—in just two years. This has clearly ruffled the feathers of both HLL and P&G. Cavinkare has, as a part of its mar-keting strategy, sought to be different. It has decided that apart from an organic growth, it would even take to the brand acquisition route. It plans to introduce a number of new products in existing categories like skin, hair, and personal care. Cavinkare is also trying innovations in the pricing and packaging



areas. For example, in May 2001 it launched a single-use perfume Spinz Singlez priced at `1.50 per sachet. This is expected to drive usage and volumes by expanding the `66 crore category. Currently, it is estimated that only one percent of the population use perfumes. Chik’s shampoo sachets priced at 50 paise have already created waves in the market. Within a year of its launch, shampoo penetration in the country grew from 17.90 percent to 19.4 percent. Today, the company spends around 4 percent of its turnover on R&D and close to 25 percent on advertising and marketing, while constantly upgrading its offerings, based on consumer feedback. It has employee forums like “cross functional teams” which discuss and plan new product developments while sharing learning and insights from its successes and failures. The company also records its brand histories on compact disks for the benefit of new employees. Thus, at the pace at which the company is moving, it is poised to offer competition to HLL.

Procter & Gamble P&G has recently announced price cuts in two of its premium brands. Earlier P&G cut the price of its most popular and premium brand, Whisper Ultra, by 19 percent. Whisper Ultra sales are estimated to have doubled post price cut in February 2001. With the price cuts, P&G’s core business of health care (Vicks) and hygiene (Whisper) have registered an 8.3 percent growth during the year, from `2.6 bn to `2.8 bn. This growth is primarily attributed to the success of Whisper Ultra and strong growth in Vicks cough drops. Last week it announced price cuts in Tide—its largest selling global detergent brand—launched in India last year. Its price has been slashed by a massive 29 percent from Rs120 per kg to ̀ 85 per kg. Tide was initially positioned midway between concentrates like Ariel and Surf Excel (`160 per kg) and the premium segment occupied by Surf (`85 a kg). Now the company has lowered prices, after creating a premium image. Analysts see this price cut in Tide as a threat to HLL’s Surf. The technology-focused P&G is now concentrating on the value-for-money consumer, and this is perhaps the company’s most successful strategy and strongest effort to capture volumes in the market.

Marico Group The group is following the strategy of being proactive in all areas of marketing, supported by new product development and segmentation. Various initiatives are being undertaken for new product development and the group is also looking at building an aggressive cost structure which will help in improving margins. It has hired Anderson Consulting in an advisory capacity. Marico has adopted TCM (Total Cost Management) practices in all its operations. It will be a 4–5 month project and will concentrate on the entire chain including manufacturing, marketing, distribution , and so on. Cost targets have been set and if these are achieved, the payback will come within a month. It plans on tapping a larger number of consumers and expanding its distribution reach, specially in rural markets. Marico has made significant progress in enhancing sales capacity, quality of its distributors, and the distributors’ field force. The company has also taken several initiatives to improve penetration in rural areas. Marico’s parallel rural sales and distribution network ranks among the top three in the in-dustry today. Marico has leadership in the coconut oil category and Parachute has gained market share in the last one year and currently has a market share of about 53 percent. It has expanded the range in the value-added segment by recently launching the Parachute Dandruff Solution Hair Oil and has positioned it on a herbal platform. Marico’s Saffola is positioned in the premium category and has a well-entrenched brand equity. It is also test marketing Saffola Kardi–Corn blend in Bangalore, which is receiving a good response. Besides this, Saffola Salt, which is positioned in the premium category, has also been doing well. These products are positioned on health platform and promises to lower cholestrol and hence reduce the risk of heart attack or angina.



Godrej Consumer Products Ltd. Godrej is following an ambitious growth strategy for the financial year 2001–2002. Godrej’s Ezee, commonly recognized as a detergent for woollen and delicate clothes, is slated to be launched in a range of variants, including an expensive T-shirts wash and a fabric softener for cottons. It intends to invent a niche segment and make it grow through this umbrella brand. It also plans on acquiring a household category brand, especially in the floor cleaner segment. This category is growing at over 20 percent annually and Godrej, so far, had been lying low in the household segment with just the Godrej Liquid Cleaner. Godrej is well entrenched in the fairness cream category as well. Last year it launched Fairglow which has picked up 2.1 percent share of the market. The market share in the hair care category has also improved from 39.4 percent to 41.7 percent. The company, however, does not intend to get into shampoos and detergent bars as it does not have the required technology to manufacture these products.

Dabur A strong brand equity in the ayurvedic segment has helped Dabur sustain growth despite a sluggish demand situation. Apart from its large range of ayurvedic products like Chyawanprash, over a period of time Dabur has forayed into personal products like Dabur Amla and Lal Dant Manjan by capitalizing on its distribution strengths. Dabur has a strong transnational distribution network of more than 5500 distributors servicing 1,300,000 retail outlets through 21 sales offices. The successful repo-sitioning of Chyawanprash, Pudin Hara, and Dabur Honey has led Dabur to modernize its portfolio of traditional products. Honey, which was always advertised as a therapeutic product, changed track in 1993 and positioned itself as a food item. Honey sales rose from `5 crore to `12 crore in a year. Dabur now has an unparalleled dominance in various niche categories. Brands such as Dabur Amla, Dabur Chyawanprash, Lal Dant Manjan (LDM), Hajmola, Pudin Hara, and Hingoli are undisputed leaders in their respective categories. Dabur has built a loyal user base that has expanded with an increase in the popularity of “nature-based” products, particularly in the urban markets. It is this loyal and expanding user base, in its niche categories, which has helped the company to tide over the FMCG slowdown. The company has shown healthy double-digit growth rates during this period of FMCG slowdown. Its hair care segment, which contributes 61 percent to its family products division, grew 9 percent during the financial year 2001. This was mainly fuelled by a 15 percent growth in Dabur Amla, which constitutes over 54 percent of revenues from the hair care business. Also, with the Vatika brand of anti-dandruff and plain herbal product, Dabur has created a niche in the shampoo market. Vatika shampoo has grown 78 percent in 2001. Dabur dominates the red tooth powder category with about 67 percent market share. Despite a shift towards white toothpowder, Dabur Lal Dant Manjan has achieved a growth rate of 12 during 2001. Dabur has also launched Binaca white toothpowder as a reaction to the shift in preference towards white toothpowders. It has also launched Binaca toothbrushes and has garnered a 2 percent share of the estimated `300 crore market. Analysts expect that the company will continue to grow, mainly driven by growth in the Vatika brand of hair oil and shampoo, Dabur Amla, LDM, and Binaca brands. Moreover, the ayurvedic specialities business grew by 19 percent to cross the `100 crore mark in 2001 (`105 crore). Now the company’s energies are focused on Real and Hommade pastes. It is looking at the possibil-ity of launching tomato pastes and at the same time is doing research in chutneys and pickles. Dabur is also working furiously on tetrapacks to take on the competition in fruit drinks and nectars.



Surviving in the FMCG MarketIn the midst of such tight competition, HLL is coping with competition in numerous ways.

New Business Opportunities HLL is exploring new growth areas. It has evaluated 9 feasibility areas where it can venture and is currently experimenting in five of them. These are confectionery, con-sumer health care, water, direct consumer distribution, and rural marketing. HLL plans on an organic entry in the water business and further strengthen it through brand acquisitions. Consumer health care will be an extension of its current personal products business. It will sell non-prescription products over the counter. HLL is also considering entry into food retailing by piggybacking on its ice-cream business. It plans to expand the product mix at its exclusive Kwality Walls ice-cream parlours by including confectionery and other offerings. HLL is opting for the franchisee route to open these parlours and hopes to take this concept to all cities of India.

Brand Portfolio Restructuring HLL, like its parent brand Unilever, plans to prune its brands and focus on the top 30 out of a total of 110 brands. These top 30 brands contribute more than 75 percent of the turnover. The rest will either be dropped, sold, migrated, or continued as regional brands. HLL is not planning to vacate any category it is present in; it is only eliminating brands. With the rationalizing of these brands, an enormous simplification is expected to take place. According to Chairman, M.S. Banga, “Because you cut down on the number of SKU’s, the supply chain gets simplified and that saves costs.” The company plans to support the power brands with strong advertising. Brands which contribute to about 25 percent of HLL’s turnover, have been classified into three groups. First, there are the “regional jewels”, that is, brands which are exceptionally strong in certain geographic areas. Hamam, for instance, gets about 60 percent of its volumes from Tamil Nadu where it has more than 30 percent market share. HLL will keep such brands as purely regional brands and support them heavily in these limited geographics. HLL, though tightlipped about its power brands gameplan, has started to announce its list of casualties, or brands which are both small and unprofit-able, and be discontinued or sold off. HLL has delisted two toothpaste variants, Close-Up Renew and Close-Up Oxyfresh, which are off the shelves; the washing powder Revel, and the rural toothpaste Aim, which will also go off the shelves soon. Breeze, a mass market brand in the toileteries market is growing at 50 percent plus per annum. Hence, the company plans to phase out the other mass market brand Jai soap, which is now getting lesser and lesser support. Another brand that might be phased out is Moti soap which sells about 5000 tonnes a year in only one or two states, mostly during the Diwali season. Among the emerging categories, Rexona and Axe deodorants are the power brands. Rexona has been used to build the deodorant market by HLL. Axe, though launched only last year, has been doing well. However, Denim and Impulse are likely to go since they have not fared well in the market. Mr Banga explains, “ Whenever you have the same benefit and same price point there’s no advantage to me to carry two brands. So what we would do is merge those brands with some of the 30.” The company, through intelligent communication and use of pack graphics, intends to migrate the consumers of the phased-out brands to existing brands. After almost a month of research, The Economic Times shortlisted what it considered the probable power brands of HLL. The criteria for selecting the 30 brands were the brand’s current sales, its dif-ferentiation vis-à-vis the rest of the market, and its future growth potential. The 30 power brands as listed by The Economic Times, in 2002 are shown in Exhibit 4.



Exhibit 4 The HLL Sensex

30 Power Brands Out-of-Focus Brands

Lifebuoy : Lifebuoy, Lifebuoy Active soaps Lifebuoy : Lifebuoy Liquid, Lifebuoy Plus/Gold

Lux : soap, shampoo Jai : soap

Liril : soap Liril : Talc, Liquid

Dove Moti : soap

Breeze Denim

Pears : soap, face wash Pears : Naturals

Fair & Lovely : cream, soap, lotion Super 501

Close-Up : toothpaste Close Up : Oxy-Fresh, Renew, toothbrushes

Pepsodent : toothpaste, toothpowder Pepsodent : toothbrush

Surf : Surf Excel, Surf Excelmatic Surf : Surf Easywash

Wheel OK

Comfort 501 Half Bar

Vim Sunlight

Rin Aim

Sunsilk Sunsilk : Ceramides

Clinic : Clinic Plus, Clinic All clear, Fruitamins

Clinic Hair Oil

Axe Organics

Rexona : deodorant Rexona : soap

Red Label Impulse

Brooke Bond A1 Domex

Lipton Taaza Savlon

Three Roses Revel

Taj Mahal

Bru

Kissan

Kissan Annapurna

Kwality Walls

Ponds

Lakme

Elle 18

Some mega brands like Surf and Lifebuoy are likely to undergo pruning. In the fabric wash market, there are likely to be three distinct brands—Wheel catering to the mass market, Rin and Surf operating from the middle upwards. However, Rin talks about whiteness while Surf occupies the stain removal platform. Surf Excel and Surf Excelmatic, both of which hold great potential for growth and positioning of technology leadership, are at present less than 5 percent in volume terms. However, other variants



like Surf Easy Wash may be pulled off the shelves as they have not been doing well. Lux is a power brand which initially started out in the personal wash market and is now a brand that talks all about beauty care. Lux enjoys a wide appeal amongst consumers as a beauty brand and has a lot of authority since it has been endorsed by film stars. Banking on the equity of Lux, HLL is pushing Lux shampoo sachets in rural markets. According to analysts, brands like Pears, which are small in terms of turnover and profitability but have the potential to be the products of the future, are likely to be concentrated upon. Though the Pears brand has less than 5 percent market share in the toilet soaps market, it has a unique position that has been extended into face wash and of late into an oil free, green variant. HLL has designed the power brand portfolio in such a way that it has a presence in all categories and key consumer segments.

New Product Introductions At the top end (premium soaps) segment of the personal wash category, HLL has launched Savlon and Liril Rainfresh. In the fabric wash category, Surf Excel was re-launched with a new and improved formulation, thus enabling HLL to further consolidate its numero uno position in the concentrates segment. HLL launched “Operation Streamline” to enhance the rural coverage of its detergents, which led to an increased contribution from rural markets. In the culinary products category, HLL introduced Tom Pudina in the ketchup category. A single use pack of tomato puree was introduced to give consumers convenience and lower the money outlay. It has recently introduced popular foods like wheat flour and edible salt under the Kissan Annapurna brand name. These products are changing consumer habits in a remarkable manner by making them give more preference to processed, hygenic, healthy, and convenient products. HLL is also concentrating on improvement in the manufacturing sector by laying stress on produc-tivity, quality, energy conservation, safety, and environmental protection. It has been able to improve operational performance through significant improvement in its Total Productive Maintenance (TPM) at 6 manufacturing sites.

Mergers The personal care segment of the FMCG market provides both high volumes and high margins. The merger of HLL and Pond’s (India) will result in increased revenues for HLL. As compared to HLL’s margins of 11.6 percent in 1997, Pond’s achieved 18 percent margin while Lakme had 45 per-cent margin in March 1997. HLL has also acquired a 50 percent stake in Lakme Lever Limited gaining total control of the company. This led to restructuring of the manufacturing and distribution systems of Lakme with HLL. It also fuelled the growth of Lakme’s business through a focused portfolio approach and increased the reach of Lakme through more outlets as compared to before. HLL also intends to acquire Lakme’s cosmetics brands. With this it will own the largest colour cosmetic franchise in the country, once again making it the market leader.

E-commerce Initiatives Keeping pace with the times and the changing market scenario, HLL is now taking to e-commerce in a big way. It is considering three opportunity segments—business connectivity, consumer connectivity, and consumer commerce. HLL’s vision is “connect, attract and fulfil” on a large scale. In the area of business connectivity, HLL plans to create an extranet linking about 5000 stock-ists, 30,000 retailers, and 100 suppliers spread over 1000 locations in the first phase. A similar plan also aims to link suppliers, factories, and purchasers through an extranet to achieve real time, ven-dor-managed inventory. The company is planing e-banking initiatives to enable paperless financial settlements. HLL’s Aviance business, which has a new international and customized skin care and beauty cosmetics portfolio of 70 products, is being configured to run on the Net. The Aviance range of products consists of the best Unilever formulations selected from across the world and promises tech-nology that works with the skin’s natural processes to provide high performance beauty solutions.



HLL is already working in the area of consumer connectivity through the Pond’s website, Hello Hin-dustan and Mera Hindustan initiatives in the detergents business, and events like Close Up Antakshari on the Net. The company is also testing interactive kiosks for the Lakme and Pond’s ranges, in a few cities. These will enable the consumer to try out various beauty products on screen, before buying. It is also considering the possibility of joint ventures with women’s portals. HLL is poised to gain from e-retailing as it will have the widest distribution capability with about 1 million outlets across urban areas, over 100,000 in villages, and a privileged relationship with around 7000 stockists. The current and future distribution system of HLL has been shown in Exhibit

Working for a Social Cause HLL is a socially responsive organization. It believes that “an organisation’s worth is equally reflected by the service it renders to the community”. HLL has contrib-uted to the society in many ways. Through different projects, it provides care for HIV positive patients, education and support for children with challenges, a hospice for dying destitutes, basic education for children in rural areas, and support to government relief measures in natural calamities. The largest FMCG company of India provides employment to around 36,000 people in the country. It has worked from time to time to spread awareness regarding various issues. For instance, 6 out of 10 children in India and a large percentage of women are deficient in iodine. HLL carried out “Project Iodine”, a school contact programme to spread awareness on iodine and sampling of iodized salt. The company’s plantation division has a large workforce of about 19,000 people. It started “Project Dia-logue” in 1999 where more than 3500 workers were exposed to basic level awareness. This was one of its major initiatives in carrying out a non-management level training programme. It also started special education centres for handicapped children—Ankur in Assam and Kappagam in Tamil Nadu. Ankur has been vested with the prestigious World Aware Business Award for Social Progress by H.R.H. the Princess Royal in January 1999. HLL has saved precious jobs and developed local economies by taking over sick enterprises and converting them into viable profit-making units.

Business ConcernsHLL has been going through a rough phase. The FMCG industry witnessed an almost flat growth in the April–June quarter of the fiscal year 2001–2. According to ORG data in April 2001, the industry grew at 0.6 percent which marginally improved to 0.7 percent in May 2001. HLL’s woes are two-fold—dis-tribution and product portfolio. With a well-entrenched network of a million retail outlets, HLL has already attained optimal distribu-tion levels. Therefore, the potential to achieve meaningful volumes in growth by expanding distribution, is limited. On the other hand, many of its competitors still have a long way to go in terms of distribution and reach, thereby making it easier for them to achieve growth in volumes by snatching away market share from HLL. Its portfolio seems to be going through a structural shift with high growth products moving to the mature category. Therefore, further penetration is unlikely, accounting for 72 percent of HLL’s revenue. This means that margins will be under pressure in the coming years. Although HLL has been making investments, there will be a time lag before new products move into the star category. Categories like ice-cream, culinary products, and coffee constitute only 5 percent and are stagnating despite the company’s efforts to make them grow. Hence, no spectacular growth is expected in these product categories. Also, with increasing competition, the company will have to increase its ad spend, which will affect its margins, even though only marginally. As discussed earlier, due to intense competition and slowdown in the demand for FMCGs, HLL’s margins could come under strain. The parent company’s decision to charge a royalty of 1 percent on a



Exhibit 5b The Future: Networked Supply Chain

Exhibit 5a The Future: Networked Distribution

Source: www.hll.com


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part of the turnover will also affect the bottomline of the company. Some of the sunrise categories that the company has been banking on have failed to take off. Although there have been no indications so far, other than a couple of separate joint ventures, there is a fear that the parent company may set up a 100 percent subsidiary in India to pursue future business opportunities. The chairman of HLL, M S Banga, however is optimistic. “Our objective is to improve the under-lying quality of our business and achieve sustainable and profitable growth. Accordingly, we have embarked upon a three-pronged strategy of leading growth through focusing on 30 power brands, im-proving the profitability of our foods business, and taking steps to secure the future of the non-FMCG businesses. Significant investments have been made in improving product quality and brand support stepped up by 15 percent for our power brands. Actions initiated for improving foods profitability through rationalisation of the portfolio and supply chain initiatives have also started yielding results. Joint ventures are being formed for two of our non-FMCG businesses to protect their value—one with Godrej Agrovet for our AFS business and another with the ICI group for our fragrance/flavours divi-sion.” The chairman also stated that the company intends to reinvest a portion of the exceptional income from these divestments to fortify its competitive position in the FMCG sector, especially in personal care, fabric wash and oral care. Strategic initiatives to improve the portfolio mix, overall cost manage-ment measures, and benefits of previous restructuring led to an improvement of about 1 percentage point in operating margins. In the past five years, HLL has seen its profitability margins expand continuously due to improve-ment in operational efficiencies and working capital management. Operating profit increased from 10.81 percent in December 1995 to 14.11 percent in December 1999. Net working capital cycle reduced from 27 days in 1995 to 4 days in 1999. However, analysts are quick to point out that further improve-ment in productivity is ruled out. Analysts estimate that sales for HLL will fall by around 3–4 percent on account of the higher revenue base and lower rural consumption of the previous year. The company’s decision to focus on 30 power brands is expected to result in revenue pressure in the short term. There is however a likelihood of the margins increasing only slightly, due to lower restructuring costs, rise in product prices, and lower input costs. Given the nature of problems HLL is facing today, it will take quite a while for the company to reconstruct its product portfolio to counter the impending slowdown. The management wonders what strategies HLL should use to increase both volumes and margins and fight off the stiff competition.


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