Business World

Monday, 12 Apr 2010

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Editor's Letter

Going Back To Basics

AMONG THE MANY

Busmessworld
Volume 29 Issue 47. For the week 6-12 April 2010, Released on 5 April 2010. Editor Prosenjit Datta Editorial Offices 2nd Floor, Express Building, 9-10, Bahadur Shah Zafar Marg, New Delhi 110 002 Phone: 23702170-79; Fax: 23702062 B-2/C-2, Paragon Condominium Association, P. Budhkar Marg (Opp. Century Mills), Worli, Mumbai 400 013 Phone: 24962587-94; Fax: 24962596 Advertisement/Circulation' Subscription enquiries 2nd Floor, Express Building, 9-10, Bahadur Shah Zafar Marg, New Delhi 110 002 Phone: 23702170-79; Fax: 23702061 B-2/C-2, Paragon Condominium Association, P. Budhkar Marg (Opp. Century Mills), Worli, Mumbai 400 013 Phone: 24962587-94; Fax: 24962597 Head Office & Regd. Office ABP Pvt Limited 6, Prafulla Sarkar Street, Kolkata 700 001 Phone: 22378000, 22374880 Regional Offices Chennai 267 B Royapettah High Road Chennai 600 014 Phone: 28131278, 28131279, 28131286 Fax: 28131502 Bangalore No.14, State Bank of India Road, 4th Floor Bangalore 560 001 Phone: 25588127, 25588928; Fax: 25596294 Hyderabad PTI Building, 3rd Floor A C Guards, Hyderabad 500 004 Phone: 23317147; Fax: 23307454 Subscription Service To subscribe or renew, please contact at businessworldsubscriptions@abpmail.com The current rate for subscription are : One Year - Rs. 780 (52 Issues) Two Years - Rs. 1,560 (104 Issues) Three Years - Rs. 2,340 (156 Issues) (Limited period special subscription offer inside) Businessworld does not accept responsibility for returning unsolicited manuscripts and photographs. All unsolicited material should be accompanied by self-addressed envelopes and sufficient postage. Published from Express Building, 3rd Floor, 9-10, Bahadur Shah Zafar Marg, New Delhi - 1 1 0 0 0 2 and printed at M.P Printers, B-220 Phase II, Gautam Budh Nagar, Noida, UP -201305 by Shyamal Mukherjee for and on behalf of ABP Pvt. Ltd. Reproduction in whole or in part without written permission of the publisher is prohibited. All rights reserved. Editor: Prosenjit Datta R.N.I.No. 3 9 8 4 7 / 8 1

challenges t h a t H i n dustan Unilever ( H U L ) faces today, one is simply living u p to its own spectacular past. In t h e 1980s and 90s, H U L then called Hindustan Lever was t h e m a r keter's m a r k e t e r , t h e ultimate F M C G com pany, a n d t h e organi s a t i o n t h a t defined h o w global c o m p a n i e s s h o u l d d o business in local markets. T h e c o m p a n y w a s led by larger t h a n life executives, and everything it d i d from localisation of t h e p r o d u c t s , t o t h e a d v e r t i s i n g it fol lowed, a n d t h e distribution muscle it built u p b e c a m e case b o o k examples of h o w a m a r k e t e r should act. It regularly t o p p e d t h e list of m o s t respected a n d a d m i r e d c o m panies in the country. In t h e 1 9 9 0 s particularly, H U L set a s c o r c h i n g p a c e , w h e r e it w a s d o u b l i n g its revenues every four or five years. It w a s a n a m a z i n g r u n , b u t also difficult t o s u s t a i n . As it b e c a m e bigger a n d bigger, t h e abil ity t o k e e p c o m i n g u p w i t h ever innovative p r o d u c t s a n d react quickly to c h a n g i n g m a r k e t t r e n d s b e c a m e more difficult. Smaller rivals, a n d m u l t i n a t i o n als t h a t entered later, often h a d t h e a d v a n t a g e of m o v i n g far m o r e quickly t h a n H U L could, because of

its size c o n s t r a i n t s . Being t h e k i n g of t h e hill, t h e challenge for H U L w a s t o defend its market share against hungry com petitors that wanted to unseat it. To b e a t back rivals, some years ago, H U L d e c i d e d t o focus o n w h a t it called its "power b r a n d " s t r a t egy. T h i s envisaged putting all its muscle b e h i n d w h a t it saw as its m o s t p r o m i n e n t a n d profitable brands, and giving u p t h e volume chase in smaller b r a n d s t h a t c o n t r i b u t e d only m a r g i n a l l y to its t o p and bottom line. T h a t strategy h e l p e d HUL increase its profits consistently, b u t it also h a d a h u g e i m p a c t o n its revenue growth and market s h a r e s . Topline g r o w t h slowed t o single digits, a n d m a r k e t s h a r e s started dropping in some key prod uct categories. Now H U L is going back to its old strategy of chasing volumes in all its m a r k e t s , in t h e h o p e t h a t it will b e able to regain its glory days. It is a logical strategy in m a n y ways, b u t not without its risks. Also, t h e r e a r e q u e s t i o n s a b o u t w h e t h e r this shift in strategy will have s o m e effect o n t h e k i n d of profit m a r g i n s H U L enjoys. O u r cover story this issue looks at a n icon struggling to regain its stature.

prosenjit datta, editor

Businessworld 12.04.10
COVER STORY

30
mm mmm (DIVHUI m

Volume-led growth is HUL's new strategy mantra. But winning the market share game will need more. Can the company pull it off?
36 Interview: Nitin Paranjpe
HUL's CEO and m a n a g i n g director explains the strategy shift.

ON P O I N T

14

Interest In Saving

T h e new rules of interest rates on savings accounts will benefit customers.

15

Currency Attack

An appreciating rupee is forcing exporters to look towards t h e government for relief.

IN T H E N E W S

18

Reliance Saga

A j u d g e m e n t on t h e KG basin gas row is expected soon. A look at its likely impact.

20

Room For All

The huge government borrowing will not h u r t liquidity for India Inc.

21

Consulting Trouble

Yet another consultant report sets back Air India by Rs 8 crore. Is it worth it?

22
Cover Design: Jyoti Thapa Mani Photograph: Subhabrata Das

Electric Stars

Plans are afoot to bring more electrical products under energy-saving ratings.

12 A P R I L 2 0 1 0

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BUSINESSWORLD

THE VOLUMES
HUL is riding the recov ery wave back to competitive leadership, but will need foresight and staying power
b y M u t h u k u m a r K.

ERE is Paul P o l m a n , U n i lever's global chief executive officer on a n analyst call t h i s February. "Our c o m p e t i t i v e positions in India, Spain and E a s t e r n E u r o p e have not i m p r o v e d to t h e extent t h a t I would have expected." At H i n d u s t a n Unilever's ( H U L ) new, campus-like headquarters in M u m bai's Andheri, that may have sounded like a stark reminder of what t h e company was u p against. In t h e D r u m a huge reception area and on the Street a transitional open space linking various d e p a r t m e n t s and buildings the m o o d must have been subdued. T h e same a t m o s p h e r e prevailed in t h e t r a n s p a r e n t b r a n d v e r a n d a h s s h o w c a s i n g various H U L b r a n d s : Bru Cafe, Lakme Beauty Salon, Swirls Ice Cream parlour, and a convenience store t h a t overlook t h e street. After t h a t expression of d i s a p p o i n t m e n t at HUL's u n d e r - p e r f o r m a n c e , Polman m a d e light of it subsequently w h e n visiting India. But t h a t c o m m e n t p u t the wri t i ng on t h e wall for H U L staff. And Polman is deadly serious a b o u t performance. Consider this: Reaches since Polman became CEO in J a n

an about-face from t h e decade-old power b r a n d strategy of focusing resources on driving 3 0 na t i o n a l b r a n d s (andl 10 regional ones) o u t of a portfolio of 110. Pwlman's r e m a r k s u n d e r l i n e concerns about H U L losing m a r k e t share; t h e r e a r e p e r f o r m a n c e m e t r i c s that pit v o l u m e s against earnings pen- share, and an alignment of b o n u s e s a n d s a l a r i e s witli p e r f o r m a n c e . T h e sense of urgency in HUL.s new M u m b a i h e a d quarters is palpable. T h e new strategic focus is not without its chal lenges. First, after d o u b l i n g revenues every four years for a l o n g t i m e , H U L ' s c u r r e n t size h a s slowed t h a t g r o w t h m o m e n t u m s o m e w h a t . Second, o b s e r v e r s h a v e t a l k e d a b o u t a lack of aggression in t h e past couple of years or so. T h e t h i r d c h a l l e n g e is t h a t r e g i o n a l b r a n d s h a v e a d d e d c o m p e t i t i o n in tier-1 a n d t i e r - 3 cities. F o u r t h , m o d e r n t r a d e , t h e growing pres ence of organised retail, has affected all F M C G companies. Finally, there's t h e competition t h a t h a s gotten more intemse and almost cut-throat, as reflected in aggresisive price-cutting by all in pursuit of increasing m a r k e t share. Can H U L be a g a m e changer again ?

Soap Bubbles Burst

uary 2009, 1,000 out of 16,000

managers worldwide have resigned or b e e n sacked, a n d 4 0 of its t o p 100 m a n a g e r s have been replaced. So, t h e e m p h a s i s on v o l u m e - l e d growth for the Anglo-Dutch multi n a t i o n a l is back, a l o n g w i t h i m proving o p e r a t i n g m a r g i n s a n d a strong cash flow. T h e pursuit of volume growth is

Polman's c o m m e n t s h a v e to be seen in t h e con text of recent events. H U L ' s performance in t h e past two years has b e e n below expectations, w h e n Asia, Africa a n d central and e a s t e r n E u rope have c o n t r i b u t e d 3 6 per cent to Unilever's global revenues, and 3 8 per cent of t h e profits. H U L h a s lost m a r k e t s h a r e across c a t e g o r i e s year on year. T h e decli ne has been visible in all its b u s i n e s s e s : s o a p s a n d d e t e r g e n t s , w h i c h a c c o u n t for 4 8 p e r c e n t of r e v e n u e s , p e r s o n a l care p r o d u c t s , b e v e r a g e s , food a n d ice c r e a m s , t h o u g h t h e r e are signs t h a t t h e fall has hit a p l a t e a u . A n u m b e r of fac over tors c o n t r i b u t e d to the loss. First, t h e r e were price cuts t a k e n in t h e b a t t l e for m a r k e t share with P r o c t e r & G a m b l e (P&G). B o t h c o m p a n i e s lost profitability as a c o n s e q u e n c e . There has been s o m e i m p r o v e m e n t of late, b u t p e r h a p s retail outlets, n o t e n o u g h . "While we have i m including direct proved m a r k e t share in d e t e r g e n t s reach to more by v o l u m e , t h e value s h a r e h a s than 1 million fallen d u e t o d o w n trading," says

THE LEVERAGE TRIO: CEO Nitin Paranjpe (left) and executive directors Gopal Vittai (top) and Shreejit Mishra are leading HUL's new strategy shift aimed at volumeled growth

12 A P R I L 201(1

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BUSINESSWOUl.il

Cover Story corporate

HIGHER MARKETING SPENDS AND LARGE RETAIL POSE TOUGH CHALLENGES FOR HUL
THE CHALLENGES
H I G H E R S P E N D S : Once a huge source of com petitive advantage, higher marketing spends are just enough to maintain status quo in the current envi ronment. Though HUL has hiked its advertising-tosales ratio in the past three quarters, it is at a time when the number of brands advertising on television has gone up by 82 per cent in the past decade. Explains why H U L tried advertising innovations with advertising roadblocks (only H U L brands advertising on a given channel on a particular day) or having five personal care brands starring in a single advert. D I S T R I B U T I O N : H U L is still the lord of distribution in India. But rivals seem to be finally getting their act together. For instance, P&G has beefed up its distribution muscle, which could be why HUL declared war on P&G in the detergents category. M O D E R N T R A D E : Organised retail could be the great leveller. Less than 5 per cent of Indian con sumers might be going to large outlets for buying FMCG, but this trend is unlikely to remain that way. Hyderabad already has more than 40 per cent of its popula tion shopping at large for mats. With an eye on P&G's expertise in handling large format operations globally, HUL sent its bright stars to Wal-Mart for training in managing modern trade.

Giant Takes

STRONGHOLDS AND WEAK POINTS

S K I N C A R E : Once upon a time, with Vaseline, Ponds and Lakme in skin care, H U L was the fairest of them all. Now with other global heavyweights climbing on board, times are a changing. L'Oreal is now the second largest advertiser in the category 14 per cent of television ad volumes, says advertis ing monitor AdEX. P&G with Olay, and J&J with Neutrogena are also big global brands with equally big India ambitions. O R A L H Y G I E N E : This segment is likely to see a lot of action with P&G watching it close ly (remember, Crest is not yet in India). Indian brands such as Dabur and Vicco are also boosting action. Vicco is the largest advertiser in print 40 per cent of volumes compared to 8 per cent of H U L in the first half of 2009. The surprise packet in oral hygiene are the international confectionery giants, Wrigley and Perfetti, who are aggressively pushing their gum brands as oral care, even through den tists. So, 'white' and watch this space. T E A : H U L , which lorded over the tea segment with two brands Brooke Bond and Taj Mahal, has been effectively challenged by Tata Tea both in distribution in large consumption states such as UP, and smart communication such as the Jaago Re campaign.

Compiled by Prasad Sangameshwaran

R. Sridhar, chief financial officer of H U L . "We a r e h o l d i n g s h a r e in soaps for t h e p a s t eight m o n t h s . In fact, we i n c h e d u p a little in t h e f o u r t h q u a r t e r of 2 0 0 9 . " T h e latest i n d u s t r y r e p o r t s suggest d e t e r g e n t m a r k e t volumes are moving back up, by a percentage point for both soaps and detergents. In Q 3 FY10, losses in mar ket share have stopped. Second, there was t h e commodity price infla tion of 2 0 0 8 . In r e s p o n s e , H U L raised prices relatively steeply on soaps and detergents. Infla t i o n - c o n s c i o u s c o n s u m e r s t u r n e d to c h e a p e r p r o d u c t s from Godrej C o n s u m e r P r o d u c t s , Wipro a n d other players whose price hikes were m u c h smaller. Sure e n o u g h , c o m m o d i t y prices softened again. "But H U L was u n a b l e to drop its prices immediately, as it h a d contracted a large

p a r t of its r a w m a t e r i a l for 5-6 m o n t h s , " says A r n a b Mitra, F M C G analyst with Indialnfoline, a securities broking firm in M u m b a i . "This was also t h e t i m e w h e n close to 6 0 0 new local b r a n d s e n t e r e d t h e d e t e r g e n t s e g m e n t , lured by high product prices and soft raw m a t e rial costs," says Gopal VTttal, executive director of h o m e and personal care products at H U L . Vittal says g e t t i n g price r e d u c t i o n s into c o n s u m e r h a n d s was m u c h slower for all organised players, given the inventories in t h e t r a d e pipeline, a n d c o m p o u n d e d by India's large, fragmented retail. So, t h e bulk of t h e share erosion t h a t all o r g a n ised players saw w e n t to n e w local players. T h i r d , a n a l y s t s say H U L i g n o r e d its s t r o n g local soap a n d d e t e r g e n t b r a n d s (Rexona, Liril a n d H a m a m , for example). It lost m a r k e t share

12 A P R I L 2 0 1 0 U L

BUSINESSWORI.D

to self-help groups targeting rural m a r k e t s w h o m a d e a n d sold m u c h c h e a p e r b r a n d s such as Akhruti and Winner Turbo. But Paranjpe has another view. "These small local detergent busi nesses a r e unsustainable," he says. HUL's local b r a n d s contribute about 3 0 per cent t o soap rev e n u e s , a n d in t h e 15 m o n t h s from D e c e m b e r 2007 to M a r c h 2 0 0 9 , H U L lost nearly 6 p e r cent of m a r k e t share. Lower b r a n d investments m a y have cost H U L 3.5 p e r cent of lost m a r k e t share. "Once you lose a customer, it is difficult t o g e t h i m back," says H e m a n t Patel, a n analyst w i t h E n a m Securities in M u m b a i . Finally, t h e r e is t h e story of high food inflation (16 p e r cent plus in J a n u a r y ) . It i m p a c t s HUL's food a n d beverages business, which accounts for 17 p e r cent of its revenues. High inflation also af fects sugar, pulses a n d edible oils inputs t h a t H U L uses. A n d t h e r e is evidence of d o w n t r a d ing in t e a as well ( H U L owns high-end tea b r a n d Brooke Bond), as c o n s u m e r s have moved away from tea bags t o low-cost alternatives. Back To Basics So, from a strategy based on power b r a n d s , H U L is going back t o straddling the entire pyramid in search of a d d i n g m a r k e t share. In other words, a b r a n d at every price p o i n t for every c o n s u m e r . S t a r t w i t h food. I n t h e t e a s e g m e n t , H U L l a u n c h e d Brooke Bond S e h a t m a n d i n U t t a r P r a d e s h , Bihar, J h a r k h a n d a n d C h h a t t i s g a r h , positioning it as a healthy d r i n k for masses. "It (Brooke Bond S e h a t m a n d tea) gives 5 0 per cent r e c o m m e n d e d daily allowance for m i c r o n u t r i ents t h r o u g h t h r e e cups of tea. It contains vita m i n B, B12 a n d others," says Shreejit M i s h r a , executive director of foods at H U L . Meanwhile, H U L is also testing old t e a b r a n d s such as Ruby. In soaps, t h e prices of frontline b r a n d s such as Lux, Wheel a n d Lifebuoy have been slashed, by 5-20 p e r cent, a n d o t h e r b r a n d s a r e b e i n g r e l a u n c h e d in n e w avatars, often regionally focused. So, Breeze will take on Godrej No. 1 in t h e n o r t h , R e x o n a a n d H a m a m will lock h o r n s with Wipro's Santoor in t h e south. So, w h a t h a p p e n s t o t h e p o w e r - b r a n d a p proach? Paranjpe is quick t o respond. "At differ e n t p o i n t s in t i m e , t h e r e a r e different choices. R i g h t now, it is a b o u t s t r a d d l i n g t h e p y r a m i d , a n d w i n n i n g back o u r competitive a n d leader ship position" (see interview on page 36). The Personal Care Ploy O n e s e g m e n t of H U L ' s b u s i n e s s t h a t h a s n o t been too badly affected is t h e personal care cate gory. Despite t h e slowdown t h a t persists in con s u m p t i o n goods, HUL's personal care business continues t o grow at a decent clip. T h e reason is not h a r d t o find: compared to a m a r k e t penetra-

Strategy Shifts
IN THE PAST 10 YEARS, HUL HAS MADE FOUR SHIFTS IN ITS BUSINESS STRATEGY, TARGETED AT BOOSTING GROWTH AND REACH P O W E R BRANDS: Strategy in 2000. Focusing on fewer brands, 30 of them, and showering marketing attention on them MASSTIGE: Strategy in 2005-06. Making premium brands (prestige) attainable for a larger section of consumers (mass) ONE UNILEVER: Strategy in 2007. Building leadership position in fastgrowing markets PUMP UP T H E VOLUMES: Strategy in 2010. Global CEO Paul Polman is pushing the Indian operations chasing value growth to deliver on the volumes as well tion of 9 7 p e r cent in soaps a n d detergents, t h a t in t o o t h p a s t e is only 5 7 p e r cent, s h a m p o o s 4 7 per cent, a n d skin care is 22 p e r cent. "Personal p r o d u c t s a r e a h i g h - m a r g i n b u s i ness, a n d n e e d h i g h a d v e r t i s i n g a n d sales p r o m o t i o n , " says Sridhar. T h e c o m p a n y is p l o u g h i n g b a c k a d d i t i o n a l r e t u r n s from t h i s business t o drive sales higher. As Paranjpe says, "the greater t h e volume growth, t h e greater t h e o p e r a t i n g leverage. M o r e o p e r a t i n g leverage m e a n s m o r e h e a d room. It is a virtuous cycle". Together, a n u n d e r - p e n e t r a t e d m a r k e t a n d high m a r g i n s spell opportunity. Already, H U L has a b o u t 5 0 p e r cent of t h e personal care m a r ket. Its b r a n d s d o m i n a t e in fairness c r e a m j u s t take Fair & Lovely while Ponds a n d Vase line cater t o winter care. T h e p r e m i u m segment is d o m i n a t e d by L'Oreal a n d P&G's Oil of Olay, b u t H U L is g e t t i n g s o m e t r a c t i o n t h e r e w i t h Ponds' anti-ageing a n d whitening products. T h e story i n oral care is less e n c o u r a g i n g ; HUL's mid-priced toothpaste, Pepsodent, where price increases were, p e r h a p s , t h e greatest, h a s n o t fared well against rival Colgate's offerings. H U L is fighting b a c k by r e - i n t r o d u c i n g lowpriced products in the Rs 5-10 category to regain m a r k e t share in rural areas, where t h e opportu nity for growth is explosive. A n d b r a n d differen tiation in t h e hair care category people have h a d problems telling anti-dandruff a n d regular Clinic shampoos apart is a little difficult. The Frenzied Competitive Landscape O n a segment-by-segment basis, H U L seems t o be m a k i n g t h e right moves. But d o all of t h e s e tweaks a d d u p strategically? H o w will measures such as t a r g e t e d price cuts, relaunches of value products, launches of p r e m i u m products, higher advertising a n d p r o m o t i o n s p e n d s a n d invest m e n t in i n n o v a t i o n ( t h e results of w h i c h will emerge in t h e next few quarters) play off against each other as a working strategy? Let's n o t forget t h a t HUL's arch rival P&G is
12 A P R I L 2 0 1 0 U U BUSINESSWORLD

in India in October 2 0 0 9

Cover Story corporate

NARROWING MARGINS
HUL's growth has been modest in the past three years

2006
Gross sales Proft after taxation Earnings per share of Re 1* 13,035.06 1,539.67 8.41

2007
14,715.10 1,743.12

2008-09*
21,649.51 2,500.71

8.73

11.46

Figures are in Rs crore; ttadjusted for bonus "Change in accounting year from Dec-Mar. So, F Y 0 9 is for 15 months period Source: H U L Annual Report 2008-09

STOCK PERFORMANCE
HUL has returned less than the two major indices in the past half year
(% absolute) 3 months 6 months (% relative) 3 months 6 months

Fair & Lovely w i n t e r fairness cream, Dove a n d Clinic Plus in p e r s o n a l p r o d u c t s . Dove h a s b e come the No. 1 b r a n d in m o d e r n retail. Sunsilk's r e l a u n c h h a s also r e s u l t e d in h i g h e r v o l u m e growth. In food a n d beverages, S e h a t m a n d is at tracting consumers looking for value. T h e Knorr s o u p b r a n d is also s h o w i n g signs of rejuvena tion; ice c r e a m s have never b e e n a big earner, a n d in a fragmented market, t h a t category may earn its keep, b u t not do too m u c h more. Finally, t h e f o u r t h p o i n t : it is n o t all d o w n trading. In some select areas, there is uptrading too. N e w p r o d u c t l a u n c h e s have h e l p e d , a n d Dove's p o p u l a r i t y is evidence t h a t p e o p l e will pay a p r e m i u m for w h a t they feel is a good prod uct. Ditto for Ponds' White Beauty. But it is not all smooth sailing.

HUL
BSE-Sensex BSE-FMCG

-12.4
3.7

-18.4
3.6 0.8

-16.1 -10.8 -22.0 -19.2

Silver Lining Versus Cloud

Volatility in c o m m o d i t y prices r e m a i n s a big risk. As IIFL's M i t r a points out, "The i m p r o p e r h a n d l i n g of t h e volatility in c o m m o d i t y prices was a key reason for H U L losing market share in 2008-09." High input costs could d a m p e n price cuts a n d eat into margins. If H U L continues to cut prices, t h e n ad spends may take a hit. "It will be i n t e r e s t i n g t o see h o w sales a n d m a r k e t shares behave once ad s p e n d s are scaled back," says Enam's Patel. Company insiders say cutting ad spends back to 10-11 per cent is a no-no. Company insiders will also tell you t h a t HUL's global scale a n d sourcing a c u m e n will b a l a n c e m o s t of t h e risk, b u t t h e s a m e could be said for its competitors, so that may j u s t t u r n out to be a wash. A n d if t h e s t i m u l u s p a c k a g e s u n d e r t h e National Rural Employment Guarantee Scheme is withdrawn, it could d a m p e n rural c o n s u m p tion, and t h a t could impact H U L too. Back at t h e H U L c a m p u s , b r a n d v e r a n d a h s are b r i m m i n g with activity and the Street is p o p ulated by l a p t o p - t o u t i n g employees. P a r a n j p e wants t h e m to "live a n d breathe" the consumer. H e is setting a n e x a m p l e by h i t t i n g t h e road more often at least once a week for 2-3 hours. The CEO is intent on t u r n i n g all critical levers t o bridge t h e g a p b e t w e e n strategy a n d execu tion. A n d 7 p t n w h i c h also h a p p e n s t o be K n o r r s o u p t i m e is n o t likely t o be goingh o m e time. "With your laptop a n d BlackBerry, it is not about w h e n you leave the office," Paranjpe says. T h e r e c e n t g r o w t h in v o l u m e s for H U L cheers him, though the idea of "under-performance" is still a worry. It is not a w o r d t h a t lifers like h i m have h e a r d for a long t i m e . T h e fire in his belly, as in t h e bellies of all H U L employees, is not from t h e K n o r r s o u p t h e y are s i p p i n g amidst the open spaces of the new campus.

-1.6

Source: Industry, Edelweiss research

Caters to over

consumers

not exactly sitting on its h a n d s either. T h e com p a n y has a n n o u n c e d its i n t e n t i o n t o gain a bil lion n e w c u s t o m e r s in I n d i a a n d China. G r a n t e d , a d d i n g half a billion c u s t o m e r s in I n d i a is a tall order. T h a t calls for n e w vertical strategies, price a d j u s t m e n t s a n d higher b r a n d investments. And it is not j u s t P&G or Colgate: there is also ITC's non-cigarette businesses, and Nestle in food and beverage, to n a m e two. Is H U L u p to taking t h e m on? By far, the com pany is so m u c h bigger t h a n its rivals, a n d size a n d scale gives it c e r t a i n a d v a n t a g e s t h a t its rivals will b e h a r d - p r e s s e d t o better. However, winning t h e battle to regain a n d acquire lost and new market share, and getting back its competi tive edge d e p e n d s on H U L ' s actions a n d success on four fronts. First, HUL's aggression in increasing adver tising s p e n d s to over 14 p e r cent in 2 0 0 9 - 1 0 s e e m s to be paying s o m e d i v i d e n d s . Revenues grew by 5 per cent in t h e t h i r d q u a r t e r of FYlO, after an a n a e m i c 1 and 2 per cent in t h e second a n d first quarters of the year. T h a t is a good basis for better growth in the coming quarters. Second, m a n y of its targeted price cuts appear to have resulted in v o l u m e g r o w t h . Rin, which accounts for 2 per cent of sales, may underscore the company's objective t h a t competitive growth is the t o p priority, a n d even achieve it. However, with higher ad-spends a n d product innovations, lower profitability might b e a consequence. T h a t may be just a short-term p h e n o m e n o n . T h i r d , H U L can b u i l d on t h e successful relaunches a n d introductions of variants of Lux,

bweditor@abp.in

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Cover Story interview

'Change is the only constant'

Nitin Paranjpe,
CEO and Managing Director, HUL

F O R T Y - S E V E N - Y E A R - O L D NITIN PARANJPE IS ANJ

HUL lifer. He began his career at the fastmoving consumer goods (FMCG) giant im 1987 as a management trainee. The CEO) and MD of the Rs 17,000-crore companjy talks about sharpening executiom capabilities and market understanding im a world of constant change. He speaks t o BWs Muthukumar K. about lessons learnlt in management and leadership.

Q A

How has the global economic downturn affected HUL? , It had an impact the world over; more so in the West, but muted in India. But the volatility of commodity prices impacted our Indian operations. It has underscored the need to react quickly to changing price dynamics, gauging effects on brands and how consumers spend during inflation. The FMCG industry in India has seen good growth in the past year, though much of it has come from price (hikes) rather than (sales) volume. Of late, those growth rates have been tempered, possibly due to high food inflation. But we also see downtrading in a few categories.
m

Is your business aligned towards the mass market? Our strategy is to straddle the pyramid we need a portfolio of brands to cater to consumers across income? classes, meeting both needs and aspirations;.

Cover Story interview

A big chunk of t h e population is either middle class or at t h e b o t t o m of t h e pyramid. Their contribution to F M C G business is higher. O u r mix is no different. But as income levels rise, t h e n u m b e r of affluent h o m e s will also increase rapidly, and so we have t o a u g m e n t our portfolio to address these consumers. India continues to be a key source of m a n a g e m e n t talent for Unilever. 140 o d d m a n a g e r s of Indian origin joined Unilever in different p a r t s of t h e world. Unilever's t w o t o p executives are Indian: Harish M a n w a n i a n d Vmdi Banga (who leaves it in May). We have Indians r u n n i n g large operations in central a n d eastern Europe. Indians hold several other key positions in Unilever. T h u s , H U L continues to be a source of talent for Unilever worldwide.
m

Q A

. There has been a churn, globally, among the top 100 managers responsible for execution. What happened to the Indian ones?

You lost market share from hiking product prices in the second half of 2008. Any lessons there?
B

Lesson N o . 1 is t h a t you have to be close to t h e c u s t o m e r to spot changes a n d respond to t h e m quickly. Next, in today's fastc h a n g i n g world, speed is a n advantage. Cycle t i m e s from decision to execution need to get faster. Change is t h e only constant.
B

Now you are back to a full-portfolio strategy, a return from the powerbrands strategy. What happened?

Growth and costs, they are not divorced. They go hand in hand. If you want superior growth, you must have a low-cost structure

, G r o w t h a n d costs, they are n o t divorced; b o t h go h a n d in h a n d . If you w a n t superior growth, you m u s t have a low-cost structure. T h a t creates t h e h e a d r o o m to invest in your b r a n d s , improve quality, invest in p r o m o t i o n a n d delight c o n s u m e r s , leaving a surplus for investors a n d shareholders. While driving d o w n costs is i m p o r t a n t in all times, it is even m o r e so in t o u g h conditions. W e have been trying to reduce our structural cost base by continuously asking w h e r e t h e discretionary spends are going. Are they a d d i n g value? Will t h e c o n s u m e r pay for it? Also, we have been trying to 'variablise' costs reduce fixed costs. T h a t h a s m a n y advantages. For one, it partially insulates you from volatility in business. W h e n applied to salaries, this idea can drive a strong performance culture by linking a large proportion of wages to results.

Q A

Is it only costs that matter? What about growth?

B

n As I said, our strategy is t o straddle t h e pyramid, a n d drive competitive growth. Given t h e diversity of preferences within t h e country, t h e r e is a role for all o u r b r a n d s and, hence, need investment a n d n o u r i s h m e n t .

Coming to ad spends, yours have gone up from 13 per cent to 14 per cent of sales. Is this tactical?
H

We will step u p advertising b u d g e t s as competition is increasing. T h e focus will be on t h e r e t u r n on m a r k e t i n g investments. T h e m o r e volume (growth) we get, t h e m o r e operating leverage we will have, a n d this will create further h e a d r o o m to invest. It is a virtuous cycle. In India, m a r k e t d e v e l o p m e n t is as i m p o r t a n t as m a r k e t share.

Strategies are w o r t h n o t h i n g if they are n o t executed well. We have p r o p e r metrics to m e a s u r e quality of execution a n d e n s u r e it is i m p r o v i n g consistently. Of course, t h e r e is r o o m for i m p r o v e m e n t . In any business, o n e can get a little b e t t e r every day. O u r effort is to raise t h e execution b a r continuously to build competitive advantage, m o r e so at t h e p o i n t of p u r c h a s e .
m

Q A

. Let us talk about strategy. Globally, Unilever is criticised for being good at strategising, not at executing. Your thoughts?

I w a n t H U L to r e m a i n t h e iconic c o m p a n y it h a s b e e n in t h e p a s t 75 years. My priority is to build organisation capacity to win not j u s t today, b u t tomorrow, in a rapidly c h a n g i n g India. T h e reasons for success in t h e future will be different from t h e past. We will have to build n e w competencies for t h e future. As long as we keep w i n n i n g t h e c o n s u m e r of tomorrow, in t h e s e g m e n t s of tomorrow, a n d t h e channels of tomorrow, we can tackle t h e future. It doesn't m a t t e r if t h e i r contribution is low today. M o d e r n t r a d e is j u s t o n e example. We need strong capabilities a n d a strong portfolio to win in m o d e r n t r a d e .

Q A

. Fine, but what gives you sleepless nights?

O u r 3 0 - d a y p l a n is a n o t h e r reflection of our c o m m i t m e n t to execution, a n d t h e desire t o instill urgency in business. This plan helps diagnose issues quickly ( p r o d u c t quality, pricing, investment, p r o m o t i o n , quality of distribution). It is n o rocket science, b u t sheer discipline a n d execution rigour.

. So, what do you tell your brand managers day in day out?

Be obsessed with t h e customer. Always see t h e b r a n d in t h e context of w h a t t h e consumer w a n t s . T h i n k h o w a b r a n d makes a difference to people's lives. This gives a larger purpose t o o u r roles, a n d is far m o r e energising.

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