HUL moves from Rural to Urban India
FMCG is an industry not built on product innovation like pharmaceuticals or user experience like the Tech. Industry. This is an industry where your product has to gain shelf space at the grocer where most of the people in a community go to replenish their daily needs. The regular grocers and the provision stores (Mom & Pop variety) are already accounted for and do not have much potential left in terms of increasing the current customer base. India is still predominantly agriculture driven economy and as a country 70% of its citizens dwell in the rural hinterland.Hindustan Lever in India (the Indian subsidiary of Unilever, now known as Hindustan Unilever)were the pioneers to practice the Bottom of the Pyramid.The concept by C.K.Prahallad emphasised on leveraging profit from rural India.Its mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene and personal care with brands that help people feel good, look good and get more out of life.HUL reached its heights as it worked making tap the untapped in the rural India.Be it Nirma,Lifebuoy or sachets of sunsilk or name the product it was sold in kiosk in rural India and entailed high volume of profit.The wheel of economy is rotating and now the situation is other way round where in a weak monsoon is largely to blame for sluggish demand in rural India, which accounts for nearly half of HUL’s domestic sales.The current economic and political environment depicts that India’s central bank lowered interest rates last week for the first time in close to two years in an attempt to spur growth. If India’s inflation remains in check and the central bank continues to lower interest rates as expected, then the country could see its gross domestic product growth climb toward 7% again. The World Bank said last week that with the help of economic revamping started by India’s new business-friendly prime minister, its expansion rate could outpace that of China in the next couple of years, making it the fastest-growing big economy in 2017. Hindustan Unilever results, though, suggest the enthusiasm has yet to trickle down to the spending habits of India’s consumers.At a news conference the company executives said that the market had shown “modest” signs of recovery over the last quarter. According to JP Morgan analysts HUL should bring about changes in their current strategic plan.They should concentrate on urban market .As it is the era of urbanised,globalised and digitsed consumers.HUL shuould concentrate to cocreate products with the urban consumers as the disposable income of people is high over here.“It takes a lag between a change in the consumer confidence and the pickup in the economy to translate into tangible improvements in volumes in the (consumer goods) sector,” Chief Executive Sanjiv Mehta told reporters. “We have to give another quarter or two before we start seeing the positive impact on the economy.”Management commentary confirmed rural demand remains muted; analysts estimate that close to half of the FMCG major’s revenues are earned from the hinterland. HUL chairman Harish Manwani observed that the environment remained subdued despite which the company had reported an improvement in operating margins. “The near-term outlook is largely dependent on the pick-up in rural markets but commodity costs expected to remain benign,” Manwani said. PB Balaji, CFO, said the environment remained challenging and the recovery was yet to stablise, especially in the rural market.
During the June quarter, revenues from soaps and detergents remained virtually unchaned at Rs 3854.4 crore but the profitable personal products reported a revenue increase of 11.4% rise to Rs 2405.6 crore.In its annual report for fiscal 2015, the maker of DOVE, LUX, Kissan and Surf brands said in the short term, the uncertain global economic environment, inflation and intense competition pose challenges, while in the medium-to-long term, secular trends based on rising incomes, aspirations and consumption levels are positive, and an opportunity for the FMCG sector.India remains at the top in the Nielsen global consumer confidence index for the fourth quarter in a row as of March end. However, the confidence is yet to translate into consumption, said Nielsen.Even falling prices have not led to consumers loosening their purse strings. Inflation has dropped sharply over the past 12 months from around 9% a year ago to sub-5% levels currently on the back of government measures such as muted minimum support price hikes, open market sales of cereals and steps to limit hoarding.“Footfalls are still down when seen month-on-month. Improved consumer sentiments have yet not translated into spends. As such, despite lower inflation, price cuts and aggressive spending on advertising and promotions, HUL’s increase in volume growth was not spectacular in the March quarter.To tackle a slow-growth market, HUL has accelerated the pace of innovation in the past fiscal year. Innovations touching about 60% of the product portfolio were executed, the company said in its annual report.It also came out with a slew of launches, including Tresseme Split Remedy and Hair Spa Rejuvenation shampoos and Close up Diamond Attraction, a premium whitening toothpaste. There were also a few launches targeting the male consumer—Axe Signature deodorant.Given the tough macroeconomic environment, HUL has also been working on cost-savings programmes. During the fiscal year, it saved 5% in supply chain costs, which is driven by various cross-functional teams such as research and development, procurement, manufacturing and logistics.The company continued to drive its rural penetration programme by creating a consumer contact programme aimed at accelerating the growth and adoption of small and emerging categories in villages.Through the programme, it reached more than 2.5 million rural consumers and contacted 800,000 schoolchildren. This programme is now active in over 8,000 villages across the country, the company said.HUL also changed its direct selling business model under Hindustan Unilever Network to an online ordering and fulfilment model as the year continued to prove to be extremely challenging for the entire direct selling industry. Is HUL on the right way of Planning.