In a scenario of rising input costs, a flagging rupee and poor consumer sentiment, several sectors of the economy seem to be floundering, and consumers have become extremely cautious. However, fast-moving consumer goods’ (FMCG) heavyweight Hindustan Unilever Ltd. (HUL) has grown sales and profit by 18 per cent and 17 per cent, respectively, in 2011-12. In a free-wheeling interview, Nitin Paranjpe, Managing Director and Chief Executive Officer of HUL, shares his thoughts on the macro economic scenario, the problems facing the FMCG sector and HUL’s strategy to chase growth and provide value to its consumers with Ramnath Subbu. Excerpts:

The overall mood in the country seems pretty gloomy, precipitated by a slowdown in economic activity and low growth. How is it affecting the industry?

The reality is that, as a country, we are going through a difficult time where growth has come off more sharply than people had imagined.

Sentiment today is weaker than I have seen for many years. One of the reasons why India got hit so badly is that there were many who simply assumed that the growth rates of 8-9 per cent would be there forever and it is only a matter of time that India would be a more prosperous nation.

The euphoria of the last few years possibly made us a little complacent and started making us assume that this would continue without realising that growth is nobody’s birthright and one has to work for it.

And, when you do not, things can also go wrong. Having said that, I do feel that, as people, we tend to swing to extremes. Yes, things are tough and difficult and action needs to be taken but the assumption that we have become a basket case is also untrue. The truth is some where in between.

What is the impact on the consumer-driven FMCG sector? Is there a lag in the impact on the sector?

From a consumer standpoint, things have been more resilient and that is because incomes have risen and, importantly, attitudes towards consumption have changed and aspirations have risen.

As a result, in the consumer segment, demand has broadly held. Now, whether it will continue in this manner is difficult to say.

But with inflation continuing the way it is, it would be unnatural not to expect some dampening even though this sector is relatively more insulated.

There is usually a lag in the impact on the sector.

Input costs and fuel prices, in particular, have been on an uptrend. What has been the impact on the industry?

Volatile times are here to stay. While people think commodities are softening, we have to look at it in the context of the rupee depreciation. When you combine the two, the commodity prices softening is not as much as you would think. In these challenging times, the business has to be agile and swiftly respond to the changes taking place in the marketplace and, above all, being focussed on delivering superior value to the consumer.

What has been HUL’s strategy in this regard?

The heart of our strategy is to build superior brands through innovation and backing it with superior market execution that builds competitive advantage through expanding rural reach and improving quality of urban reach by leveraging scale and technology. In addition, we have to be tough and ruthless on costs. We have to reduce the intrinsic costs of doing business — overheads and indirect - so that we get the benefit of leverage in the P&L… These savings also help us re-invest in product quality and innovations or in terms of investments for the front-end.

Are there specific initiatives you could elaborate on in this regard?

I can give several examples. The first is material buying where we bring the scale of Unilever to make sure we buy cheaper. Second, we put in place innovation programmes to start building in flexibility in our formulations. All formulations are a combination of several ingredients. At different points in time, some may become dearer. If, however, you have alternatives for each of these, you can play around with them for ‘Formulation Flexibility’. So, you can use things that are more cost-optimised at that moment. It requires capability and process engineering. Equally, our disciplined approach to analysing the totality of the value chain and subjecting it to a cost and benefit analysis has helped create enormous value. As we keep doing this, it surprises us as to how much juice can be extracted. Equally, having a right-sized organisation, building a stronger performance culture, and systematically `variabilising’ fixed costs are actions that help the business become more capable of dealing with uncertainties and shocks.

HUL’s foods business has lagged parent Unilevers’ global foods business in terms of growth. What measures are being taken to boost it?

The foods market is very large. At present, packaged foods is only 5 per cent of the overall opportunity that exists. It is going to take off. We have an approach as to how to build the business in those spaces where Unilever has long-term competence, long-term capability and technology so that we do not just build presence which enables us to win short-term but to sustain leadership over a long period. To do so, one needs a shopping environment which is ready to provide the experience that you require and this is happening with modern trade coming in.

The demographic and societal context is also changing which is also helpful. We also have to find a way to get the right combination of taste, customising it for the Indian palate and value. That work is going on. We are trying to leverage Unilever skills to bring in offerings that are appropriate in India and build the market over a period.

We are not overly concerned about short-term position but do things which are right for the long-term. In this process, we have tried several things, some of which have not been successful but that has not dented our commitment. If anything, we want to redouble our efforts. In some areas such as ice cream, we are seeing the benefits of having come in early. In the early days, it was not easy to build it because the cold chain did not exist and power outages were frequent. But things are improving, and it is now ready to take off.

We also see enormous opportunities in Kissan. We want to build a strong Knorr master brand in soups and savoury. We also have some local jewels such as Annapurna or Modern. Overall, it is a good portfolio. We are determined to systematically build capabilities for the long-term.

 

Source: The Hindu