AGM 2005 - Bringing FMCGBack To Growth

“In recent years, the FMCG sector declined due to downtrading. As the largest FMCG player, it was up to us to reverse the downtrading to realise its true growth potential. Our transformation has resulted in a new HLL, which has successfully faced this challenge and reversed this trend. It has done so by substantially strengthening our brands and building capabilities. This has already begun to yield benefits and we are returning to growth. Volume growth is being followed by value growth, which in turn will bring profit growth,” Mr. Banga said.

Focussed FMCG company:He said, as a result of the transformation, HLL is now a focussed FMCG company with branded businesses accounting for over 90% of sales, consisting of 35 brands across 20 categories. The company had disengaged from all non-FMCG or commodity businesses, with sales of Rs.1750 crores as in 1999, while deriving excellent value for these divestments.

Foods building blocks in place: Referring particularly to the Foods business, he said the right building blocks had been put in place. The portfolio, which was fragmented and lacked scale, has been consolidated and gross margins have been improved by over 13% through product mix and cost reduction. The supply chain has been cleared of all old stock and geared up for fresh availability on shelf. The Foods business will now invest for growth through relevant innovation.

35 brands with better value & bigger role in consumers’ lives:HLL, as a company, is now focussed on 35 powerful brands, covering all consumer appeal and price segments. They have been strengthened by ensuring that they offer better value, and play a bigger role in consumers’ lives, backed by appropriate technology. Wherever necessary, it has reduced prices to make the brands more affordable, and launched several low unit size and price packs to make them more accessible.

Vitality through nutrition, hygiene & personal care:Mr. Banga said, “The most significant challenge has been to move our brands beyond merely making functional claims to playing a bigger and deeper role in the lives of consumers. We had to move from selling a soap or a detergent to something far more important and central to the consumer’s life. Consumers today are looking for ways to look good and feel good so that they can get much more out of life. In short, consumers are seeking Vitality in their lives. Our portfolio of 35 brands is uniquely positioned to offer nutrition, hygiene and personal care benefits and thereby deliver Vitality.”

Investment in the future:To ensure HLL’s competitiveness in the long-term, it has made significant investments in product quality, pricing and marketing. The investment in product quality alone has been over Rs.400 crores, or 5% of sales, in the last three years. This is in addition to the cost of defending market position, in the face of recent competition action.

“We have been able to fully protect our market leadership and share, albeit sacrificing short-term profit. We made this necessary trade-off as market share is the best means of sustaining future profit. Over time, our stronger market positions will surely lead to greater long-term profit. Despite these significant investments to strengthen the long-term competitiveness and the costs of defending our strong market position, we still remain one of the most profitable companies in the country,” Mr. Banga said.

Distribution & customer management reinvented:The company has also reinvented the management of distribution channels and customers, who are now being serviced on continuous replenishment. It is leveraging scale and building expertise to service Modern Trade and Rural Markets. The sales force has been delayered to improve response times and service levels. IT tools have been deployed for connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. Backend processes have been combined into a common Shared Service infrastructure.

Acorns for the future:HLL has also begun to nurture some acorns – new businesses and new ways of engaging with consumers -- for the future. The entry into water purifiers, with Pureit, shows great promise. In urban India, Hindustan Lever Network, which has already reached 1,400 towns with over 3 lakh consultants, is HLL’s direct selling initiative. In rural India, Project Shakti, already touching 75 million people in 60,000 villages of 12 states, complements HLL’s rural reach. Simultaneously, it is providing a sustainable source of income to underprivileged rural women, HLL’s partners in this initiative.

Simpler, leaner, empowered organisation:The company, as a whole, has been restructured. Its eight Profit Centres have been integrated into two Divisions of Home & Personal Care and Foods. “The result is a simpler and leaner organisation, less hierarchical with fewer levels and greater empowerment. This has eliminated complexity and speeded up decision making. Today the company is far more youthful in attitude and spirit. There is greater openness and transparency,” Mr. Banga said.

He said that over the next 10 years, India’s per capita income is likely to double, with opportunities to catalyse penetration, increase usage, and upgrade consumers. As a result, the FMCG market is expected to grow to over Rs.100,000 crores from its current base of Rs.40,000 crores.

“We in the new Hindustan Lever see an exciting opportunity for growth. We have 35 powerful brands covering all segments, with leading market positions in most. Today, these are stronger and more relevant to the consumer than ever. Our people are energised by the scale of the opportunity and determined to seize it. The scale of our business and operations gives us the resources we need. We are very confident of delivering sustainable profitable growth,” Mr. Banga concluded.