Hindustan Unilever Ltd.

To earn the love and respect of India, by making a real difference to every Indian

Vision

India’s largest F.M.C.G. company with turnover of over Rs.20,000 cr. per annum.

80 factories across India HUL has 15,000 employees HLL is organized into two self-sufficient divisions - Home & Personal Care &

Foods Has 35 power brands, HUL’s Power Brands, which account for 80-85 per cent

of the company's domestic consumer business . HUL’s brands are present in more than three million retail outlets in India. HLL's distribution network in rural India directly covers about 50,000

villages, reaching about 250 million consumers, through 6000 sub- stockists.

HUL

Sunlight soap bars in 1888 Lifebuoy in 1895 Pears, Lux , Vanaspati in 1918 Dalda brand came to the market in 1937 In 1931, Unilever set up its first Indian subsidiary, Hindustan Vanaspati

Manufacturing Company, followed by Lever Brothers India Limited (1933) and United Traders Limited (1935). These three companies merged to form HLL in November 1956

HLL offered 10% of its equity to the Indian public, being the first among the foreign subsidiaries to do so. Unilever now holds 51.55% equity in the company. The rest of the shareholding is distributed among about 380,000 individual shareholders and financial institutions.

Brooke Bond joined the Unilever fold in 1984 through an international acquisition. Unilever acquired Lipton in 1972, and in 1977 Lipton Tea (India) Limited was

incorporated. Pond's (India) Limited had been present in India since 1947. It joined the Unilever

fold through an international acquisition of Chesebrough Pond's USA in 1986.

HISTORY

Liberalization marked an inflexion in HLL’s growth.

Deregulation permitted alliances, acquisitions and mergers.

Tata Oil Mills Company (TOMCO) merged with HLL in 1993.

In 1995, HLL and Lakme Limited, formed a 50:50 joint venture.

HLL formed a 50:50 joint venture with the US-based Kimberly Clark

Corporation in 1994

History Cont…

Home & Personal Care• Personal Wash• Fabric Wash• Home Care• Oral Care• Skin Care• Hair Care• Deodorants & Talc• Colour Cosmetics

New Ventures• Hindustan Lever Network• Ayush ayurvedic products & services• Pureit water purifiers

BUSINESSFoods• Tea• Coffee • Branded Staples• Culinary Products• Ice Creams• Modern Foods ranges

Exports• HPC• Beverages• Marine Products• Rice• Castor

An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis.

Stockists connected with the company through an Internet-based network, called RSNet, facilitating online interaction on orders Dispatches information sharing Monitoring

RS Net covers about 80% of the company's turnover. RSNet is part of Project Leap, HLL's end-to-end supply chain, which also

includes a back-end system connecting suppliers, all company sites and stretching right upto stockist.

IT Infrastructure

HLL vs. Nirma

For more than 50 years, HLL had served India’s small elite who could afford to buy MNC products

Nirma created a new business system that included a new product formulation, low-cost manufacturing process, wide distribution network, special packaging for daily purchasing, and value pricing.

Initial Response of HLL was to dismiss Nirma’s strategy, however , after the latter’s growth started affecting the share of the former, HLL saw its vulnerability and its opportunity

Reasons for Nirma’s Success Targeting disruptive products at non-consumers: By targeting

non-consumers of existing laundry detergents, Nirma was able to stay 'below the radar' of Hindustan Lever, giving them time to experiment with their sales strategy, refine their business model and then grow rapidly - all while avoiding competition. 

Creating a compelling solution by considering Gives and Gets relative to existing solutions: Nirma offered a compelling solution allowing consumers to make a simple trade-off relative to existing products. Get a far cheaper alternative to Surf, but Give up a fraction of the cleaning power, which was already more than sufficient for most laundry occasions. 

Thinking expansively about defining your market. Rather than categorizing it along traditional dimensions, consider definitions using a jobs-based segmentation. Had HLL thought of their market in this way, it would have been far clearer that Nirma was a disruptive threat at an earlier point in time.

HLL: Countering the competition

1995- HLL launched Wheel, created specifically for low end consumers

Contained a high percentage of oil to water

HLL decentralized the production, marketing and distribution of the product to leverage the abundant labor pool in rural India, specially the network of local rural women, quickly creating sales channels through the thousands of small outlets where people at the bottom of the pyramid shop.

A change in structure of its detergent business enabled HLL to introduce Wheel at a low price point.

HLL’s rural penetration: Ansoff’s Matrix

HLL’S Market development strategy:Rural areas

Current markets

New markets

Current Products New Products

HLL’s gains …

HLL stimulated by its emergent rival and its changed business model, registered a 20% growth in revenues/year and a 25% growth in profits/year between 1995 to 2000.

Also, HLL’s market capitalizaton grew to $ 12 billion – a growth rate of 40%/year

Unilever has benefited from HLL’s experience in India

HLL’s business principles helped create a new detergent market among the poor in Brazil- ALA is a huge success

Unilever has adopted the bottom of the pyramid as a corporate strategic priority.

HLL vs P&G P&G target was top end of the organized detergent sector,

where HLL was the major player

P&G launched Ariel Microsystem – a detergent concentrate superior to HLL’s Surf and with an enzyme based technology

Response of HLL

1. Advertising for Surf was stepped up and prices were cut

2. National roll out of Rin concentrate powder was expedited to capture the concentrate image

3. A new ‘Ultra’ product was developed which utilized a compressed method of product development

The result- HLL was able to limit the progress of Ariel and also increase its market share

HLL Development process- Conventional

Formulation

Testing

Packaging fragrances

Test markets

Wait for results

If successful, capacity

Surf Ultra

Capacity Formulation Color Perfume Packaging

Market by September 1991

New Process

Revamping the company processes Elaborate segmentation and positioning exercise carried out

The different segments of each of its product categories were analyzed to identify Gaps/Vacuums

New products were launched to fill that gap

Emphasis was laid on competitive pricing, enabled by HLL’s new methods and cost reductions down the line

Period between 1988-1992, saw HLL broadening its strategic approach

HLL went on top become the lowest cost and highest quality producer in a variety of products, both within existing categories and in new areas

ANALYSIS OF FINANCIALS

ParticularsYear

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Fixed assets 8202 8114 8432 9472 10828 12556 14747 17126 18770 20113

Net current assets 8585 8530 11023 12956 11983 17879 17603 18545 22674 25471

Total capital employed 16787 16644 19455 22428 22811 30435 32350 35671 41444 45584

Shareholders's funds 11498 11333 12425 14281 16522 18349 20607 22852 25538 29110

Sales ( with excise) 52623 58240 63424 72586 84459 95331 102106 121642 146027 177529

Profit before tax 4455 4222 4401 5556 6507 7829 7938 8961 11074 13770

Profit available for distribution 2331 1913 2128 2551 3429 3775 5264 6015 7403 10000

Retained earnings 1602 863 1008 1151 1843 1442 2278 2749 3438 4610

Dividends 729 1050 1120 1400 1586 2333 2986 3266 3920 5390

Dividend % 25 22.5 24 30 34 25 32 35 42 38.5

No. of shareholders 91549 93694 98313 104780 111849 119912 129010 127761 129505 136404

• Fixed assets increased by 145%

• Capital investment also increased at the same pace by 171 %

• Sales has more than tripled from sales in 1982

• Dividend paid out to shareholders peaked at 42 % in 1990

• Gross sales have gone up by 59.9 % in the last decade• Earning per share has increased to double is value from 2000• 2007 saw a peak in dividends at Rs. 9 per share of Re. 1• Fixed assets have doubled and investments have fallen to a low of 1264 crores• 2003-04 saw borrowing on a large scale Source : HUL annual report 2009-10

• Marginal increase in turnover from 1990 to 1991 which did not translate into an increase in operating profit• Return on capital employed fell from 17.3 % in 1990 to 16.4 % in 1991• Net gearing declined drastically by over 30% from 36.7 % in 1990 to 27.9 % in 1991• Net interest cover increased by 17% to 7.5

Year 1991 1990Turnover 23163 22734Operating profit 1990 2051Profit on ordinary activities before tax 1792 1782Net profit on ordinary activities 1152 1112Extraordinary items 1 -195Net profit after extraordinary activities 1153 917     Key ratios(in percentages)         Operating margin 8.6 9profit after tax as a % of turnover 5.2 5.1Return on capital employed 16.4 17.3Net gearing 27.9 36.7Net interest cover(times) 7.5 6.4

• The sales for soaps and detergents has remained same,personal products has almost doubled• The foods portfolio sales have almost halved• HUL has exited the chemicals, agri, fertilizers and animal feeds market• EBIT as a % of sales has fallen from a peak of 18.4 % and stagnated at around 13 %

Source : HUL annual report 2009-10

Segment-wise sales(%)

Revenue from foods has drastically reduced, with soaps and detergents providing almost double the revenue and revenue from newer avenues like exports

Source: HUL Annual report 2009-2010

HUL’s Power Branding Strategy

Eight major brands in HUL were merged into two major segments:

Home and personal care(HPC) segment

Foods portfolio

Objective To enhance the value of the products and the brand

To play a bigger role in the lives of the customer

To increase brand recall

HUL’s Power Branding Strategy(cont.)

Integration of the various brands such that strategy is focussed on growth

Various brands in the food and beverages portfolio are integrated into one segment - Foods portfolio

Steps in strategy implementation

Consequences

The power branding strategy resulted in consolidation which resulted in a lean and empowered organization

Greater stress on nutrition, hygiene and personal care to establish itself in the personal care space

Reinvention of the distribution network and customer management

Product innovation in each of the segments with new products and

innovations being churned out every year

The Mother Branding Concept A Mother Brand also called an umbrella brands encompasses disparate brands with

distinct identities under it from a variety of segments and product categories

Consolidation of the brands in the minds of the consumers to ensure higher brand recall and to increase the bottom line

Segregation of the gamut of tea brands into two mother brands, Lipton and Brooke Bond each catering to a different segment of the market

Consolidation of the tea portfolio with 23 brands under the mega-brand Brooke Bond and reinvention of the supply chain management

The business units are set up based on the brands and the 30 stock keeping units are flushed to ensure quick turn around time and easy availability

Sales & Distribution Strategies Of

Business Strategies -

“The company will compete with low price competitors by playing to their strengths - using strongest brands backed by superior technology and the lowest cost supply chain”.

“Company will continue investment in technology, both to make better products and secure cost advantage”.

“There is a big opportunity to grow processed foods, which are still a very small proportion of the overall largely, commoditized foods market”, HLL chairman M S Banga said

Corporate Strategy -

HLL enjoys a formidable distribution network covering over 3400 distributors and 16 million outlets.

The new sales organization named 'One HLL' brings "Household and Personal Care" and foods distribution networks together, thereby aligning all the units towards the common goal of achieving success.

HLL has been continuously able to grow at a rate more than growth rate for FMCG Sector, thereby reaffirming its future stronghold in Indian market.

HUL’S DISTRIBUTION NETWORK

Hindustan Unilever covers the consumers mainly with the combination of C&F and stockists who indirectly deal with the retail outlets .

C&F agents can be classified into 2 types, one with investment and the other without investment. The without investment C&F agents are mere forwarding agents and act as the transporter to the company.

The stockists are also classified into 2 categories called U1 & U2 :

The stockists are classified into U1 & U2 on the basis of the products they stock.

U1 stockists generally stocks products like surf and ponds while U2 deal with high profile products of HUL like Lakme and Dove

Each stockist is then responsible for distributing the goods to the retail counters in the region.

The retailers then provide the goods to the consumers.

Depending upon the types of products ,sales, turnover and the number of retail counters a stockist is dealing with, the company has classified the stores into

Super Value Stores Smart/FLO Unicare Vijeta U2

Traditionally HLL’s distribution network consisted of wholesalers and retailers. HLL had presence in 80 lakhs retail outlets and there was ‘one size fit for all’ distribution strategy to serve all those outlets.

Urban customers wanted products with unique, value added and customized offerings with convenient shopping. Apart from this, emergence of rural market also forced HLL to change its distribution system.

For urban market it developed different distribution system cater to different type of customers. Along with this, it provided value added service, convenience and customized offering to urban customers.

On the other hand, in rural markets, to increase brand awareness and product availability, it introduced alternative distribution systems.

Through these changes, HLL brought its brands closer to customers.

HLL’s approach to distribution was holistic and developed a three-way convergence of product availability, brand communication and brand experience.

Project “Shakti” -

Rural India is spread across 627,000 villages and possesses a serious distribution challenge for FMCG Cos.

HLL has come up with a unique and successful initiative wherein the women from the rural sector market HLL products, and hence, are able to reach the same wavelength as of the common man in village.

Apart from product reach, the initiative also creates brand awareness amongst the lower strata of society.

Functional Strategy -

Consider Sunsilk - To perk up volumes, HLL occupied various price points:

8 ml sachet for Rs 2.50. 50 ml bottle for Rs 35 100 ml bottle for Rs 55 and the 200 and 300 ml bottles.

It also introduced 100-ml “smart packs” targeted at small towns with a price tag of Rs 35.

(The cost of a 50 ml bottle of Sunsilk).

This was a ploy targeted at the heavy sachet users to upgrade them into bottle usage.

Recently, HLL launched a mega promotion which offers prizes ranging from 2.5 kg of gold to gold coins to those who collect sachets of shampoos.

Clearly, hair-care has come of age at HLL.

‘THE GO-TO MARKET PROGRAMME’ Hindustan Unilever is facing pressure on volume growth. And,

with its hands tied on the pricing front, it is restructuring its distribution strategy to bring in cost efficiency.

It is rationalising its own sales force and adding more muscle to its distributors on the field.

First tried out in Mumbai, this will now be implemented across all towns and cities with a population above eight lakh, starting with Chennai.

Earlier, HUL had different distributors for its home and personal care division and food division in the same area. Now, all the products would be sold by the same distributor in any one area.

Also, earlier, products from different divisions used different distributors, even in the same city. Now, products across divisions will be fed to retailers through unified distributors.

“The Go-to-Market model also helps to remove the enormous logistics hitherto faced by the distributors in their back-end operations, thus removing significant costs from the system. More importantly, enabling them to focus on the front-end to deliver better services to end-retail

E-COMMERCE MARKETING PRACTICES The company heavily relies on Electronic means of

communications for running the business .The entire Sales and distribution channel is integrated through eCRM software called “UNIFY” which are installed in every PC system of the C&F, Stockiest . The company has up to date record of the inventory position of all the stockiest . A stockiest is required to maintain a minimum level of inventory. If the stock position goes below a critical level order is automatically triggered and the company sends the goods to the stockiest. All operations thus take place online.

Strengths Strong and well differentiated brands with leading share positions Consumer understanding and systems for building consumer insight Strong R&D capability well linked with business Integrated supply chain and well spread manufacturing units Distribution structure with wide reach, high quality coverage and ability to leverage

scale Access to Unilever global technology capability and sharing of best practices from

other Unilever companies High quality manpower resources

SWOT Analysis

Weaknesses Increased consumer spends on education, consumer durable, entertainment, travel

etc. resulting in lower share of wallet for FMCG. Limited success in changing eating habits of people. Complex supply chain configuration, unwieldy number of SKU’s with dispersed

manufacturing locations. Price positioning in some categories allows for low price competition, like Amul

captured Kwality’s market. High Social costs (housing, food grains & firewood, health and other welfare

measures) in the Plantation business

SWOT Analysis

Opportunities

Market and brand growth through increased penetration especially in rural areas.

Brand growth through increased consumption depth and frequency of usage across all categories.

Upgrading consumers through innovation to new levels of quality and performance.

Emerging Modern Trade can be effectively used for introduction of more upscale Personal Care products.

Position HUL as a sourcing hub for Unilever companies in various countries.

SWOT Analysis

Opportunities Cont…

Growing consumer base due to increasing income levels and new consumers from lower strata of the society

Growing consumption in Out of Home categories. Leveraging the latest IT technology Untapped market in branded Ayurvedic medicines and other such consumer

products. Opportunity in Food sector: changing consumer tastes- Expansion of horizons

towards more and more countries

SWOT Analysis

Threats

Low priced competition now present in all categories. Grey imports. Spurious/counterfeit products in rural areas and small towns. Unfavorable raw material prices in oils, tea commodity etc. Heavy onslaught of competition in the core categories from emerging players

like ITC will result in higher advertising expenditure Reduction in real income of consumers due to high inflation.

SWOT Analysis

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