Hindustan Unilever (HUL), the US$4 billion Indian subsidiary of Unilever, the Anglo-Dutch consumer goods giant, has had a long and strong presence in India. The company has a portfolio of about 35 brands including food, cleaning and personal care products. Many of its brands are household names among Indian consumers. In recent years, however, the marketplace has become increasingly competitive with both Indian and global players jostling for a share of consumers’ wallets. Nitin Paranjpe, CEO and managing director of HUL, says that given the enormous opportunity that India presents, competition is inevitable. In an interview with India Knowledge@Wharton, Paranjpe, who joined HUL as a management trainee in 1987 and took over the top job in 2008, traces some key periods in the company’s journey, his top priorities, the challenges ahead and strategies for growth.
An edited version of the interview follows.
India Knowledge@Wharton: You joined Hindustan Unilever (HUL) as a management trainee in 1987 and have been part of the company’s journey since then. Could you share some of the key events for HUL during this period?
Nitin Paranjpe: The early 1990s saw the exponential growth of our personal products business. From a mere Rs. 75 crore [US$28.4 million at the then prevailing exchange rate of $1 = Rs. 26.40] business in 1991, it grew to Rs.1,800 crore [US$400 million at an exchange rate of $1 = Rs. 45] business by 2000 — a compound annual growth rate (CAGR) of around 40%. This business continues to grow at a healthy double digit and has the potential to grow significantly with the changing consumer context in India, [which is] driven by a younger population and growing incomes. The other key development in the early nineties included a series of mergers and acquisitions. These included Tata Oil Mills, Kissan, Kwality, Lakmé, Brooke Bond, Lipton India and Pond’s.
The early 2000s was a period of consolidation. As part of a conscious strategy to focus on the core fast-moving consumer goods (FMCG) businesses, HUL exited several non-FMCG businesses. In 2000, about one-fourth of our sales were in non-FMCG businesses. These businesses had played an important role in a historical context but they were only providing 10% of the company’s profit. Besides, they lacked scale, did not offer prospects for long-term leadership and were a drain on the core FMCG businesses in terms of resources and focus. From 2000 to 2004, HUL divested various non-FMCG and commodity businesses such as animal feeds, specialty chemicals and mushrooms. From 2004 onwards, HUL has registered a healthy growth with a double digit CAGR.
In 2002, we launched Project Shakti [a rural distribution program] as a pilot project in Andhra Pradesh and subsequently rolled it out nationally. Today, we have 45,000 Shakti entrepreneurs who cover more than 100,000 villages across 15 states and reach more than three million consumers.
In 2004, we launched Pureit [a low-cost water filter that does not require running water or electricity] in Tamil Nadu and in 2008 we went national. Now we protect more than three million homes across India.
India Knowledge@Wharton: What were your priorities when you took over as CEO and managing director of HUL in April 2008?
Paranjpe: My key priority was to strengthen the business to effectively address the challenges of a rapidly-changing consumer and competitive context. This meant managing for the short term even as we started building a portfolio and a set of capabilities that would be relevant for the future. Such an approach would ensure that we met our stated business goals — that of delivering growth that is competitive, profitable and sustainable.
India Knowledge@Wharton: What is your growth target and what are the key pillars of your growth strategy?
Paranjpe: Like any large organization, we undertake strategic reviews and formulate medium-term plans from time to time. We see exciting opportunities in India across categories and are committed to pursuing profitable, competitive and sustainable growth in all the categories that we operate in. Our strategy is to straddle the pyramid and drive market development. We would like to be present across all price and benefit segments to serve the diverse needs of consumers across the spectrum.
India Knowledge@Wharton: If your look at your various businesses and the different categories that you are present in, where do you see maximum growth coming from?
Paranjpe: We have huge headroom to increase penetration and consumption across the categories we operate in. We find that the per capita consumption across categories is very low even compared to other South Asian countries. Hence, our first objective is to grow the market. As the market leader, we are focused on developing the markets for the long term while also ensuring that we capitalize on the immediate opportunities.
Personal products and foods are two categories which are expected to grow faster than the rest of the business. Similarly, there are niche emerging categories such as fabric conditioners, machine wash detergents, hair conditioners, specialist cleaners, face washes and tea bags which have good potential for growth despite being part of mature categories.
India Knowledge@Wharton: Any businesses or categories that have been particularly disappointing? How are you planning to strengthen these?
Paranjpe: The volatility of 2009 and the significantly increased competition threw up several challenges for the business. Restoring competitiveness across our categories was the number one priority. Several actions have been taken to strengthen our brands including investments in product quality, pricing and brand support. There has been a huge emphasis on raising our focus on execution in the marketplace. In addition there has also been a strong drive to reduce cycle time from decision to execution across some key processes. These changes will help us become far more responsive to the marketplace. While consumer and customer centricity has always been integral to how we operate, the increased competitive context requires us to step up the game even further. It is this that will provide us the insights that will drive innovation and help us stay ahead of the game.
India Knowledge@Wharton: The FMCG market has been seeing intense competition in recent years thanks to new players, high spends on advertising and high trade spends. How has the company responded to that?
Paranjpe: That is true, but it is something to be expected. Given the enormous opportunity that India presents, everyone wants a share. Hence we see competition of all types — global players, large Indian players, as well as a number of small regional and local players. Each is trying to get a share of the Indian market in anticipation of the huge growth that it is likely to see in the coming years. While competition does pose challenges, the reality is that in the end competition is good for business as it brings out the best in you and is a win-win for the consumer. Competition drives innovation, improves quality, keeps costs under check and all of this helps markets grow. Companies become sharper, focused and efficient. Those that remain focused on the consumers and customers, and take actions with a long-term horizon will not just survive, but also flourish. We have been around for more than 75 years and have built brands that touch the lives of two out of three Indians. It is our commitment to consumers that has helped us reach here and it is this same commitment will help us succeed in the years to come.
India Knowledge@Wharton: HUL entered a new category — of water filters — in 2004 with its product Pureit. Could you tell us about the concept itself and why HUL entered this category?
Paranjpe: Safe drinking water is a dire need in a country like India. HUL launched Pureit, [which works] without electricity or running water. This has … provided a sustainable and long-term business opportunity for the company.
India Knowledge@Wharton: Some analysts feel HUL has not been launching enough new products or new categories. Do you think that HUL should be doing more on this front?
Paranjpe: This year, we have launched or re-launched about 30 brands. In recent times, we have stepped up our innovation intensity across categories. Our advertising and promotion spends have also been stepped up to ensure that the innovations are fully supported. We have a robust innovation pipeline across categories.
India Knowledge@Wharton: What are some of the biggest challenges HUL faces?
Paranjpe: In a high-growth market like India, the key task is to grow the market profitably and sustainably. We have huge headroom to increase penetration and consumption across the categories we operate in.
We are witnessing a rapid change in the social and economic landscape in India. We have younger consumers with a high propensity to spend and a fast growing modern trade. Our key challenge is to ensure that each of our brands remains relevant and contemporary in this changing consumer context. We are further strengthening our innovation capabilities. For example, more than 70% of our products in the market have been relaunched in the past six months, each of them delivering a significantly enhanced consumer value.
On the other hand, 70% of the population still lives in the [rural] villages in India. The key challenge for FMCG companies is to ensure that their products are available to consumers in the most remote and small villages. HUL has a distinct advantage in having access to such villages through its Shakti project. We are further strengthening this through a new initiative, Shaktimaan, whereby we have embarked on an ambitious program of tripling our rural coverage.
India Knowledge@Wharton: All FMCG players have been targeting the semi-rural and rural markets in recent years. How much of an advantage do you feel you have here because of your long history in India and your early entry into these markets?
Paranjpe: Rural markets are extremely important to us. Given that the per capita consumption in rural markets is lower than urban markets, we expect these markets to grow faster. Even at present, HUL has an extensive rural coverage. But we want to strengthen it further and have embarked on a plan to dramatically expand. We plan to add 500,000 outlets to our rural coverage. Our long presence and consumer insights are definitely an advantage but in the fast-growing market and in an environment of heightened competition, it is important that we widen the lead.
India Knowledge@Wharton: You have come up with some other new initiatives also in distribution recently. Can you tell us about the Mission Bushfire that was kicked off earlier this year and the concept of the HUL Perfect Store?
Paranjpe: The “Perfect Store” initiative is the company’s latest endeavor to strengthen its go-to-market capabilities and has been one of the largest and fastest roll-outs of a sales and marketing strategy across the country. It aims to convert 100,000 stores into “Perfect Stores” by the end of 2011. Conversion to a Perfect Store requires compliance on key sales fundamentals covering aspects [including product] availability, assortment, the right visibility and the ability to drive offtake of our brands from the store. This initiative will make a significant difference to win with consumers at the point of purchase in the general trade.
HUL kick-started the Perfect Stores initiative in the first week of May 2010 through Project Bushfire by getting all of its employees involved. The objective was to bring everyone in the organization closer to our customers and at the same time make a real difference to our brands and categories in the marketplace. For the first time in the history of HUL, more than 4,000 employees, from the management committee members to the operating staff, participated in one of the biggest consumer and customer connect initiatives of transforming general trade stores into Perfect Stores over a period of six days all over the country.
The employees worked along with 1,000 merchandisers and about 20,000 retailers covering more than 70 cities across the country and created more than 15,000 Perfect Stores in India. While the Perfect Stores initiative was started through Project Bushfire, the company’s merchandisers will continue this effort on an ongoing basis.
India Knowledge@Wharton: What are your market shares in the different categories that you are present in? How have these changed in recent years?
Paranjpe: Without getting into the details by category, I can say that despite intense competition over many years we have retained our market leadership. We are the leaders in 10 of the 12 categories we operate in. While we saw some impact on our shares in 2009 [due to the global recession], we are pleased with the result of the actions we took and across most of our categories we are now delivering growth that is ahead of the market reported growth.