Fast-moving consumer goods (FMCG) major Unilever Plc has been pruning its portfolio aggressively over the last few months as new CEO Hein Schumacher, who took over in July, has prioritised some 30 “power brands” in the company’s quest for growth. These power brands include names such as Dove, Lux, Pond’s, Surf, Sunsilk, Lifebuoy, Horlicks, Vaseline, Knorr, Rexona, Closeup and Pepsodent, according to its investor presentation for the July-September period. The company is yet to disclose its December quarter numbers.
The company’s strategy to streamline its product portfolio, supply chain and sustainability has implications for India, which is the firm’s second-largest market after the US. For one, the Indian unit, Hindustan Unilever (HUL), which is now being steered by new CEO Rohit Jawa, who took over in June-end of 2023, derives nearly 30% of its turnover from region-specific or country-specific brands, according to analysts tracking the company.
Names of these region-specific brands include Glow & Lovely, Wheel, Brooke Bond, Kissan, Bru, Lakme and Clinic Plus — household names in India.
“While power brands may be the most appropriate strategy for Unilever at this point, we hope this does not constrain country or region-specific brands in India,” say analysts Manoj Menon, Varun Singh, Karan Bhuwania and Akshay Krishnan of ICICI Securities.
HUL, say experts, has long depended on local-level brands and innovations to drive growth as part of its ‘Winning in Many Indias’ (WIMI) strategy, put in place by erstwhile MD & CEO Sanjiv Mehta. Under Mehta’s tenure between October 2013 and March 2023, HUL maintained a compounded annual growth rate of around 8-9% in terms of topline, with earnings before interest, tax, depreciation and amortisation (Ebitda) margins at around 20-23%, according to analysts at Dolat Capital.
Under WIMI, HUL classifies the country into 15 consumer clusters, saying this helps the company identify local consumer insights. “Our core belief is that what is good for India is good for HUL. A lot of what we have already been doing has strengthened our business and we will continue to build on it,” Jawa had said in an analysts call in October. Jawa had also indicated that the company would focus on 19 large brands to shore up topline growth.
But that has been put to the test now, as smaller brands have resurfaced amid a commodity cycle deflation and consumers seeking cheaper alternatives.
The market value of small players has grown 1.4 times than that of large players in tea, for instance. While in detergents, the market value of small players has grown six times to that of large players, according to reports by Nielsen and Kantar.
“The last two quarters of FY24 have been particularly challenging for HUL amid a resurgence of small brands. Commodity inflation is moderating and small brands are finding it easier to take consumers away with low price-points and local innovations,” says Sachin Bobade, vice-president, research, Dolat Capital.
While Unilever had embarked on a power brands strategy earlier too, in the calendar year 2000, with former HUL chairman Vindi Banga tasked with implementing it back then, topline growth was muted. Analysis of the company’s results then show that revenue growth was muted at about 1% between April 2000-April 2005, when the power brands strategy was in place, even though Ebitda margins improved from 15% to 20% during the period, analysts at ICICI Securities said.
HUL subsequently shifted its attention back to region-specific brands to arrest market share loss and improve topline and bottomline growth.