Unilever Plc, the FMCG major, has aggressively streamlined its product portfolio, emphasising approximately 30 “power brands” in its pursuit of growth under new CEO Hein Schumacher, who assumed the role in July.
These power brands, including Dove, Lux, Pond’s, Surf, Sunsilk, Lifebuoy, Horlicks, Vaseline, Knorr, Rexona, Closeup and Pepsodent, signify the company’s targeted focus, as per its July-September investor presentation. However, the company has not yet disclosed its performance for the December quarter.
This strategic shift at Unilever carries implications for India, its second-largest market after the US. Hindustan Unilever (HUL), the company’s Indian unit, led by new CEO Rohit Jawa since June 2023, generates almost 30 per cent of its revenue from region-specific or country-specific brands, as per analysts observing the company.
However, concerns arise as several of these brands aren’t part of the global power brands list. The absence of these region-specific brands from the power brands list is viewed as a potential challenge by analysts. Attempts to seek comments from HUL remained unanswered.
The portfolio optimisation and focus on power brands may pose constraints for HUL’s regional or country-specific brands, which have traditionally contributed to the company’s growth. Under the previous leadership of MD & CEO Sanjiv Mehta, HUL has relied on localised brands and innovations as part of its ‘Winning in Many Indias’ (WIMI) strategy. During Mehta’s tenure from October 2013 to March 2023, HUL maintained a consistent compounded annual growth rate of around 8-9 per cent in revenue, with Ebitda margins at 20-23 per cent.
The WIMI strategy involves classifying India into 15 consumer clusters to identify local consumer insights, reinforcing the belief that what is beneficial for India is beneficial for HUL. Despite this, current market trends indicate the resurgence of smaller brands, especially amidst commodity cycle deflation, leading consumers to explore more cost-effective alternatives.
The resurgence of smaller brands has posed challenges for HUL in recent quarters. Reports by Nielsen and Kantar suggest that the market value of small players in tea has grown 1.4 times that of larger players, while in detergents, it has surged six times.
Sachin Bobade, Vice President of Research at Dolat Capital, highlights that HUL faced difficulties amid this market shift, attributed to commodity inflation easing and the appeal of low-priced alternatives offered by small brands.
While Unilever had previously pursued a power brands strategy in the early 2000s under former HUL chairman Vindi Banga, the company encountered muted revenue growth of about 1 per cent from April 2000 to April 2005, despite an improvement in Ebitda margins from 15 per cent to 20 per cent. Consequently, HUL reverted its attention to region-specific brands to strengthen its market presence and enhance overall growth.
