HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY*

GROWTH IS IMPERATIVE FOR Hll

Hindustan Lever Limited (HLL) is India's largest fast moving consumer goods company. with leadership in home and personal care products. foods and beverages and specialiry chemicals. The vision that inspires HLL's 36.000 employees. including near!}' 1,300 managers. is "to meet everyday needs of people everywhere. to anticipate the aspirations of our consumers and customers and to respond creative!}' and competitive!}' with branded products and services which raise the Qualiry of life." This objective is achieved through the 110brands that the company markets. Its deep roots in local cultures and markets around the world are HLL's unparalleled inheritance and the foundation for its future growth. With this wealth of knowledge and international expertise in the services of local consumers it is truly a multi-local multinational.

HlllN 1999-2000
In 1888. less than four years after William Hesketh Lever's company Lever Brothers launched Sunlight Soap in England. William Hesketh's company also started exporting the revolutionary laundry soap to India and carved a niche for itself in the Indian market. The company merged with the Netherlands-based Margarine Unie in 1930 to form Unilever. A year later. Unilever set up the Hindustan Vanaspati Manufacturing Company. its first subsidiary in India and further strengthened its position by establishing two more subsidiaries. Lever Brothers India Limited and United Traders Limited. soon thereafter. The three companies. which marketed soaps. vanaspati and personal products. merged in 1956 to form Hindustan Lever. in which Unilever has a 51%stake. Since then. HLL has entered virtual!}' every arena in the fast moving consumer goods market through organic growth. diversiflcation. mergers and aCQ!.lisitions.Today. the company markets more than 110brands. in 950 packs. The products are sold in one million retail ot:tlets. almost reaching out to the entire urban population and about 50.000 villages in India. HLL has market leadership in virtual!}' every area of presence. It is the market leader of soaps and detergents as well as skin and hair care products. It is also the market leader in tea. processed coffee. icecream and frozen desserts. tomato-based products. jams and SQuashes.HLL's gross turnover in 1997 was Rs. 83.4 billion and profit after tax was 5.8 billion. Also. HLL has emerged as a * Deepankar Mukherjee

100 1:1 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

major exporter. It is a super star trading house. an honour that on!>' seven Indian companies enjoy. Hll's exports turnover in the year 1999 was Rs. 1.803 crore. Hll' s introduction of a variery of products from the time of its conception till date is shawn in Exhibit I. Hll' s brand portfolio in various categories like home and personal care products food and beverages etc., are listed in Exhibit 2. Exhibit I: HLL from Conception Till Date How We Got There 1888: 1918: 1930: LeverSoap. 'Sunlight', introduced in India through imports. Vanaspati(hydrogenatededible oil) launched through imports. Unilever created through the merger of LeverBrothers. UK and Margarine Unie. Netherlands. 1931: Unilever registers compa'"!}'in India HindustanVanaspatiManufacturing Company (HVM) - for local manufactureof vanaspati. 1933: 1935: 1956: 1958: 1979: 1993: LeverBrother's India Limited (LBIL) incorporated in India to market personal soaps. United Traders Limited (Un) incorporated in India to market personal products. The three subsidiaries. HVM. LBIL and UTL merge to form Hindustan LeverLimited (HLL) . Hindustan LeverResearchCentre starts functioning. Chemicals complex commissioned at Haldia. West Bengal. HLL's largestcompetitor, TataOil Mills Company (TOMCO). mergeswith the company. Erstwhile Brooke Bond India accwiresKissan,Businessfrom the UB Group and Dollops icecreamfrom Cadbul)'. Doom Dooma and TeaEstatesPlantation divisions mergedwith Brooke Bond, Brooke Bond and erstwhile Lipton India merge to form Brooke Bond Lipton India Limited. 1994: 1995: HLL and US-basedKimberlty-Clark Corporation form 50:50 joint venture, Kimberlty-Clark Lever Limited HLL and Indian cosmetics major, Lakme limited form 50:50 joint venture. Lakme Lever Limited HLL accwiresKwalio/and Milkfood with 100%brand namesand distribution assets. HLL and US-basedSC Johnson and Son incorporated to form 50:50 joint venture, Lever Johnson(Consumer Products) Private limited. HLL soaps and detergent salescross one million tonnes. 1996: HLL and associatecompany. Brooke Bond Lipton India Limited, India's biggest firm in food and beverages.merge.

Contd...

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

101

1997:

HLL and Gist Broacades BV form 50:50 jointventure. Lever Gist Brocades, to market 'Gold Seal Fermipan Instant Yeast' for baking industl)'. Group Company Pond's India Limited merges with HLL. HLL aCQuiresLakmebrand, factories and Lakme Ltd'sSO% eQui~ in Lakme Lever Limited, HLL aCQuiring manufacturing rights of Kwali~ ice-cream. Appellate Authori~ of Government of India absolves HLL of insider trading charges. made by SEBI in 1997. in the BBLIL merger.

1998:

2000:

HLl aCQuiresModern Foods. theJirst public sector company to be divested by the Government or India.

Source:

www.hll.com

Exhibit 2: HLL's Brand Portfolio

Home & Personal Care Personal Products

Skin care Fair & love!y Pond's Oral care Pepsodent Close-up Hair care Sunsilk Clinic Deodorants Axe Colour cosmetics Lakme Ice creams Kwali~ Wall's Cornetto Kwalio/Wall's Feast Kwali~ Wall's Max Kwali~ Wall's Sof~ Popular Foods Annapurna CullnalJ Kissan
Source: www.hll.com

Soaps & detergents

Fabric wash Surf Rin Wheel Personal Lifebuoy lux Breeze Household care Vim Foods & Beverages Beverages Brooke Bond 3 Roses Brooke Bond Red Label Brooke Bond AI Brooke Bond Taj Mahal Upton Taaza Lipton Yellow Label Brooke Bond Bru Lipton Green label 011 & Fats Dalda wash

102 [] THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

CORE COMPETENCIES
HLL is the market leader in soaps and detergents as well as hair and skin care products and is the second largest manufacturer of dental care products. One of the HLL' s strengths that has great!>, contributed to this success are the breakthroughs at the Hindustan Lever Research Centre. Their research center is India's largest in the private sector. The focus on reseaf(,:h gives HLL an edge over competitors by coming up with innovative products and processes. ma~ of which have been patented. Some of the researcheshave been in household cleaning in soaps and improving performance related to tough soil removal and dingy clothes. Studies related to improving Qualiry in tea and enhancing characteristics like colour. aroma and taste have enabled HLL to make better blends of tea. The company achieved remarkable success in ice-creams when HLRC developed a 'eutectic mixture' which acts as a refrigeration 'battery' and' thus enables the sub-ambient temperature distribution/vending of ice-creams.. In the personal products segment. an important research based product is Fair & Love!>'. . HLL has always stressed on constant technology upgradation. In 1999. there was a change in the entire instrumentation setup of HLL Research to bring it on par with the latest research facilities in the world. The compa~ has alw'!}'s focused on aCQuiringknowledge-based software with a view to creating knowledge-based communities in HLL Research. HLL has tied up with organizations like the Indian Institute of Science (Bangalore). All India Institute of Medical Sciences (Delhi). National Chemical Laboratory (pune) and Department of Physics. Universiry of Pune in different areas of research. Besides. HLL has also funded research projects at the lawahar Lal Nehru Universiry. New Delhi and the MS Swaminathan Research Foundation at Chennai. Another factor that contributes to the success of HLL is its massive and eFficient distribution system. The operation involves 2.000 suppliers and associates and 7.000 stockists and agents. Its operations are spread across 70 locations in India. There are around 100 factories. of which 28 are in backward areas. In the recent years most of HLL's major investments have been in A category backward areas or no-industrial districts. A few such areas where investments have been made are Khamgaon and Yavatmal in Maharashtra. Chhindwara in Madhya Pradesh. Orai and Sumerpur in Uttar Pradesh. Dabgram in West Bengal. Silvassa in Dadra and Nagar Haveli and Pondicherry. Many of HLL's factories including export oriented units are ISO 9002 certified. Some of these. like the Khamgaon soap plant and the Sumerpur detergent bar unit. have been recognized as the best in the Unilever Group. To add to its distribution system. HLL has even aCQuiredsick enterprises in Mangalore. Rajpura and Gajraula and converted them into viable operations. HLL has over 36.000 employees. and has created 2 lakh indirect jobs. HLL has an export portfolio of soaps. detergents. tea. tomato-based products. cosmetics. agroproducts. leather products and marine products. carpets. chemicals and fatry acids and castor oil. Castor oil is one of the biggest export products and the company supplies 30% of the world demand. It is also the largest exporter of tea and branded fast moving consumer goods. HLL' s export turnover in the year 1999was Rs. 1.803 crores. HLL is one of the country's five biggest exporters and has been recognized as a star trading house by the Government of India. It is a net foreign exchange earner. Due to its outstanding performance in exports of castor seeds.

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

103

castor oil and its derivatives. HLL received the Globeoil Gold Award. The company also received the Silver Shield from Federation of Indian Export Organization (FIEO) for "Outstanding Export Performance in Superstar Trading Housing Category" for the year 1996-97. Financial Performance: Hindustan Lever Limited has recorded a tax deducted profit of Rs. 316.94crore in the Quarterended 31stMarch 2001, an increaseof 20.7% over the corresponding period of 2000. After including a one time exception income of Rs. 22.59 crore on account of profit arising from the transfer of interest in the animal feeds business to the Godrej group. the net profit went up to Rs. 33~.53 crore. which was an effective increase of 29.3%. HLL's turnover (net of excise) at Rs. 2642.51 crore grew by 1.1%.Sales of domestic FMCG A products grew by 2.6%. Profit before tax at Rso406.33crore grew by 1804%. nnualized earnings. per share of Re I each. is Rs. 6.17 compared to Rs. 4.77 in MQ2000. Other income grew from Rs. 90.01 crore to Rs. 102.20 crore. reflecting efficient treasury management of surplus funds. The results include an estimated business restructuring cost of Rs. 6.25 crore charged in the Quarter. compared to Rs. 30 crore in the same Quarter last year. The company reviews such costs each Quarter. on the basis of estimated annual spends. and necessary adjustments are suitab~ made and disclosed. The sales performance of the company under various product categories has been shown in Table I: Table I: HLL - Sales Performance

Soaps, detergents. scourers Personal products Beverages Oils and Fat (incl. Vanaspati) Ice-creams and frozen desserts Canned and Processed Fruits & Ve etables Branded staple foods Speciali~chemicals Animal Feed Others , Total Net Sales
Source: www.moneypore.com

42140 18330 19870 6070 1640 1360 2690 2170 710 11060 106040

40 17 19 6 2

41010 17650 15750 6130

1710

40
17 16 6 2

3 4 26
I

-4
II

1230
3 2 I 10

2180 2330 3320 10110 101420

23

2
3 10 -79

100

100

HUMAN RESOURCE MANAGEMENT

HLL has one of the best HR management practices in the world. One of the key focus areas has been its stress on 'team building'. A constant interaction between employees. customers and competitors encourages a unified corporate focus. The idea is to keep the employees (including senior executives) in touch with external realities that confront the company. This facilitates

104 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

the understanding of value creation on behalf of the employees and this in turn facilitates a better response from them. Every management trainee of HLL is sent to the field and spends time with customers. This helps them to keep in touch with the marketplace and inculcates a sense of not onlY business obligation but also a moral obligation to work harder. This also motivates the individual to understand the purpose of the company and what it stands for.

MARKETING
The company has a strong brand eQuio/ which gives it credibilio/ and respect among its peers in the market. It has even created a positive motivational climate in the organization as employees take pride in remaining associated with it. It attracts the best talent and inspires respect among industry professionals. Pursuing aggressive marketing strategies, HLL continues to be India's most admired marketing company in the FMCG sector. HLL has in fact emerged as one of Asia's most admired companies. The table below gives the relative positions of marketing companies in India and Asia. Table 2: India's Top 10 Most Admired Marketing Companies

......,
HLL Coca-Cola Cadbul)' Pepsi Foods Colgate-Palmolive Nestle Britannia ITC Amul Lakme Lever

++ii:in:::v!1:illl1i,;;:;:iili

:HH. H;;;iH H.!.

1 2 3 4

M".y!'.

;::+1 +,HE
1 7 8 3
.

.,I'ill11Iil:

S
6 7 8 9 10

9 5 4 6 10 11

Source: A & M November 3D, 1999

Table 3: Asia's Most Admired Companies

Max Score 7 Hindustan Lever Singapore Airlines 6.52

6.46 6.46 6.41

6.37 6.30 6.16

Sony
Reliance Industries Microsoft /ollibee Foods Pohand Iron and Steel Company T oyoto Motor

6.16
6.10

(ontd ...

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

105

Ayala Corporation Larsen and Touhro Honda Motor Coca-Cola Taiwan Semiconductor Mfg. Company Acer Last Year. the club had 21 members. or 33% more
Source: Far Eastern Review. December 1999-lanuary 2000)

6.09 6.06 6.06 6.06 6.05 6.03

Hindustan Lever continues to be among the top 200 marketing spenders. In the diversified industries category according to the A&M Survey Report in October 1999 it ranks on!>' next to Reliance. Its sales in December 1999 were Rs. 10.978.31 crore and its marketing spend was Rs. 8.64 crore. Hindustan Lever continued to be the top advertising spender. having spent about Rs. 71Scrore for this purpose in 1999 and Rs. 669 crore in 1998-99. Table 4: Advertising Budget
(Crare)

108.94 46.81 85.15 58.68 34.92 77.01 40.93

Source: Abstracted from A&M October 31. 1999

22.89

CHANGING PROFILEOF INDIAN CONSUMERS

The urban Indian consumer has undergone radical changes over the years. This has large!>, been shaped by the media and technology developments in the Indian markets. Due to the convergence of technologies like electronics. computers. telecom and broadcasting. newer media have developed and have brought about Qualitative changes in conventional mass media like press. radio. television. cinema and so on. Television is now one of the cheapest sources of entertainment. Cable TV as a mass medium has already become very popular but in future. there is scope for more 'personalized' and interactive services like Direct Broadcast Satellites (DBS) and Direct To Home services is gaining ground.

106

II

THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

The print media is witnessing a change due to availabiliry of the Internet. The Indian consumer has become more Internet-sa\'\)'. The Internet grew at vel)' fast pace and took just 4 years to achieve a user/subscriber base of I million. This can be credited in great measure to the emergence of cyber cafes in semi-urban areas. Therefore. companies are now taking e-initiatives to target these consumers. Companies are now tapping rural markets to widen their consumer base and gain volumes.

.. tailoring brands specificallY for these markets. There are approximatelY 700 million people in
rural areas and more than one-third of the population is exposed to television in one form or another. Big players like Hll lay thrust on building brands in these markets as more and more rural consumers are beginning to insist on buying brands rather than products. Changing patterns in rural consumption can be gauged from the fact that rural spending on consumer goods has increased over a period of time. The latest figures from the NCAER demographics survey shows the following consumption patterns: Table5: Rural Consumption
Consumer expendables Tooth powder Cooking medium (oil) Tea Toilet soaps Washing powder Hair Oil Talcum powder Tooth paste Packaged biscuits Shampoos Rural share (%) 78.85 65.78 S8.Q2 57.25 54.81 47.24 43.12 38.94 38.24 25.37

Table6: Rural Consumption

Consumer durables RadiolT ransistor Bicycle Wrist watch (mechanical) Fan (table) Sewing machine TV (Band W) Cassette recorder Wrist Watch (Q!Jartz) Pressure cooker Fan (ceiling) Rural share (%) 79.20 78.08 75.59 65.89 64.34 62.65 S5.Q3 54.00 51.51 50.36

Thus. today companies are formulating different strategies to capture both urban and rural markets.

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

107

AMBITIOUS STRATEGIES OF SOME OF THE MAJOR COMPETITORS CavinKare Limited

Chennai-based CavinKare Limited has launched the Fairever skincare cream. taking the dominant HLL's Fair & Love!)' by surprise. Fair & Love!)' had a 97% market share but Fairever has already garnered a good 14% share of the rough!)' Rs. 650 crore fairness cream market. The company has also entered the toilet soap market with the launch of Meera herbal soap. It is planning to introduce a range of other soap brands as well as detergents. thus direct!)' competing with Nirma. Procter and Gamble (P&G) and HLL. In the hair care segment too. it launched its Chik brand through the small packaging sachet route. and has picked up a sizeable marketshare-rough!)' 15%of the RS.840 crore shampoo market - in just two years. This has clear!)' rumed the feathers of both HLL and P&G. CavinKare has. as a part of its marketing strategy. sought to be different. It has decided that apart from an organic growth. it would even take to the brand aCQuisition route. It plans to introduce a number of new products in existing categories like skin. hair and personal care. CavinKare is also trying innovations in pricing and packaging areas. For example. in May 2001 it launched a single-use perfume Spinz Singlez priced at Rs. 1.50 per sachet. This is expected to drive usage and volumes by expanding the Rs. 66 crore category. Current!)'. it is estimated that on!)' one percent of the population use perfumes. Chik's shampoo sachets priced at 50 paise have already created waves in the market. Within ayear of its launch. the shampoo penetration in the country grew from 17.90% to 19.4%.

Today. the company spends around 4% of its turnover on R&D and close to 25% on advertising
and marketing. while constant!)' upgrading its offerings. based on consumer feedback. It has employee forums like 'cross functional teams' which discuss and plan new product developments while sharing learning and insights from its successes and failures. The company also records its brand histories on compact disks for the benefit of new employees. Thus. at the pace at which the company is moving. it is poised to offer competition to HLL.

Procter & Gamble

P&G has recent!)' announced price cuts in two of its premium brands. Earlier P&G cut the price of its most popular and premium brand Whisper Ultra by 19%.Whisper Ultra sales are estimated to have doubled post price cut in February 2001. With the price cuts P&G's core business of healthcare (Vicks) and hygiene (Whisper). have registered an 8.3% growth during the year. from Rs. 2.6 bn to Rs. 2.8 bn. This growth is primari!)' attributed to the success of Whisper Ultra and strong growth in Vicks cough drops. Last week it announced price cuts in Tide - its largest selling global detergent brand-launched in India last year. Its price has been slashed by a massive29% from Rs. 120 per kg to Rs. 85 per kg. Tide was initial!)' positioned midway between concentrates like Ariel and Surf Excel (Rs. 160 per kg) and the premium segment occupied by Surf (Rs. 85 per kg). Now the company has lowered prices. after creating a premium image. Ana!)'sts see this price cut on Tide as a threat to HLL's Surf.

,.

108 1:1 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

The technology-focused P&G is now concentrating on the value-for-money consumer. and this is perhaps the company's most successful strategy and strongest effort to capture the market.

volumes :n

Marico Group
The group is following the strategy of being proactive in a:1 areas of marketing. supported by new product development and segmentation. Various initiatives are being undertaken for new product development and the group is also looking at building an aggressive cost structure. which will help in improving margins. It has hired Anderson Consulting in an advisory capaci~. Marico has adopted TCM (Total Cost Management) practices in all its operations. It will be a 4-5 month project and will concentrate on the entire chain including manufacturing. marketing. distribution. and so on. Cost targets have been set and if these are achieved. the payback will come within a month. It plans on tapping a larger number of consumers and expanding its distribution reach. special!>,in rural markets. Marico has made significant progress in enhancing sales capaci~. Quali~ of its distributors. and the size of the distributors' field force. The company has also taken several initiatives to improve penetration in rural areas. Marico's parallel rural sales and distribution network ranks among the top three in the industry tod'!}'. Marico has leadership in the coconut oil category and in fact, Parachute has gained market share in the last one year and current!>,has a market share of about 53%. It has expanded range in the value-added segment by recent!>, launching the Parachute Dandruff Solution Hair Oil and has positioned it on a herbal platform. Marico's Saffola is positioned in the premium category and has a well-entertained brand eQui~. It is also test marketing Saffola Kardi-Corn blend in Bangalore. which is receiving a good response. Besides this. Saffola Salt which is positioned in the premium category. has also been doing well.

Godrej Consumer Products Ltd.

Godrej's Ezee. common!>'recognized as a detergent for woolen and delicate clothes. has been launched in a range of variants including an expensive T-shirts wash and a fabric softener for cottons. The company intends to invent a niche segment and make it grow through this umbrella brand. It plans on aCQuiringa household category brand. especial!>,in the floor cleaner segment. This category is growing at over 20% annuallY and Godrej so far had been !>,ing low in the household segment with just the Godrej liQuid Cleaner. Godrej is well entrenched in the fairness cream category. It launched Fairglow last year which has picked up 2.1% share of the market. The market share in the hair care category has also improved from 39.4% to 41.7%. The company however. does not intend to get into shampoos and detergent bars as it does not

have the reQuired technology to manufacture such products.

Dabur
Strong brand eQui~ in the ~urvedic segment has helped Dabur sustain growth despite a

sluggish demand situation. Apart from its large range of ~urvedic products like Chyawanprash.

over a period of time. the company has forayed into personal products like Dabur Amla Hair

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY 1:1 109

Oil and Lal Dant Manjan by capitalizing on its distribution

strengths. Dabur has a strong

transnational distribution network of more than 5.500 distributors servicing 1.300.000 retail outlets. through 21 sales offices. The successful repositioning of Chyawanprash. Pudin Hara and Dabur Honey has led Dabur to modernize its portfolio of traditional products. Honey. which was always advertised as a therapeutic product. changed track in 1993, and positioned itself as a food item. Honey sales rose from Rs. 5 crore (Rs. SO million) to Rs. 12 crore in a year. Dabur now has an unparalleled dominance in various niche categories. Brands such as Dabur Amla. Dabur Chyawanprash. Lal Dant Manjan (LDM), Hajmola. Pudin Hara and Hingoli are undisputed leaders in their respective categories. Dabur has built a loyal user base that has expanded with an increase in the popularity of 'nature-based' products. particular\)' in the urban market. It is this loyal and expanding user base in its niche categories which has helped the company to tide over the FMCG's slowdown. The company has shown healthy double-digit growth rates during this period of FMCG slowdown. Its hair care segment. which contributes 61% to its fami\)' products division. grew 9% during the financial year 2001. This was main\)' fueled by a 15%growth in Dabur Amla. which constitutes over 54% of revenues from the hair care business. Also. with the Vatika brand of anti-dandruff and plain herbal product. Dabur has created a niche in the shampoo market. Vatika shampoo has grown 78% in 2001. Dabur dominates the red tooth powder category with about 67% market share. Despite a shift towards white tooth powder. Dabur Lal Dant Manjan has achieved a growth rate of 12%during 2001. Dabur has also launched Binaca white toothpowder as a reaction to the shift in preference towards white tooth powders. It has also launched Binaca toothbrushes and has garnered a 2% share of the estimated Rs 300 crore market. Ana\)'sts expect that the company will continue to grow. main\)' driven by growth in the Vatika brand of hair oil and shampoo. Dabur Amla. LDM. and Binaca brand products. Moreover. the ayurvedic specialities business grew crore). Now the company's energies are focused on Real and Hommade pastes. It is looking at the possibility of launching tomato pastes and at the same time. is doing research in chutneys and pickles. Dabur is also working furious\)' on tetrapacks to take on the competition in fruit drinks and nectars.

by 19%to cross the Rs 100 crore mark for 2001 (Rs 105

lTC's initiative
lTC's e-choupal has redefined the way the supp\)' chains can be integrated and distribution

system streamlined for the cutting edge competitive advantage. How to face competition
In the midst of such tight competition. HLL is coping in numerous ways. New Business Opportunities: HLL is exploring new growth areas. It has evaluated 9 feasible in five such areas. These are

areas where it can venture and is current\)' experimenting

confectionery. consumer healthcare. water. direct consumer distribution and rural marketing.

110 EI THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

HLL plans an organic entry in the water business and further strengthen it through brand aCQuisitions.Consumer healthcare will be an extension of its current personal products business. It will sell non-prescription products over the counter. HLL is also considering entry into food retailing by piggybacking on its ice-cream business. It plans to expand the product mix at its exclusive Kwaliry Walls ice cream parlours by including confectionery and other offerings. HLL is opting for the franchisee route to open these parlours and hopes to take this concept to all cities of India.

Brand Portfolio Restructuring HLL, like its parent brand Unilever. plans to prune its brands
and focus on the top 30 out of a total 110brands. These top 30 brands contribute more than 75% of the turnover. The rest will either be dropped sold, migrated or continued as regional brands. HLL is not planning to vacate any category it is present in. and is only eliminating brands. With the rational ising of these brands an enormous simplification is expected to take place. According to Chairman, Banga "Because you cut down on the number of SKU's, the supply chain gets simplified and that saves costs". The company plans to support the power brands with strong advertising. Brands which contribute to about 25% of HLL's turnover, have been classified into three groups. First, they are the 'regional jewels', that is, brands which are exceptional~' strong in certain geographic areas. Hamam, for instance, gets about 60% of its volumes from Tamil Nadu. where it has more than 30% market share. HLL will keep such brands as purely regional brands. and support them heavily in these limited geographies. HLL, though tightlipped about its power brands gameplan, has started to announce its list of casualties. or brands which are both small and unprofitable, and are to be discontinued or sold off. HLL has delisted two toothpaste variants. Close-Up Renew and Close-Up Oxyfresh, which are off the shelves. the washing powder Revel and the rural toothpaste Aim which will also go off the shelves soon. Breeze, a mass market brand in the toiletries market is growing at 50% plus per annum. Hence, the company plans to phase out the other mass market brand /ai soap. which is now being supported lesser and lesser. Another brand that might be phased out is Moti soap which sells

only in one

or two states and just about 5,000 tonnes ayear, mostly during the Diwali season. Among the emerging categories Rexona and Axe deodorants are the power brands. Rexona has been used to build the deodorant market by HLL. Axe. though launched

only last year. has been doing

well. However Denim and Impulse are likely to go since they have not fared well in the market. Banga explains, "Wheneveryou have the same benefit and same price point there"s no advantage to me to carry two brands. So what we would do is to merge those brands with some of the 30". The company through intelligent communication and use of pack graphics intends to migrate the consumers of the phased out brands to existing brands. After almost a month of research, The Economic Times shortlisted what it considered the probable power brands of HLL. The criteria for selecting the 30 brands was brand's current sale, its differentiation vis-a-vis the rest of the market and its future growth potential. The 30 power brands as listed by The Economic Times are shown in Exhibit 3.

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

III

Exhibit 3: The HLL Sensex

30 Power Brands Lifebuoy: Lifebuoy. Lifebuoy Active soaps lux: soap. shampoo Uri!: soap Dove Breeze Pears: soap, face wash Fair & love!y: cream. soap, lotion Close-Up: toothpaste Pepsodent : toothpaste. tooth powder Surf: Surf Excel. Surf Excelmatic Wheel Comfort Vim Rin Sunsilk Clinic: Clinic Plus. Clinic All clear. Clinic Hair Oil Axe Rexona: deodorant Red Label Brooke Bond A I Lipton Taaza Three Roses Taj Mahal Bru Kissan Kissan Annapurna Kwali~Walls Ponds Lakme Elle 18 Organics Rexona: soap Impulse Domex Savlon Revel Jai:soap Liril: Tale. LiQ!Jid Moti: soap Denim Pears: Naturals Super SO I Close Up: 0lo/-Fresh, Renew, toothbrushes Pepsodent: toothbrush Surf: Surf Easywash
OK

Brands Lifebuoy: Lifebuoy liQuid. Lifebuoy Plus/Gold

501 Half Bar Sunlight Aim Sunsilk: Ceramides Fruitamins

Some mega brands like Surf and Lifebuoy are likelY to undergo pruning. In the fabric wash market there are likelY to be three distinct brands: Wheel catering to the mass market, Rin and Surf operating from the middle upwards. However, Rin talks about whiteness while Surf occupies the stain removal platform. Surf has Surf Excel and Surf Excelmatic. both of which hold great potential for growth and positioning of technology leadership, though at present in volume terms they are less than 5%. However, other variants like Surf EasyWash may be pulled off the shelves as they have not been doing well. Lux is a power brand, which started out in the personal wash market initiallY and is now a brand that talks all about beauty care. Lux enjoys a wide appeal amongst consumers as a beauty brand and has a lot of authority since it has been endorsed by film stars. Banking on the eQuity of Lux, HLL is pushing Lux shampoo sachets in rural markets. According to analYsts brands like Pears. which are small in terms of turnover

112 D THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

and profitability. but have the potential to be the products of the future. are like!}' to be concentrated upon. Though the Pears brand has less than 5% market share in the toilet soaps market. it has a uniQue position that has been extended into face wash ana off late into an oil free. green variant. Hll has designed the power brand portfolio in such a way that the Company has a presence in all categories and key consumer segments. New Product Introductions: At the top end (premium soaps) segment of the personal wash category. Hll launched Savlon and Liril Rainfresh. In the fabric wash category. Surf Excel was relaunched with a new and improved formulation. thus enabling Hll to further consolidate its numero-uno position in the concentrates segment. Hll launched "Operation Streamline" to enhance the rural coverage of its detergents. which led to an increased contribution from rural markets. In the culinary products category Hll introduced Tom Pudina in the Ketchup category. In the Tomato Puree. a single use pack was introduced to give consumers convenience and lower the money outlay. Hll has recent!}' introduced popular foods like wheat flour and edible salt under the KissanAnnapurna brand name. These products are changing consumer habits in a remarkable manner by the consumer giving more preference to processed. hygenic. healthy and convenient products. Hll is also concentrating on improvement in the manufacturing sector by laying stress on areas like productivity. Quality, energy conservation. safety and environmental protection. It has been able to improve operational performance through significant improvement in its Total Productive Maintenance (TPM) at six manufacturing sites. Mergers: The personal care segment of the FMCG market provides both high volumes and high margins. The merger of Hll and Pond's (India) will result in increased revenues for HlL As compared to Hll's margins of 11.6%in 1997, Pond's achieved 18%margin while Lakme had 45% margins in March 1997. Hll has also aCQuireda 50% stake in lakme lever Limited gaining total control of the company. This led to the restructuring of the manufacturing and distribution systems of lakme with HlL It also fuelled the growth of Lakme's business through a focused portfolio approach and increased the reach of lakme through more outlets as compared to before. Hll also intends to aCQuireLakme's cosmetics brands. With this, it will own the largest colour cosmetic franchise in the country. once again making it the market leader. e-commerce Initiatives: Keeping pace with times and the changing market scenario. Hll is now taking to e-commerce in a big way. HLL is considering three opportunity segments-business connectivity. consumer connectivity and consumer commerce. Hll's vision is "connect. attract and fulfil" on a large scale. In the area of business connectivity, HlL plans to create an extranet linking in phase I with about 5.000 stockists. 30.000 retailers and 100 suppliers spread over 1,000 locations. A similar plan also aims to link suppliers. factories and the purchasers through an extranet to achieve real-time. vendor-managed inventory. The company is planning e-banking initiatives to

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

1:1

113

enable paperless financial settlements. The company's Aviance business. which has a new international and customized skin care and beau~ cosmetics portfolio of 70 products. is being configured to run on the Net. The Aviance range of products consists of the best Unilever formulations. selected from across the world and promises technology that works with the skin's natural processes to provide high perform;mce beau~ solutions. HLL is already working in the area of consumer connectivi~. through the Pond's website. Hello Hindustan and Mera Hindustan initiatives in the detergents business and events like Clos~. Up Antakshari on the Net. The company is also testing interactive kiosks for the Lakme and Pond's ranges, in a few cities. These will enable the consumer to try out, various beau~ products on screen. before buying. It is also considering the possibili~ of joint ventures with woman's portals. HLL is poised to gain from e-retailing as it will have the widest distribution capabili~ with about I million outlets across urban areas, over 100.000 in villages and a privileged relationship with around 7,000 stockists. Working for a Social Cause: HLL is a social!)' responsive organization. HLL believes that "an organization's worth is eQual!)' reflected by the service it renders to the communi~". HLL has contributed to the socie~ in many ways. Through different projects, it provides care for HIVpositive patients. education and support for children with challenges. a hospice for dying destitutes. basic education for children in rural areas, and support to government relief measures in natural calamities. The largest FMCG company of India provides employment to around 36.000 people in the country. It has worked f~om time to time to spread awareness regarding various issues. For instance. 6 out of 10 children in India and a large percentage of women are deficient in iodine. HLL carried out "Project Iodine". a school contact programme to spread awareness on iodine and sampling of iodised salt. The company's plantation division has a large workforce of about 19,000 people. It started "Project Dialogue" in 1999 where more than 3,500 workers were exposed to basic level awareness. This was one of its major initiatives in carrying out a nonmanagement level training programme. It also started special education centres for handicapped children in Ankur in Assam and Kappagam in Tamil Nadu. Ankur has been vested with the prestigious World Awareness Business Award for Social Progress by HRH the Princess Royal in lanuary 1999. HLL has saved precious jobs and developed local economies by taking over sick enterprises and converting them to viable profit making units.

Business Concerns
HLL has been going through a rough phase. The FMCG industry witnessed an almost flat growth in the April-lune Quarter of the fiscal year 2001-2002. According to ORO data in April 2001, the industry grew at 0.6% which marginal!)' improved to 0.7% in May 2001. HLL' s woes are two fold - distribution and product portfolio. With a well-entrenched network of a million retail outlets, HLL has already attained optimal distribution levels. Therefore. potential to achieve meaningful volumes in growth. by expanding distribution, is limited. On the other hand. many of its competitors still have a long way to go in terms of distribution and reach, thereby making it easier for them to achieve growth in volumes by snatching

away marketshare from HLL.

114 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

Its portfolio seems to be going through a structural shift with high growth products moving to the mature category. Therefore. further penetration is unlike\>'. accounting for 72% of Hll's revenue. This means that margins will be under pressure in the coming years. Although Hll has been making investments. there will be a time lag before new products to move into the star category. Categories like ice cream. culinary products and coffee constitute on\>' 5% and are stagnating despite the company's efforts to make them grow. Hence no spectacular growth is expected in these procijJct categories. Also. with increasing competition. the company will have to increase its ad spend. which will affect its margins. even though on~' marginal\>'.
Table 7: Rs.lakh Sales Other Income Interest Profit before taxation (a) Profit after taxation (a) EPS of Re I (adjusted for bonus) DPS ofRe 1 (adjusted for bonus) Balance Sheet Fixed assets Investments Net current assets

HLL

Profit & Loss Account

1991

1992

[993

1994 28248 5621 2954 30271 18996 1.30

1995 336695 6670 2015 37222 23922 1.64

1996 t[997 66001 11808 5700 60525 41270 2.08 781971 18387 3389 85025 58025 2.81

1998 948185 24474 2928

1999

2000

Profit and Loss Account

150761 175703 206317 616 2063 13770 8020 0.57 1200 3219 16598 9848 0.70 2976 2723 22277 , 12727 0.91

10142 10603 31898 34507 2239 1315

113044 13879 16650 83744 3.67 10699 13 100 4.86 5.95

0.39

0.42

0.56

0.80

1.00

1.25

1.70

2.20

2.90

3.50

19353 760 25408

22275 1224 29858 53357 13999 19331

25434 5095 19560 50089 13999 24569

32890 19145 34202 82637 14699 39127

39556 12283 45767 97606 14584 49244

72171 32877 37867 142915 19917 79236

79409 53157 12242 144808 19917 106233

105377 10871 12034 69751 10061 17697 22606 18725 37338

45521 Share capital 13999

Reserves and Surplus Share premium suspense account Loan Funds
Source:

197734 228053 259983 21957 22006 22006 149346 188320 226816

15047

16475 45521

20027 53357
2000

17757 14654 82637

17757 16021 97606

17757 26005 142915

11521 50089

18658 144808

26431 17727 11161 197734 228053 259983

HLL Report and Accounts

As mentioned earlier. due to intense competition and slowdown in the demand for FMCGs. HlL's margins could come under ~train. The parent company's decision to charge a royalo/ of 1%on a part of the turnover will also affect the bottom line of the company. Some of the sunrise categories that the company has been banking on have failed to take off. Although there have

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

liS

been no indications so far, other than a couple of separate joint ventures, there is an apprehension that the parent company may set up a 100% subsidiary in India to pursue future business opportunities. The chairman of HLL, M.S. Banga, however is optimistic, "Our objective is to improve the underlYing Quali~ of our business and achieve sustainable and profitable growth. According[y, we have embarked upon a three-pronged strategy of leading growth through focusing on 30 power brands, improving the profitabili~ of our foods business and taking steps to secure the future of the non-FMCG businesses. Significant investments have been made in improving product Quali~ and brand support stepped up by 15%for our power brands. Actions initiated for improving foods prontabili~ through rationalization of the portfolio and supply chain initiatives have also started yielding results. loint Ventures are being formed for two of our non-FMCG businesses to protect their value-one with Godrej Agrovet for our AFS business and another with the ICI group for our fragrance/flavours division". The chairman also stated that the company intends to reinvest a portion of the exceptional income from these divestments to fortify its competitive position in the FMCG sector, especial[y in personal care and fabric wash and oral care. Strategic initiatives to improve the portfolio mix, overall cost management measures and benefits of previous restructuring led to an improvement of about a 1%point in operating margins. In the past five years, HLL has seen its profitabili~ margins expand continuouslY due to improvement in operational efficiencies and working capital management. Operating 'profit increased from 10.81%in December 1995to 14.11% December 1999. Net working capital <ycle in reduced from 27 days in 1995to 4 days in 1999. However, analYstsare Quick to point out that further improvement in productivi~ is ruled out. Ana[ysts estimate that sales for HLL will fall by around 3-4% on account of the higher revenue base and lower rural consumption of the previous year. The company's decision to focus on 30 power brands is ~xpected to result in revenue pressure in the short term. There is however, a likelihood of the margins for increasing onlY slight[y, given the lower restructuring costs, rise in product prices and lower input costs.

~
I ,

Issue
Given the nature of problems HLL is facing today, it will take Quite a while for the company to reconstruct its product portfolio to counter the impending slowdown. The managementwonders what strategies HLL should use to increase both volumes and margins and fight off the stiff competition.

References
I. Brockbank, Wayne, "This will be the decade of the human side of business', Business Line, May 2001. 2. Mahalakshmi, N, "HLL: Diminishing Standard, October 2001. 3. Brand EQui~, May 23, The Economic Times, May 22, 2001. marginal returns, the smart investor", Business

-r'- __
4. 5. 6. 7. 8. 9. 10. II. 12. www.hll.com

,..

.,,,,_m.~'"",,,,""",,,,"~""",""","~'"""'"

~~~

116 C THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

The Financ:al Express, Ju!>,16, 2001. www.lndiainfoline.com www.bs~trategist.com "The smart investor". The Business Standard, www.business-standard.com NCAER Consumer Demographics Survey. 1998. A&M October 31,1999. Far Eastern Economic Review, December 1999-Ianuary 2000. HLL Reports and Accounts. 2000.

PART II
HLL Network is going to be a powerful source of growth. Our objective is to build steadi!y so that we have more than one million entrepreneurs. M. S. Banga*

HLL'AND DIRECT MARKETING

HLL made its foray into direct marketing in 1999 with the launch of a range of personal care products under the brand name Aviance. Though Aviance was not a roaring success in absolute sales numbers. it laid the foundation for HLN, which was launched on January27, 2003. In terms of market share, HLL is India's largest consumer goods company and the leader in beaury, personal hygiene and home care products in the country. The innovative distribution channels created by HLL to access the Indian market have spelled success for the company for over five decades. HLL's formula has been successful!>,replicated by many competing brands and small players in the FMCG segment. The wide range of products offered by HLL to tap every conceivable price point. tapped the unexplored Indian market optimal!>,.and HLL became the jewel in Unilever's crown, contributing to revenue growth even when the parent company was struggling. But in the late 1990s and ear!>'2000s, an influx of foreign players and n~riad low-price local rivals started eroding HLL's dominant position. The compa!'!)' zeroed in on the idea of meeting the growing needs of the time-starved Indian middle class population through direct marketing via HLN. The direct marketing industry was estimated to be worth more than Rs. 15bn as of ear!>'2003. and was growing at the rate of approXimate!>' 25% year-on-year. Through value-added services like expert advice and home delivery, and a range of world-class products which mirrored the aspirations of its target consumer, HLN aimed to be the most preferred network marketing company in the country. It
*Chairman. Hindustan Lever in 2003.

--_--

--_--~_..."...".,"'"

,._.

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

1:1

117

envisioned partnering with its consultants (salespersons) and providing them with a business and self-development opportuni~ that was tru!)' rewarding. In the words of Dalip Sehgal. Executive Director - New Ventures and Marketing Services. HLL, "We need to be present in all channels. And we see network marketing as a bigger opportuniry than a threat."

Network Marketing Indlistl)' in India

Indian Direct Selling Association (IDSA) defined direct selling as the act of marketing of consumer goods and services through personal contact. away from a fixed location or a shop. In the words of Ka!)'an Ranjan. Manager. Corporate Communications. Amway India Ltd.. "The direct selling system adopts methods of door-to-door selling. group meetings. and networking marketing." By selling direct!)' to the consumers and avoiding lengthy intermediaries in the distribution network. companies save on time. transaction and retailing costs. and reap substantial benefits in the process. It is estimated that with the success of Amway. Oriflame and other direct marketing brands. direct selling constituted around 1.5%approximate!)' Rs. 20 bn of the total annual retail market in India in the ear!)' 2000s. Initial!)'. restricted to limited product offerings like home care. personal care. education and kitchenware. this innovative distribution system has expanded over the years to include sophisticated categories like software products. banking and other services as of 2004. Companies such as Eureka Forbes pioneered the direct selling system in the country with a sales force that was trained to make direct house-to-house sales. In its nascent phase. the direct selling industry had to confront the negative attitude of the Indian populace who rypical!y viewed direct selling as an intrusion into their priva0'. Untrained sales personnel. de-motivated distributors. poor Quali~ of the products and the 'hardsell' tactics adopted by salespeople left consumers wary of the credibili~ of this distribution system. But with the advent and success of global players like Amway and Oriflame in the Indian market in the 1990s. growth in the direct sales market aCQuireda new momentum. MLM or Multi-Level Marketing is the fastest growing sector of the direct selling industry worldwide. In multi-level marketing. also known as network marketing. salespeople not on!)' sell products but also recruit other sales personnel who become a leveraged sales-force and contribute to the commission earned by the initiating salesperson. In the pre-liberalization era. network marketing in India usual!)' took the form of various chit fund companies which operated a system of agents. who simultaneous!)' mobilized deposits and appointed sub-agents for further deposit mobilization. Oriflame International was the first international major to begin network marketing operations in India in 1996. This was followed by the entl)' of Avon in late 1996. Tupperware. with a product portfolio comprising plastic food storage and serving containers. also entered India in the sameyear. The biggest success story in this field. Amway India Ltd.. started commercial operations in the country in May 1998. The first homegrown MLM major was Modicare. started by the Modi Group in 1996. Modicare's network covered northern and western India. Like other direct selling companies. network marketing companies are affiliated to the Indian Direct Sellers' Association and are bound by its code of conduct. (Refer Exhibit 5 for a list of direct selling companies in India).

118 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

Exhibit I: Direct Selling Companies in India

.. ;:;;;""1. ...... n. "I t:jjJ;;.l]'lO"UY,.

I

iii;:!!;:;
Eureka Forbes ltd. Time Life Asia lotus learning (P) ltd.

nn

;:\!I:';\\,;;;;> .~",,~~.;.. ~.~;:;i. ~

Home Care Educational Products and Multimedia Educational Products and Multimedia Personal Care and Cosmetics Skin Care and Cosmetics

,ii

1981 1992 1992 1995 1995 1995 J996 1996 1996 1997 1998 1999 1999

2 3
4

Avon Beauo/ Products India Pvt. ltd. Oriflame India Pvt. ltd. Amway India Enterprises Quantum International (P) ltd. Tupperware India Pvt. ltd.

5 6 7 8 9 10
/I

Home Care, Personal Care, Cosmetics, Nutrition Ayurvedic Health Care, Personal and Home Care, Food and Beverages Plastic Moulded Kitchen Containers Home and Personal Care. Everydayuse Products Stainless Steel Cookware Weight Management Cosmetics and Skin Care Home and Personal Care, Everydayuse Products

Modicare ltd. (Home grown) AMC Cookware India (P) ltd. Herbal life International Aviance Hindustan lever Sunrider India

12 13

Source: www.indiandsa.com

Exhibit 2: Tupperware's 'Food Preparation and Storage' Product Range

Clear Plastic Storage Containers and Canisters

a) One touch reminder Kitchen Canister Set b) Classic Sheer I Gallon Pitcher

EQuipped with a see through window to see contents. Easy pouring. prevents dripping 24 half egg holder To store and serve beverages For handling pickles with care Baking mat: Two containers to hug com and dispense butter. For cutting. slicing and peeling. To steam vegetables and brown ground beef To store food in refrigerators. Also usable in microwaves. For frozen food storage Higher capacio/ storage Contd ...

2.

Food Preparation Serving Containers and Sets

a) Egg-ceptional Server Set b) Impressionall Gallon Pitcher c) large Pick-A-Deli Containers

3.

Food storage and preparation methods and suppliers

a) Silicon Wonder Mat b) Butter Huggers Set c) Chef Series Knife Sets

4.

Handy Households

a) Tupperware Mealmaker Set b) Crystal Wave Small Set Bowls

5.

Insulated Freezer Containers and Cold Food Storage

a) Freeze Smart Products b) Chillin'out Sets

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

119

6. 7.

Long-Term Food Storage and Home Food Preservations Lunch Box and Portable Storaj?,eContainer Ideas Microwave Cooking Safe Plastics and Dishes

a) Pasta Mates a) Lunch'N Things Con~ainer b) Sandwich Keeper Sets a) Oval Microwave Cooker b) Crystal Wave Divided Dish

For storing Pasta Lunch box with four compartments. For sub-style sandwiches To steam. brown and bake Dinner plate sized container for reheating and serving Srylish carrier for organizing beaury accessories. Mini beverage set including mini pitcher. plates and tumblers. Slim sandwich keeper and a tumble Store food. fit in narrow placed. Six components tray for TV snacks For storing vegetables For easy spaghetti measuring and pouring Four unbreakable tumblers set. Sleek pitchers to save space To reheat contents To keep spices fresh for Pouring. measuring or shaking To store. reheat and serve individual portions.

8.

9.

plastic Barbie Doll Products: Lunch and Toy Boxes

a) Barbie Beaury Carry All b) Barbie Mini Beverage Set c) Barbie Lunch Set a) Modular Mates b) Serving Center Set a) Fridge Smart b) Spaghetti Dispenser a) Open House Tumbler b) Refrigerator Pitchers a) Insulated Commuter Mug

10.

Plastic Food Storage Containers and Canisters Plastic Home Storage Solutions and Ideas for Pantries Plastic Storage Pitchers and Bowls Sets Portable Plastic Storage Containers and Bins

II.

12. 13.

14.

Spice and Seasoning Storage a) Spice Shaker Set Containers in Modern Designs b) Classic Sheer Midget Set Stackable Small Plastic Container and storage solutions

15.

a) Rock'N Serve

Source: www.tupperware.com

HINDUSTAN LEVERNETWORK (HLN)

A dominant player and market leader in the fast moving consumer goods segment HLL forayed into direct marketing in 1999with a premium brand of personal care products for women, with women acting as consultants. Aviance. the brand name under which the products were sold. was limited in its domain and scope of operation. It offered customized beauty solution and a range of cosmetic and skin care products to its consumers. The Aviance range of products catered to the premium section of the Indian population. However. the consultants selling the products belonged to the SEC B&C strata and this led to visible mismatch between the brand positioning and the consultant profile. The brand Aviance. therefore. never reallY managed to attract and retain its target consumer segment. At the same time. aithough Aviance had failed to attain its desired level of success. the direct selling industry in India was undergoing great change with the emergence of a number of new product categories. Network marketing expanded. engulfing a wide spectrum of products from kitchenware and home care to food and jewellery. In such a scenario. HLL stood conspicuouSlY limited in its positioning as a premium women's brand with women-oriented beauty products. By the end of 2002. the company therefore decided to rethink its strategy and not onlY broadbase its products but also open the distribution network to men. who wanted to act as consultants.

-----w---',_,

-~~-I

120 a THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

I
Past experiences with Aviance (the brand name failed to communicate the origin of the product from the House of Levers and therefore failed to instill trust and confidence in its target segment) made HLL skeptical about using a neutral, new or foreign name for its revamped efforts in the direct marketing segment. The company wanted to leverage its goodwill and brand eQuiry that it had built over a period of 100years in the Indian market, and decided to stamp its own name on the rejuvenated venture. HLN was formal!>,launched on January27, 2003. Speaking of the importance of leveraging the corporate name, Dalip Sehgal, Executive Director, New Ventures and Marketing Services. HLL commented. "HLL has built a reputation built on trust and Qualiry over the last 100years. With its existing position of strength as the leading consumer goods company in India, HLL will leverage its capabilities across manufacturing. supp!>,chain, R&D and consumer understanding to provide a strong!>' differentiated proposition in Hindustan Lever Network that redefines the business of network marketing." A comprehensive range of more than 175to 200 products was sold under the umbrella brand HLN. Aviance was incorporated as a sub-brand within HLN. Several other products that were added onto the expanding portfolio included Lever home-range of kitchen care. home care and laundry care products. HLL also launched a food supplement Nutrium Plus, exotic tea, special coffee and value-added foods such as sauces in its direct marketing network. Consumer offerings were expanded to oral care (Mento dent). confectionary gifting items and the 'Denim' brand of men's grooming and personal care products. The company aimed to expand its reach over time, by adding a new product every alternate month to cover all product categories. Internal sources stated HLN's intentions to introduce a complete range of products similar to its existing retail range in the future. Apart from this. the company also decided to increase the product line of its existing retail brands, Denim and Ayush. Denim Xclusive and HLL Ayush Spa were the two new brands that were in the offing. Most of the HLN products were manufactured in-house in the world class centre set up by HLL at Mumbai.

PART III
MANAGING WORKING CAPITAL
Unilever's Indian subsidiary. Hindustan Lever limited (HLL) is the country's largest Fast Moving Consumer Goods (FMCG) compa'"!}'.It has brands spread across 20 distinct consumer categories. HLL holds a place of pride in the Unilever global system. In India, HLL is known for its tight management of working capital and the company has been operating with a negative working capital since 2000. But the management realizes that as competition intensifies, there is still scope for improving operational efficien<}' and cutting working capital needs. "Our capital to

turnover ratio is 1:4 and last year we used zero working capitaL" -M. S. Banga. Chairman. HLl

, ,

,~------------------HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY 121

Exhibit I: HLL - Key Financials

Rs. Lakhs
2002 Gross turnover Turnover. net of excise Profit before tax Tax on profits Exceptional income Net profit Taxation adjustments of previous years Dividend (inc I . tax on distributed profits) Transfer to general reserve Profit & Loss Account balance carried forward
Source: HLL Annual Report 2002

2001 1178130 1066756 194337 (40242) 10036 164131 (\01 ) (\1583 I )

1095161 995485 219712 (47985) 3842 175569 1435 (\21068) (17700) 119816

(16500) 75998

Exhibit 2: HLL - 10 Year Performance

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

# Sales (Rs. Cr)

By Segment % of 2436 Sales Soaps. Detergents & Household Care Personal Products Foods Chemicals. Agri Fertilizers & Animal Feeds Others EBIT as % of Sales Fixed Assets Turnover (times) Working Capital Turnover (times) Economic ValueAdded (EVA) (Rs.Cr) EPS ofRe. 1 @ DPSofRe. RaCE (%) RONW(%) I @ PAT/Sales (%) 0.91 0.56 5.2 49.9 33.0 1.30 0.80 5.9 48.5 35.3 1.64 1.00 6.3 49:1 37.5 2.08 1.;25 5.8 52.9 41.6 2.81 1.70 7.0 61.1 46.0 3.67 2.20 8.2' 58.7 48.9 60 107 126 272 3.65 548 9.6 12.5 9.9 9.5 9.5 8.3 9.9 18.8 1035 68.2 9.7 45.2 8 9.9 9 9.2 7 9.4 5 8.0 4 8.8 4 9.5 14 12 13 6 6 6 8 2 9 5 12 7 10 34 68 65 61 45 45 39 3240 3775 7120 8343 10215

10918

11392

11781

10952

41

40

. 40

45

II
34

16 35

17 34 6 2 10.7 10.0 58.3

17 37 4 2 12.3 9.5 -*

21 33 3 3 14.0 8.9 -

22 30 2 I 17.6 8.3 -

694 4.86 2.90 9.8 61.8 50.9

858 5.95 3.50 I 1.5 64.6 52.7

1080 7.46 5.00 13.\ 62.4 53.9

1236 7.98 5.50 15.7 59.4 48.0

Sales before excise duty.

HLL Annual Report 2002

Adjusted for bonus issue.

*Denotes working capital is negative

Source:

122 THEORYAND PRACTICEOF CASE METHOD OF INSTRUCTION

Exhibit 3: HLL Balance Sheet (December 31. 2002)

1"1l1li11 I~J.lr
.,
Sources of Funds Shareholders funds Capital Reserves & Surplus loan Funds Secured loans Unsecured loans Application of Funds FixedAssets Gross block Depreciation Net block Capital work-in'progress Investments Current assets, loans and advances Inventories Sundry debtors Cash and Bank balances Other current assets loans and advances Current liabilities and provisions liabilities Provisions Net current assets Deferred Tax Deferred Tax assets Deferred tax liabilities
14 15 38730.63 (11738.49) 26992.14 371717.34 34961.26 (10313.12) /2 13 (246534.09) (120555.34) (367089.43) 23982.55 (241041.86) (109140.42) (350182.28) 5 199436.41 (77889.64) 121546.77 /0686.88 6 132233.65 236474.10 193587.62 (72634.20) 120953.42 1105.60 3 4 1961.50 3868.26 5829.76 3717/7.34 4304.39 4069.4 7

......

RS);;lakh~

I
2

22012.44 343875.14 365887.58

22012.44 282356.74 304369.18

8373.86 312743.04

132006.02 163593.12

7 8 9 10 II

127873.62 36785.04 94262.60 4630.22 79555.40 343106.88

124003.62 42478.4 7 91315.69 5061.56 79818.70 342678.04

7504.24

24648.14 312743.04

Source: Hll Annual Report 2002

HINDUSTAN

LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY

123

India's economic liberalization. which started an 199. marked an inflexion point in HLL's growth curve and allowed the company to explore new business opportunities. Deregulation permitted alliances. aCQuisitions and mergers. In one of the most celebrated events in Indian corporate history. the erstwhile Tata Oil Mills Company (TOMCO) merged with HLL, effective from April I. 1993. In 1995.HLL andyet another Tata Group company. Lakme Limited. formed a 50:50 joint venture. Lakme Lever Limited. to market Lakme's cosmetics and other products of both the companies. In 1998. Lakme Limited sold its brands to HLL and divested its 50% stake in the joint venture to the company. HLL formed a 50:50 joint venture with the US-based Kimber\)'Clark Corporation called Kimber\)'-C1ark Lever Ltd.. which marketed Huggies Diapers and Kotex Sanitary Pads. Exhibit 4: Hll P&l Account (December 31, 2002)

Income Sales Other Income Total Expenditure Operating expenses Depreciation Interest Total ProfJt before Taxation and Exception Items Taxation for the year - Current Tax Deferred Tax Profit after Taxation and before Exceptional Items Exceptional Items (net of tax) Net Profit Taxation adjustments of previous years (net) Balance brought forward Available for distribution Dividends (2002-subject on eQuit shares: Interim - Rs. 2.50 per share--declared 2002 Interim dividend payable to the shareholders of the erstwhile Contd ... (16.22) on Ju!y 22. (55031.09) (55014.88) to deduction of income-tax) 14 10 7 3-5 (799899.50) (13410.06) (918.40) (814227.96) 219711.56 (45894.00) (2091.00) 171726.56 3841.90 175568.46 1405.17 75997.56 252971.19 (895357.13) (14465.97) (774.42) (910597.52) 194337.22 (39769.00) (473.00) 154095.22 10036.13 164131.35 (101.36) 44298.62 208328.61 2 995485.30 38454.22 1033939.52 1066755.69 38179.05 1104934.74

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!
International Best Foods limited Pursuant to the Scheme of Amalgamation Final- Rs. 3.00 per share- proposed Tax. on distributed profits [2002-Credit (200l-afte considering Credit of Rs. 5457.48 lakhs) pertaining t the previous year] Transfer to General Reserve Balance carried forward Earnings per share (Rs.) - Basic & Diluted (Face value of Re. I each)
Source: HLL Annual Report 2002.

(66037.31) 5913.17 (17700.00) 119815.96 17 7.98

(55031.09) (5768.86) (16500.00) 75997.56 7.46

In 1992. Brooke Bond India aCQuiredKothari General Foods. with significant interests in Instant Coffee. In 1993, it aCQuiredthe Kissan business from the UB Group and the Dollops ice cream business from Cadbury India. Also. Tea Estates and Doom Dooma. two plantation companies of Unilever. were merged with Brooke Bond. In ju!>' 1993. Brooke Bond India merged with Lipton India. to form Brooke Bond Lipton India Limited (BBLlL). In 1994. BBLIL launched the Wall's range of Frozen Desserts. By the end of the year. the company entered into a strategic alliance with the promoters of Kwaliry Ice Cream. In 1995. the Milkfood 100% ice cream marketing and distribution rights too were aCQuired.Final!>, BBLIL merged with HLL, with effect from january I. 1996. In 1998. Pond's India was merged with HLL. With this merger. HLL got the high!>' popular Pond's Dreamflower Talc. which had a 53% share of the RS.250 cr talcum powder market. I,part from Pond's Dreamtlower. the company also had Pond's Dreamflower Magic. and Pond's Sandal Talc. In lanuary 2000. the government of India decided to award a 74% eQuiry stake in Modern Foods to HLL. In 2002. HLL aCQuiredthe government's remaining stake in Modern Foods. In 2003. HLL aCQuiredthe cooked shrimp and pasteurized Crabmeat business of the Amalgam Group of Companies. a leader in value-added marine products exports.

Working Capital
Unilever companies in India integrated all aspects of finance. accounting and logistics into one all-embracing commercial function. 'Commercial' focused on cutting working capital reQuirements through innovative supp!>,chain management and use of Information Technology to improve the efficiency of transactions. With sales plateauing in the last few years. working capital efficiency had become one of the prime drivers of operating margins for HLL. In 2002. HLL' s net current assets (current assets-current liabilities) as a percentage of sales were on!>' 2% compared to near!>'20% for competitors like Godrej Soaps. This meant that if this shortfall were to be funded through borrowings. Godrej Soaps would need a much larger amount than HLL. Due to better working capital management. HLL' s liQuidiry was higher when compared to Godrej Soaps.

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QlJestion
Shiva Shankar, a young MBA graduate, had joined HLL in its Corporate Finance Department. His supervisors asked him to understand and analYze the financials of the company and make suggestions on further improving HLL's working capital management. They wanted him to compare the inventory managementof HLL with that of Dell, one of the most efficient companies in the world in working capital management. Shiva Shankar also had to suggest what best practices of Dell could be replicated.

PART IV
RURAL DISTRIBUTION IN HLL
This case describes an innovative 'win-win' partnership between Hindustan Lever Limited (HLL) and rural self-help groups. By assisting rural women to access micro-credit. buy HLL products and sell them in their villages, HLL was creating new markets while creating a stronger economic base within the rural communities. The case focuses on the challenges of scaling up this model in a difficult socio-economic environment. Mumbai, India - lulY 2000: Dalip Sehgal, Director of the New Ventures Unit at Hindustan Lever ltd. (HLL), came out of a long team meeting with many Questions on his mind. As a seQ1JeI Project Millennium, he had brought together a new team to help implement a daring to new growth blueprint for HLL. The blueprint consisted of seven new business initiatives that would drive the company's ambition of continuing to double its turnover every four years. Manvinder Singh 'Vindi' Banga, who just two months earlier had been appointed Chairman and Managing Director-at a time when the company appeared to be losing market share-was convinced that Dalip had the necessary enthusiasm and vision to help achieve this goal. Rural Venture, one of the seven new initiatives, led by KT Halli Srinivas with assistance from Pratik Pota, charted out an ambitious plan-to stimulate new demand at the lower end of the market by creating a self-sustaining cycle of 'business growth through people growth.' The team planned to develop a win-win partnership with rural Self-Help Groups (SHGs) by assisting them to access micro-credit. buy HLL products and sell them in their villages. If successful, the initiative would create hundreds of jobs, train new entrepreneurs and extend HLL's distribution reach into the most inaccessible rural villages of India. Penetrating the informal sector in this way was a potentiallY risky endeavour; furthermore, was it reallY the company's role to develop rural areas in this way? Dalip was concerned about potential channel confiicts with the existing, successful distribution network. Coordinating with governmental and NGO partners would be a key success factor, but this also brought its own complexities. Training mostlY illiterate women in sales and promotion techniQues was a major challenge. The payback in terms of new markets and wealth creation was potentiallY enormous, but what would a successful rollout reQuire to enable the SHGs to achieve economies of scale?

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Exhibit 5: Unilever's Corporate Purpose Statement

At the hea,t of the Corporate purpose. which guides us in our approach to doing business, is the drive to serve consumers in a uniQ!Jeand effective w~. This purpose has been communicated to all employees worldwide. Our purpose in Unilever is to meet the everyday needs of people everywhere - to anticipate the aspirations of our consumers and customers and to respond creative!y and competitive!y with branded products and services which raise the Qualiry of life. Our deep roots in local cultures and markets around the world are our unparalleled inheritance and the foundation for our future growth. We will bring our wealth of knowledge and international expertise to the service of local consumers-a tru!y multi-local. multinational. Our long-term success reQuiresa total commitment to exceptional standards of performance and pmductiviry. to working together effective!y and to a willingness to embrace new ideas and learn continuous!y. We believe that to succeed reQuires the highest standards of corporate behaviour towards our employees, consumers and the societies and the world in which we live. This is Unilever's road to sustainable. profitable growth for our business and long-term value creation for our shareholders and employees.

When Unilever first becameengaged in India in the 1930s,the opportuniry to conctuer unexplored markets was enormous. The company broke ground by establishing the first edible oil. soap and personal product companies in India: Hindustan Vanaspati Manufacturing Company (edible oil), Lever Brothers India Limited (soaps) and United Traders (personal products), all created between 1931and 1935.The three Unilever companies merged in 1956to form Hindustan Lever Limited (HLL).

By the 1990s,Unilever's business in India was entirelY represented by HLL. Given its longstanding presence in India, it had become a uniQuelYIndian company and was perceived by the Indian people as a local company and not a multinational. The company made painstaking efforts to become implanted in the hearts and minds of people by showing that it cared about local communities. Its corporate purpose statement noted "to succeed reQuires the highest standards of corporate behaviour towards our employees. consumers and the societies in which we live." HLL had several ongoing projects that focused on rural development. education. health, communiry welfare, resource conservation, sustainable development and national heritage in art and culture.
market leadership in home and personal care products and one of India's seven biggest exporters. HLL operated over 100 manufacturing facilities across the country, with several third-parry manufacturing arrangements.

By 2000, HLL was India's largest fast-moving consumer goods company-with

THE HLL DISTRIBUTION

NETWORK

HLL already had one of the widest and most efficient distribution networks for consumer products in India; in fact, this was recognized as one of its key strengths. HLL' s products were distributed through a network of about 7,500 Redistribution Stockists (RS) who sold to shops in urban areas and villages with over 2,000 people that could be reached by vehicle (refer to Exhibit 2 for an illustration of HLL's rural distribution model). Its supplY chain was supported by a satellite-based communication system, the first of its kind in the fast-moving consumer goods

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127

industry_ This sophisticated network with voice and data communication facilities linked over 200 locations all over the country. including head office. branch offices. factories. depots and key redistribution stockists. This was a tried and tested model. The various Levels of HLL distribution channels is shown in Exhibit 6. Exhibit 6: Rural Distribution Model-Indirect Coverage

'only~tornble
25" Soorte:Company

villages covere<E
serviced
y .

of ruml population

i'!.formation

".::::::::r

Exhibit 7
Level Level A Level B

Channel Measure
Company depot

:/

Piace/ National/State District HeadQ!larters

./

::

Redistribution stockist. C&F agents. semiwholesalers and retailers Semi-wholesalers and retailers Itinerant traders. vans. petro bunks semiwholesalers. retailers. Cooperative societies Retailers. vans. sales people. NGOs. Government agencies

Level C

Tehsil HeadQuarters. Mofussil towns. Industrial townships Haats Large villages Villages

Level D

Level E

Central to the success of rural marketing strategy is distribution. Product distribution and retailing has developed into a highly specialized activiry in urban markets. However. the distribution channel. a much-publicized means of merchandising in urban markets has remained in the background in the rural areas. Now. distribution has to be virtually reworked from scratch with full rural orientation and awareness of existing rural channels of distribution. Many companies view the burgeoning rural markets as a great opportuniry for expanding their sales but find distribution as a major problem. Unfortunately. it is almost impossible to transplant strategies which work successfully in urban markets onto rural markets. namely. extensive retailing and sustained pull generation through mass media advertising. The impediments for them to reach the rural customers are: Lack of adeQuate transport facilities.

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Large distances between villages. Lack of pucca roads connecting villages to the nearest townships. Lack of proper retail outlets. and Lack of mass media infrastructure.

Issue
What distribution strategy will be appropriate for HLL to optimal!>, exploit the rural demand potential?