Strategic analysis of Hindustan Unilever

Group 2R sumitra (09/mba/02)

Sreshtha majumder (09/mba/13)Arati Bala Sahu (09/mba/14)

Kishori Roy (09/mba/17)Ayan Roy (09/mba /22)

Arnab Ghosh (09/mba/56)

Mc Kinsey 7s of HUL!!•STRUCTURE :structure of HUL discussed in earlier slides•STRATEGY:HUL has number of strategy –Winning through brands & innovations•Winning in the market place• Winning in winning Geographies•Winning through technologies•Straddling the pyramid by covering all price and benefit segment

FMCG sector :The Road Ahead

• Consumer growth reflects greatly on the growth, character and role of FMCG companies.• The Indian FMCG sector is estimated at US$ 25 billion1 (Rs.

120,000 crore), including tobacco. It has grown consistently over the last 3-4 years

• It is expected to grow at a CAGR of around 12% over the next few years to reach a size of US$ 43 billion (Rs. 206,000 crores) by 2013 and US$ 74 billion (Rs. 355,000 crores) by 2018.

STAFF :Talent ,culture & capabilities. Talent :choosing the right people for right postculture :creating right work environment for the people to encourage employees to express their viewsCapabilities :identify the right talent and rewarding the same, assigning jobs as per capabilities

• System :system connecting customers : Set up a world-class consumer and customer connect system to reach the company, and equally to help brands reach out to them.

• Features:• Multiple channels to connect - National toll free number

– 12 Hrs a day – 6 days a week– All calls recorded and archived for three months– End to End IT– Strong internal governance processes

• Company appointed Ombudsman

• System for employees :To develop and retain top talent, we have also put in place a process which will help identify potential business leaders much earlier in their careers than we did before. They will be placed on a fast track of personal growth In anticipation of our employees' expectations, we are this year introducing a stock grant scheme. Companies have successfully used such schemes to align employee aspirations with their long-term business goals

• Skills : Skills training key to enhancing employability and delivering inclusive growth. The chairman ,spoke about theurgent need to develop intellectual and human capital in India in order to sustain high economic growth and acceleratethetransformation from a developing to a developed nation. The Chairman also shared with shareholders the HUL model of ‘Human Capital DevelopmentReferring to the skills training in the organization across levels and across functions, he said,“we have ‘skills-maps’ against which the workforce in our manufacturing units and our sales force are benchmarked. Besides on the job training, they undergo up to eight man-days of training every year.

• Style : Focusing both on people and brand, extending brand pan india by understanding the need of people,making product available in different quantity and price as per the target customers. Introducing products as per market trends e.g- ‘Brooke Bond Sehatmand’, a Tea with Vitamins

• large number of FMCG products, especially those for mid and mass markets, are price elastic (for a given price reduction, consumption increases by more than the percentage of price reduction )

• The FMCG sector in India has played a vital role in the growth and development of the country, from making efforts to reach out to the poorer section of consumers through distribution of smaller pack sizes innovations like single use sachets, to developing innovative products to cater to regional or local tastes and the needs of niche consumers. There are many significant contributions – both direct and indirect that the industry has on the economy

• Economic contribution of the industry

• Employment:The FMCG sector is one of the larger employers in the country. The total salary outlay of the sector on direct

employment is estimated at approximately 6% of turnover, i.e. US$ 1.5 billion4 (Rs. 7,000 crores). There are approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores. Thus the sector is responsible for the livelihood of almost 13 million people

• . Fiscal contribution :On an• average therefore, almost 30%6 (and much more for liquor

and tobacco categories) of the revenue of the

sector goes into both direct and indirect taxes. At an estimated size of $25 billion (Rs. 120,000 crores), that would constitute a contribution to the exchequer of approximately US$ 6.5 billion (Rs. 31,000 crores).

• Social contribution:ITC echoupal and Choupal Sagar, HUL’s Shakti Amma network, Dabur India regularly conducts rural and adult education programs and provides training in rural areas to facilitate employability

• Contribution to Other Sectors :a)agriculture b)third party logistics c) ancilliary industry

Growth driver :FMCG

• The current economic trend, exhibiting modest demand and supply is likely to have a medium-term impact on the demand for FMCG products but promises revival and higher growth in the long term based on the following fundamentals:

• 1. Expanding purchase basket resulting in higher penetration of products

• 2. Increased consumption with higher disposable household family income

• 3. More consumers entering the market place (Rural and urban base of pyramid) For these developments to catalyse faster there are two sides of the equation that needto come together

• Each of the driver mentioned above are detailed in the following section.

• Demand-side Drivers• Consistent GDP Growth• Increasing Consumer Income• High Private Consumption• Rising Urbanization• Increasing Discretionary Income

• Systemic Drivers• Favorable changes in Government Policies• Infrastructure Development• Supply-side• Growth of Retail• Low labor cost• Infrastructure Development• Government rules and regulation(quantity restriction

removed,import facility etc)

challenges

• Tax Structure - Complicated tax structure, high indirect tax, lack of uniformity, high octroi & entry tax and changing tax policies

• 2. Infrastructural Bottlenecks - Agriculture infrastructure, power cost, transportation infrastructure and cost of infrastructure

• 3. Counterfeits and Pass-offs• 4. Emergence of Private Labels• 5. Regulatory Constraints• 6. Price of Inputs

opportunities

• Low Category Penetration at present• Investments in Modern Retail• Increasing FMCG share in Modern Retail• Goods & Service Tax (GST) Implementation

• The Indian FMCG sector is the fourth largest sector in theeconomy with a total market size in excess of $13.1 billion.It has a strong MNC presence and is characterisedby a well established distribution network, intense competitionbetween the organised and unorganised segments and lowoperational cost The FMCG market is set to treble from $11.6 billion in 2003

to $33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential

l b.

Composition of FMCG industry (2009)

10%

15%

20%

2%

53%

household caretobaccopersonal carelightingfood & beverage

STRATEGIC ANALYSIS OF HINDUSTAN UNILEVER

GROUP 2

Recent trends

• YEAR 2010: FMCG cos fastracked growth via buyouts• A total of 13 acquisitions in 2010, mostly global, that is how

Indian companies announced their arrival in the global FMCG space as they looked to fastrack their way to international expansion

• several companies increasing the prices of their products by as much as 20 per cent during the year.All major FMCG companies operating in India, both multinationals and homegrown, had passed on the cost burden to the consumers one after another.

• FMCG cos may weather inflation, see net sales growth of 15-20%

• FMCG: Voluminous growth

• MCG Industry Report in India – FMCG Industry optimistic on strong growth despite challenges: CII FMCG survey

• New Delhi, 10th November 2010, The Indian FMCG industry despite a moderate downswing in the second quarter (July-September 2010) is optimistic to record higher levels of growth in the current fiscal i.e. April-March 2010-11 according to the latest CII FMCG survey. The survey covered around 30 fast moving consumer goods (FMCG) items belonging to personal care products, cosmetics and toiletries and household care products. The results are based on the feedback received from the related industry associations and companies in the FMCG industry and interaction with the representatives of various FMCG companies

• 16% (15%), washing cakes 13% (13%), toilet soMCG Industry Report in India – FMCG Industry optimistic on strong growth despite challenges: CII FMCG survey

• New Delhi, 10th November 2010, The Indian FMCG industry despite a moderate downswing in the second quarter (July-September 2010) is optimistic to record higher levels of growth in the current fiscal i.e. April-March 2010-11 according to the latest CII FMCG survey. The survey covered around 30 fast moving consumer goods (FMCG) items belonging to personal care products, cosmetics and toiletries and household care products

• . The results are based on the feedback received from the related industry associations and companies in the FMCG industry and interaction with the representatives of various FMCG companiesaps 16% (15%), tooth brush 13% (13%), fairness cream 18% (16%), men’s hair grooming and styling 20% (18%), branded coconut oil 10% (10%), shampoos 12% (9.8%), baby care 17% (17%) and skincare 15% (15%).

• The categories like toothpowder 1.8% (2%), Liquid soaps 7% (6%), Shaving products 8% (7%), and coconut oil 2% (2%) are expected to register Moderate growth of 0 to 10 percent.

challenge

• CII Survey has also identified some major issues and constraints faced by the FMCG sectors. Fake or counterfeit products are a serious challenge before the industry. According to estimates they amount to a loss of around Rs 27 Billion to the exchequer. Rising input cost including high cost of raw materials, increase in packaging cost and higher logistics cost due to fuel price increase are all affecting the profit margins of FMCG companies. Lack of proper infrastructure and logistics, multiple taxes, absence of FDI into multi-brand retail are the other issues constraining the full take-off of the FMCG Sector.

• The survey urges the need for pro-active government action in the form of early implementation of GST, strict monitoring and controlling of prices, enforcement of copyrights and facilitating better infrastructure facilities. All these steps are vital to achieve lower cost, improved quality and better performance in the competitive environment

HUL -background

• In 1956 when Hindustan Lever was formed, by the merger of Hindustan Vanaspati Manufacturing Company, Lever Brothers India Ltd and United Traders Ltd, the company had sales of Rs.27 crores (about Rs.650 crores in current money). Guided throughout its history by men of vision, with the unstinting efforts of employees and the strong support and contribution of Unilever, sales of Hindustan Lever and its subsidiary companies have in 1997 grown to around Rs.9500 crores and in so doing developed the scale and linkages described earlier.

• Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years in India and touches the lives of two out of three Indians.

• HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others.

• With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifier

• . Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit.

• The Company has over 15,000 employees and has an annual turnover of Rs.17,523 crores (financial year 2009 - 2010). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about €44.3 billion in 2010. Unilever has about 52% shareholding in HUL.

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VISIONUnilever products touch the lives of over 2 billion people every day – whether that's through feeling great because they've got shiny hair and a brilliant smile, keeping their homes fresh and clean, or by enjoying a great cup of tea, satisfying meal or healthy snack.

• The four pillars of our vision set out the long term direction for the company – where we want to go and how we are going to get there:

• We work to create a better future every day• We help people feel good, look good and get more out of life

with brands and services that are good for them and good for others.

• We will inspire people to take small everyday actions that can add up to a big difference for the world.

• We will develop new ways of doing business with the aim of doubling the size of our company while reducing our environmental impact.

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STRUCTURE

• Board of Directors• The Board of Directors as repositories of the corporate

powers act as a guardian to the Company as also the protectors of shareholder’s interest.

• Management Committee• The day-to-day management of affairs of the Company is

vested with the Management Committee which is subjected to the overall superintendence and control of the Board.

• EXECUTIVE DIRECTORS:The Executive directors are members of the HUL Management Committee as well as the Board of HUL.

• Mr. Nitin Paranjpe - CEO and Managing Director• Mr. R. Sridhar - Chief Financial Officer • Mr. Gopal Vittal - Executive Director, Home & Personal Care• Mr Pradeep Banerjee - Executive Director, Supply Chain• Ms. Leena Nair - Executive Director, HR• Mr Dev Bajpai

– Executive Director, Legal and Company Secretary• NON EXECUTIVE DIRECTORS :• Mr. Harish Manwani - Chairman• Mr. D. S. Parekh - Independent Director

Mr. S. Ramadorai - Independent Director• Mr. A. Narayan - Independent Director• Dr. R. A. Mashelkar - Independent Director

Financial performance

• 25-01-2011 : Sustained double digit growth; Turnover exceeds Rs 5000 crores

• Strong 12% sales growth in Domestic Consumer business

• Operating Margins lower due to impact of high input cost inflation & brand investments

• PAT (bei) Rs.587 crore; Net profit Rs.638 crore, down by -1.8%

HUL ‘s recent activities• Building human capital :The Chairman shared with shareholders

the HUL model of ‘Human Capital Development.’ He spoke about the success of HUL in grooming business leaders over the years and also its initiatives towards building broad-based local talent. Referring to the skills training in the organization across levels and across functions, he said,“we have ‘skills-maps’ against which the workforce in our manufacturing units and our sales force are benchmarked. Besides on the job training, they undergo up to eight man-days of training every year. On a conservative basis, this implies a staggering one lakh man-days of training across the organisation every year!”

• “It is our firm belief that business growth and people growth is intrinsically linked in a virtuous cycle where one cannot exist without the other,” Mr. Manwani added.

Awards & Recognition

• Awarded top Indian company in the 'FMCG' sector for the third consecutive year at Dun & Bradstreet-Rolta Corporate Awards, 2009

• HUL ranked fourth in the ‘Top Companies for Leaders, 2009' (Asia Pacific region) and 10th place in the global rankings in a survey carried out by Hewitt Associates

• HUL received the Award for Excellence in HR in 2010 from Confederation of Indian Industry (CII). This is a rigorous fact-based assessment which is conducted by a team of external assessors. HUL has won this award for the third consecutive year.

• Awarded Customer and Brand Loyalty Award by Business India & Business Standard in 2009

• Awarded for Best Corporate Social Responsibility Practice at the Social & Corporate Governance Awards 08-09 by BSE, Nasscom Foundation and Times Foundation

• Awarded in the Category 'FMCG Manufacturing Supply Chain Excellence' at the Third Express, Logistics & Supply Chain Awards by APL Logistics, Indiatimes, Mindscape, Business India Group in 2009

• Our Orai unit received the Gold Excellence award and the Khalilabad unit received the Silver Excellence award in the environment category by Greentech Foundation in 2009

• HUL's Goa factory won a Gold Trophy at the Greentech Awards in 2009 the manufacturing sector category for their outstanding work in Safety Management

• Project Shakti won the Silver Trophy at the EMPI-Indian Express Indian Innovation Awards, 2009

• Kwality Wall's Swirl's awarded 'The Franchisor of the year' for the Ice-cream parlour category by Franchise India in 2009

• HUL brands have topped Brand Equity's ‘India’s Most Trusted Brands Survey’ rankings for 2010. Six HUL brands (Lux, Lifebuoy, Clinic Plus, Pond's, Fair & Lovely and Pepsodent) feature in the top 10 and eight in the top 20

• . All together there are 17 HUL brands among the ‘100 most trusted brands’ in the 2010 survey. Additionally, five HUL brands (Fair & Lovely, Lifebuoy, Lux, Pepsodent and Pond’s) featured in the list of ten Hall of Fame brands. This recognition was accorded to brands which consistently ranked high in the survey over the last 10 years since its inception. In 2009, three HUL brands featured in the top ten, and seven in the top twenty.

• Received CNBC AWAAZ Consumer Awards in six categories for 2010:

• - Green Company of the Year• - Value for Money Brand of the Year• - Ad Effectiveness Award• - Marketer of the Year award across all categories• - Most Preferred Personal Care Company in FMCG category

(for the third consecutive year)• - Most Preferred Home care Company in FMCG category

(for the third consecutive year)

• HUL was felicitated for receiving the highest number of patents in the year 2009 at Annual Intellectual Property Awards 2010. The award was instituted by Confederation of Indian Industry (CII) in association with Department of Industrial Policy & Promotion (DIIP) and Intellectual Property India (IPI) in New Delhi

HUL & CSR.

Shakti: Economic development through micro enterpriseShakti was initiated to reach the massive un-served and under-served markets that cannot be economically and effectively serviced through the conventional distribution network Our Shakti initiative can be described in many ways – as a sales and distribution initiative that delivers growth; a communication initiative that builds brands; a micro-enterprise initiative that creates livelihoods; and a social initiative that improves the standard of life in rural India by providing quality products. What makes Shakti scalable and sustainable is the fact that it contributes not only to our business, but also to the community it is a part of

• Project samruddhi :The project is aimed at community upliftment through its social, economic and environment-related activities in partnership with leading NGOs Aide et Action and Vanarai.

• HUL in partnership with Aide et Action has set up iLEAD centers for youth in Silvassa offering vocational courses like tailoring, basic computers, electrical wiring etc. The Centre will train 1080 youths in 3 years covering 72 villages of Silvassa

Other initiatives

• HUL Sankalp• Ploughshare Technology• Agriwaste

Sustainable strategy

• For example, if one household uses Surf Excel detergent, it can conserve two buckets of water per wash. A million Indian households using Surf Excel can save enough water for meeting the basic hygiene needs of many Indians. Thus, small individual actions multiplied with our large consumer base will make a big difference in combating the issues society faces.

Business goals

• Competitive Growth• Profitable Growth• Sustainable Growth

Winning approach

• Winning through innovation• Winning in the Market Place• Winning through Continuous Improvement• Winning with People• Brands and innovation principle :• Straddle the pyramid and drive consumption on the core • Lead market development in emerging categories

Winning in the market place principle

• Win with : Winning customers• Win in : Winning geographies• Win with : Technology• Winning in winning geographies :New market +New outlet + shakti /shaktiman =+500,000 storesWinning with technology :deliver assortment ,reduce out of

stock ,build assortment ,identify opportunityWinning through continuous improvement:Improvement in customer service, cash ,system costs

Strategy action

Grow market in

responsible manner

Ensure sustaina

ble practice at HUL

Responsible leadership

for sustainable tomorrow

PeopleBrand

&process

outcome

Grow market &

fuel innovation

Societal letigacy &

competitive edge

Building reputation for

HUL

• Strengths :• Strong brand image• Good management• Pan india presence• Good supply chain system• Innovation & research & development• Strong local talent base• A good track record of combining corporate responsibility

and business strategy

• weakness

• Opportunity• Explore rural market more and more through extending

programs like project shakti• Product development• Innovation• Product diversification• Nascent branded food market

• Threats• Competition• Govt regulations• Diversified customer base• Growing influence of modern retail