In the backdrop of discussing the report on Unilever's CSR initiatives, Hindustan Unilever Ltd, CEO and managing director, Nitin Paranjapaye, told CNBC-TV18 that consumer demand continued to be robust.
Unilever’s sustainable living plan has completed one year of operations. This program was rolled out by Unilever globally across every single country it operates in. The plan envisaged, 50 concrete targets by 2020, to help more than a billion people improve their health and wellbeing.
Meanwhile, he affrims that HUL is relatively insulated from the big swings in economy. Paranjape says that he continues to be optimistic on India and has long-term faith in the economy, even though the slowdown in growth was disappointing.
Below is an edited transcript of the interview in CNBC-TV18. Also watch the accompanying video.
Q: What the experience has been like over the past 12 months?
A: Its been a fascinating first year of a 10 year program that we have announced. The Unilever sustainable living plan is now embedded at the heart of our business and our business strategy, which we believe will help us both grow our business and do so in a manner which is sustainable. It will help us to find new models of doing business, which will decouple growth from adverse environmental effects and leave behind a positive impact.
At the end of a year, we are encouraged with the overall progress made. The progress has been significant across the three segments and in achieving our three broad goals. We found ways to develop business models to scale up. There have been challenges and we are working on solutions required to meet them.
Q: This is a conversation that I had with you 10 months ago, when you did roll out this program and where do things currently stand with shareholders and stake holders because at that point in time you were trying to get there buy in. Have they bought into the idea and in terms of economic returns what does the picture really look like because if you are going to convince stake holders and shareholders it needs to show sustainable economic returns?
A: The business case for sustainability is very strong. So, we are convinced that what we are trying to do is very sound. Increasingly although it’s a small number – more and more consumers are demanding it. Customers across the world especially large customers are embracing this thought and we find it easier to work with customers in the context of the sustainability goals that we have got.
But most importantly the moment that we have embraced this sort of goal, we have found that it has been a catalyst for innovations. These innovations have helped us grow markets, reduce costs and as a result of which the overall business case that we have got is quite strong.
Last but not the least, we find this to be an incredibly inspiring purpose for the company to chase and it engages our employees and inspires them. Overall at the end of one year, we are even more convinced that the business case for sustainability and for the pursuit of growth, which embraces sustainability at its heart and leaves behind a positive social impact is stronger than ever before.
Q: I know you have targets till 2020 and you do have interim targets starting all the way from 2010 to 2015 as well, but juts in terms of cost savings, what is the kind of ballpark number that you are looking at and if you could give us a sense of an interim cost reduction target?
A: We have specific targets on reducing the packaging waste that we generate and reducing the load that we subject the environment on account of packaging. As a result of the work which we have been carrying out over the last one year, we have found that we have been able to grow our volumes, while reducing the overall packaging quantity that we use.
The overall packaging quantity used has come down by 4% even as the volume of our business has gone up. This translates into real economic benefit for the business.
Take the other examples of carbon footprint and green house gases etc. In our entire distribution system that we run and in our entire transportation system we found a way to become more efficient, thereby reducing the carbon load by 18%. A reduction of 18% of carbon load implies that we have become more efficient, we have improved our load ability, we have optimized our distribution routes, and we have designed trucks, which have a better balance between weight and volume such that they become more optimized. All of this saves cost.
Q: You were planning as an interim target to reduce the salt consumption or the salt component in your food products as well as reduce the green house gas emissions and water use in skin cleaning and hair washing products. This is at the center of your products strategy; you are going to have to rework pretty much your products if you were to achieve these targets. Where do things actually stand as far as these areas are concerned?
A: We feel pleased about the progress that we have made in terms of sustainable sourcing where across the world we have moved from levels of 14% a year ago to 24% of our agricultural produce coming from sustainable sources. The big gains being in palm oil which over 60% is already coming from sustainable sources. While that’s the positive story and we feel very good, the area where much more work needs to be done is in the consumer facing area, where innovations and technology improvements need to be made in order to drive changes.
So, specifically in some of the examples that you spoke about, which is salt, we have made good progress. We have made progress in terms of bringing down salt in our products between 5-25%. This has been a silent change which we have made through other forms of managing taste because consumers certainly would not want to compromise on the taste.
We have come down from levels of 9-12 grams of salt per day which is what people would have end up consuming to levels of about 6-7 grams across many of our products. Our soups have been reformulated, our ketchups have been reformulated.
However, the big challenge that we have got is that we need to come down to 5 grams and 5 grams is the recommended guideline and here I think is where a lot more work would need to be done. Here is really a situation where we will have to work with consumers and over a period of time have them alter some of their taste preferences and we know how challenging that is. It doesn’t happen overnight and will take a period of time.
Q: Was this the big challenge that you were talking about at the start of our conversation? The challenges that you are facing with trying to alter your consumer facing products is that the biggest challenge to achieving the target that you have set out in the sustainability plan?
A: That is absolutely right. We have got 60% of palm oil, 24% of everything, all our raw materials and we are well on the target to hitting 30% at the end of 2012 and getting to the 100% goal. As far as connecting with consumers and trying to shape their attitudes towards health and hygiene, I think we are making very good progress between Lifebuoy, between Pure It etc, but the biggest challenge which we face is in terms of shaping consumer behavior.
Wherein a considerable amount of water which gets used, green house gas impacts are there and while we have had some innovation work which can reduce the amount of water used by the consumers when they use our product, I think the challenge goes beyond that.
Its not just about technology solutions which we need to provide, its also about shaping consumer behaviors and that takes time. One of the things that we have been doing over the last year is to dig into our archives and look at the behavior change models that we have seen in the past.
Q: If I were to understand what you are saying rightly, the challenge really is on how you articulate or communicate, So the big lever in trying to alter customer behavior is not going to come from technology, its actually going to come from communication?
A: I think it will come from both. I will give you an example of what I mean. We do know that washing your hair with a shampoo consumes a lot of water. The conditioning of your hair consumes a lot of water and if you have to solve that, there is a role that technology can play and very recently we have come out with a product which has been launched in Europe under the brand Tresemme, which is a waterless shampoo or a dry shampoo which allows a person to feel refreshed in between two shampoo occasions.
If we are able to provide this and get consumers to start using this, it’s a great consumer benefit in term of having hair feel cleaner and fresher. At the same time it could encourage consumers not to wash their hair as often as they did in the past because there is an alternative which is meeting that need.
Q: What is the biggest dilemma because as you experiment with trying to alter consumer behavior, you are not the only ones who are trying to attempt that. Like for example Pepsi, where they have gone from fun for you to good for you, criticisms from stake holders, analysts and stock markets. What’s the biggest dilemma as you try and alter the very core nature of your business?
A: I just want to come back to what we have stated as a part of this goal. Our goal is to deliver sustainable growth. Growth is as critical for us as driving sustainability is. We must never lose sight of that. We believe that our brands have the capacity to help people improve their quality of life by getting better health, better hygiene and better nutrition.
But, we must never forget that we are finding a way to drive growth and helping consumers experience better brands and improve their quality of life. Therefore, we must always balance and find solutions which achieve both.
It is not about finding solutions which achieve one or the other and that’s the challenge, in many areas we do have a solution. I just gave you two examples of how there can be solutions which can be great for driving growth and be good from a environmental standpoint or a social standpoint.
The Lifebuoy hand wash example is another example. It will drive growth because as consumers wash their hands with soap and water more often we get more growth, but it will have a positive impact on preventing disease, in respiratory illnesses that we have. So, the real challenge for us and its not a dilemma, we do not think that these are conflicting.
The real challenge for us is to find more such solutions, which achieve the objectives of driving growth and have a positive impact on society and do not have the adverse impacts on the environment. I gave you a few examples where we have solutions and the others we are in search for solutions over a period of time and we would seek help from whoever is around and work with them to get more of these.
Q: The last conversation that we has, you were looking at using India as a incubator for innovation, as far as the sustainability plan is concerned, be it packaging, be it new technology, be it consumer facing products being altered, where do we actually see India fitting in?
A: India is a very large and important part of the overall Unilever sustainable living plan that we got. There are many initiatives that we have carried out here which are now being rolled out across the world. Take for example Pure It, we have a goal which we specifically articulated that we would help protect 500 million homes, 500 million consumers and find a way to provide them access to safe, affordable drinking water.
That entire initiative and experimental innovation started off from India, it is now in six countries and there is no reason why over the next few years it won’t be rolled out in many countries because we know that there are almost 2 billion consumers in the world who do not have adequate access to safe water and 800 million who don’t have any access to safe water.
Here is an innovation which gives you water, which is as safe as boiled water and is really affordable because it gives you 4 liters of safe water at just Rs 1, so this is one example. Some of the work which we have done in hand wash in India started 10 years ago.
If you recollect I have been talking about this that we have touched 130 million consumers over the last 10 years in trying to drive and improve habits related to hand wash. In the year 2010-11 or last year, we touched 30 million consumers. Now through a even more robust program which has high chance of shaping behavioral change over a period of time.
Q: What happens if you don’t meet either the interim target or the target that you have set out for yourself by 2020? What is the mechanism that works within Unilever to ensure that these targets are actually met?
A: The first mechanism is and again I come back to remind everyone that we are not chasing sustainability goals for the purpose of sustainability. We believe that this is the only way we can run business, this is a business goal. We are driving growth through following an approach which in our judgment will be a source of competitive advantage and therefore the entire organization is wired around finding models of doing business which achieves this.
Secondly, because this is such a deeply held belief that we have got, from the top of the organization running across, we have found mechanisms by which we have got targets. We have got goals right from the very top of the organization to different people at different levels who have embraced different parts of the overall goals that we are chasing and that the other mechanism that we have got in order to keep track on the progress that we are making as we move forward.
Q: So the compensation of the CEO is not going to be impacted in any fashion if country head were not to deliver on the target set out?
A: I think Unilever has a goal and right at the top leadership of Unilever which is even the Unilever executive, there are some members of the Unilever executive which carry appropriate sustainability goals and this flows down into a country level where the relevant members of a country organization which carry goals related to this.
We have put in place also a governing mechanism, for example in India we have had a sustainability leadership team, which is a cross functional team of middle to senior management people who have been working to embed sustainability and finding such solutions. We have got a sustainability champion in India which galvanizes the organization around this and addresses issues.
Learning from this Unilever has now put in place 65 sustainability champions across key markets of Unilever. So, suffice to say there is an adequate governance mechanism to drive these goals. We are doing so because we genuinely believe that this is the heart of our business strategy. This is the way we will get growth and win with consumers over the next 10 years.
Q: What is your view of the economy? There is pessimism as far as most corporate entities are concerned about the India story. Is it as bad as we think it is?
A: It is a fact that growth has slowed down and to a certain extent that is certainly disappointing. As far as HUL is concerned, our business is relatively insulated from the big swings in the economy. We have also observed that consumer demand continues to be robust.
Q: You are seeing no signs of consumer confidence ebbing and especially as far as rural consumption is concerned, you are not really seeing any dramatic shift or change or drop?
A: Because we are in a close period, I am going to keep my comments a little general and consistent with what I have said in the last round of discussions with analysts, which is that there are reports which suggest that rural demand is slowing down a bit. We haven’t experienced this in our business.
Q: What are big challenges for HUL and how is Unilever Global looking at India? Has the mood regarding India changed over the last few months?
A: Not at all. Unilever entered India 124 years ago and has survived many a tough situation. We have persevered due to our faith in India and the opportunity it offers and nothing has changed that position. We continue to be optimistic about the growth opportunities and we feel very good about the resilience of the consumer.
Q: There are concerns on how the monsoon is actually going to play out; input costs are high, what would be the biggest pressure at this point in time that you are facing?
A: I think the biggest pressure from a business point is really managing the enormous volatility and the uncertainty that we see around us. Commodity costs are rising, crude has gone to very high levels, there is a general high level of inflation and we know as picks like inflation do have a tendency to compress demand.
So, those are some of the challenges that are there, those are challenges for every business and those are challenges which are there for our business and we just have to develop a way of working which enables us to deal with high levels of inflation and possibly high levels of volatility that we might see in the market around us.