REUTERS/Shailesh Andrade - RTS4FM6
Hindustan Unilever will widen its premium product portfolio and go big on digital as part of its growth strategy for the next decade, brokerages said.
The company’s sales so far have been driven by mass market products and it is now looking at introducing more premium products and increasing the share of revenue from e-commerce channels, HUL executives said during its annual investor meeting.
“HUL analyst meet focussed on the key consumption themes which are likely to unfold over the next decade,” brokerage firm Jefferies said in a recent note.
“In this context, the HUL management is taking measures to drive sustainable growth through focusing on the core, market development, premiumisation etc. Excessive focus is visible on digital and series of initiatives are under way to drive agility but this is still work in progress.”
The company also listed out key customer trends that are likely to shape the future of fast-moving consumer goods – a shift from stereotypes; more authenticity (naturals and local products), hyper-personalisation; rapid digital adoption; increased caring for holistic health, and environment/sustainability.
HUL said it is well-placed to tap these opportunities.
From mass to premiumisation
Though the company will continue to focus on the bottom-of-the-pyramid segment, there is more scope for premiumisation as affluence and income grow, HUL noted.
In foods and refreshments, HUL is focussing on nutrient-rich products, while in the premium-end, it is on high science-based innovation. The company aims to drive premiumisation for coffee, which is well-established in the south of the country. For other categories of personal care and home care, too, the company is eying a premium play.
“Premiumisation is a very strong theme in several FMCG categories and presents a huge scope for companies operating in the segment,” said Abneesh Roy, executive director at Edelweiss Securities.
Body wash as a category is used by only 2 percent of the country’s population, while the rest use soap, he said.
“In other countries, however, body washes have a much higher penetration and hence, this trend will replicate in India too,” Roy added.
Other categories also present similar opportunities.
“After premiumisation in detergents led to strong growth in detergent sales and margins in the last decade, the personal wash and dishwashing segments show considerable promise,” Motilal Oswal Securities said in a note. “The premiumisation boost presents a big opportunity to grow the top line and margins. For instance, liquid detergents and fabric conditioners have 2x the realisation of powders and have penetration of less than 15 percent.”
The digital channel also has immense headroom for growth for the company, experts said. HUL, of late, has been increasing its presence in e-commerce and has also started direct-to-consumer platforms.
“HUL has ramped up efforts in e-commerce through its own digital content platform (BeBeautiful, Get Set Clean), product trials (Smartpick), D2C channel (Lakme, Indulekha). HUL has also rolled out its own D2C multi-brand platforms, UShop in Mumbai and Delhi. More interventions are under way and HUL has an agile innovation model for faster new product developments in the digital channel,” said Jefferies.
The company currently draws about 10 percent of its sales from digital channels and is eying a much larger share from this segment.
In the beauty and personal care segment, the company has rolled out high-margin e-commerce focused products such as skin serums, hair masks and hair serums. As part of the digital-first approach, it has set up a premium beauty business unit.
HUL’s digital initiatives would also help it to target consumers with personalised products and marketing.
“By means of e-commerce, FMCG companies can draw consumer insights which can help them drive sales and marketing,” said Roy.