HUL seeks to expand market presence with pair of acquisitions in health and wellness segment

The acquisition by Hindustan Unilever Ltd (HUL) of the Oziva and Wellbeing Nutrition brands is unlikely to turn the needle for India’s biggest packaged consumer goods maker, either in terms of size or scale of the business, just yet, analysts say.

The acquisitions, nevertheless, will strengthen HUL’s intent of broadening its presence in the health and wellness segment and the company will likely use its vast distribution network and the expertise of parent Unilever to expand the newly acquired premium brands.

With the two purchases, HUL is taking control of companies that were selling their products only digitally. HUL is widely expected to strengthen its offline presence through its own formidable distribution clout.

Besides, with the acquisition of digital-only brands, HUL also gets to target consumers in the higher-income category as well as the younger population. Millennials, particularly Gen-Z, which are driving the market towards health supplements and wellness, would be priceless acquisitions via these companies for HUL.

Analysts believe that alongside online sales, HUL would also scale up the newly acquired brands in the medium- to long-term through market development, coupled with its Research and Development (R&D) strengths. Unilever already has a health, wellness, and nutrition portfolio worth a billion euros and as HUL embarks on the expansion and deepening of this product category in India, the product portfolio of the parent company could also slowly find its way to the country.

So all in all, the acquisitions are being seen as part of the long-term intent of HUL to strengthen its presence in every price band of the health, wellness, and nutrition space in India.

Going forward, HUL will scale up the health, wellness, and nutrition business over the next few years by developing the market and innovating. And premiumisation of the category, alongside expected cost rationalization, would provide HUL with improved margins in the category going forward.

In a presentation, the HUL management said the market for vitamins, minerals, and supplements has an annual revenue potential of Rs 30,000 crore in the next 4-5 years.

Consumers are increasingly aware of the need for nutritional health and able to afford health and wellness products, and India is already battling a micronutrient deficiency challenge, HUL said.

Its presentation spoke of every second Indian being anemic, 80% of the population of this country suffering from Vitamin D deficiency, and the diet of two in three Indians being deficient in micronutrients like zinc. Of course, India is also the diabetes capital of the world.

All of these characteristics make India a ready market for healthy growth in nutrition and wellness categories going forward.

In the Rs 30,000 crore opportunity HUL spoke about, the subcategories of (a) sleep and stress, (b) women’s health (c) gut health, and (e) plant-based supplements are of special focus since the company described these subcategories as “high growth benefit spaces.”

Both the acquired brands command premium positioning with high gross margins of over 55 percent.

Oziva, the Zwie brand, comes with the extra label of ‘Ayurveda’ and the HUL management called it a “digital first” brand with an omni-channel presence. It already has over three million consumers and had a turnover of Rs 124 crore in FY22.

Wellbeing, on the other hand, sells “slow release capsules” and “melts” and like Oziva, it is also a digital-first brand. Wellbeing is now expanding its offline presence too. It has nearly two million consumers and a turnover of Rs 50 crore.

HUL has acquired a majority 51 percent stake in Zywei Ventures Pvt. Ltd (Oziva) for Rs 264 crore. The remaining 49% equity stake will also be acquired in the next 36 months on pre-agreed valuation criteria and the team which had been leading the company will continue to function.

In Wellbeing Nutrition, HUL has acquired a 19.8% stake for Rs 70 crore; HUL will get board representation in both Zwie and Wellbeing. Wellbeing Nutrition’s products include melts (Oral Thin Strips), Slow (Slow-Release capsules), and Marine Collagen powder.

A Mumbai-based securities firm said health and wellness could add a new dimension of growth to HUL, given its strong distribution capabilities.

“However GSK-CH, which also participates in the high-science benefit segment, took a longer time to stabilise, hence the two recent acquisitions may also take a longer time to settle in our view,” Centrum Broking said in a report.

Going by the Horlicks example then, HUL will need to be patient about returns from the two acquisitions in the health and wellness space, but it is surely moving in the right direction.