Book excerpt: Unilever's Project Millennium streamlined India operations, but also helped HUL distance itself from a big mistake

Ameer Shahul, a Greenpeace worker who campaigned for the return of the mercury to the US for disposal and for compensation to factory workers whose health had suffered, has written about it in Heavy Metal: How a Global Corporation Poisoned Kodaikanal, which released today.

In the following excerpt, as in the book, Shahul takes great pains to explain the ownership structure - in the book, he starts from the patenting of Vaseline and the early years of Pond's - and the many corporate decisions that directly or indirectly led up to the moment that the untreated scarp was sold to a local dealer a few kilometers from the factory. Read on:

Project Millennium had proffered another recommendation – creating power brands. While taking stock of the company’s assets at the end of the twentieth century, McKinsey calculated that there were 110 FMCG brands in HLL’s portfolio, including those built organically and others, which had been acquired. Many were competing with each other on the same turf. Some were very small and contributed insignificantly to the revenue while consuming a lot of time and resources in production, marketing and sales. Moreover, the market was becoming fiercely competitive with the entry of large, global brands and with the resource-heavy marketing prowess of some of the global giants.

After its assessment, therefore, McKinsey advised to trim HLL’s brand size from 110 to thirty or thirty-five, so that it was focusing on only three dozen power brands instead. As Vindi Banga would explain how they picked their ‘power brands’ later: ‘We chose these for their strength, uniqueness and growth potential. In addition, they also spanned all the twenty categories and relevant benefits and price positions.’ Once the thirty-five brands had been identified, HLL pumped money and resources into promoting them – to rebuild its brand identity, grow market penetration and, thereby, increase margins. In several cases, the prices were artificially lowered to increase sales volume growth and, in others, different sizes with different packaging were launched under the same brand to make them affordable to the lower tiers of the society. Many products were re-launched, including the company’s top-selling detergent brand, Surf Excel. The oldest kid in the classroom, Lifebuoy, was shaped up from a carbolic soap to a toilet soap, by giving it a new jacket and some fitment adjustments. As an extension of the now popular Lakmé brand, Lakmé beauty salons were launched all across the country. Among the retired veterans were the toilet soaps Hamam, Liril, Rexona and Breeze. It’s a different story, however, that many of the retired or rested brands would be revived and reinducted a decade later.

All this was done alongside modernizing the supply chain of hundred factories, 2,000 suppliers, 7,000 stockists and one million retail outlets with modern IT infrastructure so that there would not be any shortage of stocks in the marketplace. This process was called the Continuous Replenishment System.

Observing HLL’s success on power brands, many other FMCG companies like Godrej, Britannia, Dabur and Marico would follow suit by 2005 and launch their own power brands strategies. For HLL, the strategy yielded rich dividends. By 2016, six of the power brands would cross annual sales of Rs 20 billion each, with Surf Excel exceeding the Rs 30 billion mark.

Surf achieved the feat two years after Unilever literally proved the brand’s famous tagline, ‘Dirt is Good’, in Europe. The company ended up paying a penalty of €104 million to the European Union for violating the EU and EEA antitrust rules and forming a pricefixing cartel with Procter & Gamble and Henkel in 2002, causing it immense embarrassment.

Among all its brand successes in India, a singular gigantic disappointment was one that was launched with a lot of fanfare in 2001. In a relatively small Ayurvedic market largely driven by established local brands like Kottakkal from Kerala, HLL’s Ayush had not made any headway. It would take almost two decades, and a Rs 3.3-billion acquisition of another brand called Indulekha to re-launch Ayush, in order to take on yoga guru Baba Ramdev’s Patanjali, which had started eating into HUL’s traditional FMCG market with its range of Ayurvedic products.

While implementing the power brands strategy, it dawned upon the management that the company’s presence in many noncore sectors was not bringing in any value. In fact, by the turn of the millennium, only twenty-five per cent of the company’s total revenue was coming from the non-FMCG sector. And that too with a dismal margin. Margins lower than ten per cent are the threshold most large companies use as the cut-off for divesting a product or segment. The reasoning behind it is that any business offering margins below ten per cent becomes a drain on the enterprise, given its legacy, size and bureaucratic structure, and there is no scope for scaling it because of the presence of multiple players in the crowded segment.

Therefore, an initiative was launched to streamline the business and move the focus back to the FMCG sector. This would mean divesting fifteen of its non-FMCG or commodity businesses, ranging from animal feeds, speciality chemicals, nickel catalysts, adhesives, mushrooms and so on, spread across businesses altogether worth Rs 17.5 billion.

As part of this strategy, the company also decided to divest from the production of thermometers, which were manufactured at its only factory in that category in Kodaikanal. The compelling reason for this divestment was that the factory in Kodaikanal had already been shut down on the orders of the Tamil Nadu Pollution Control Board in March 2001. It had been an issue that had besmirched the company’s reputation in India and globally during the decade that followed, along with another environmental issue in Kalimantan, Indonesia, where Unilever was found to be working with its palm oil suppliers in destroying sensitive Borneo rainforests to increase palm oil plantations.

Despite the Kodaikanal issue ruling HLL’s boardroom and the media for many years, it witnessed many an ‘action’ by concerned citizens before Unilever sent its trusted global executive Douglas Baillie to India in 2006 to replace Banga. Baillie was commissioned to rebuild the company’s sagging reputation: the tagline of the company changed to ‘One Hindustan Unilever’ and its name went from Hindustan Lever Ltd (HLL) to Hindustan Unilever Ltd (HUL). He returned to Rotterdam in 2008 once the mission was complete, now to take charge of the western European side of the business.

Five years after Baillie’s return, Unilever increased its stake in the Indian entity to sixty-seven per cent, shelling out almost $3.16 billion in cash through the purchase of 320 million shares at a rate of Rs 600 per share. The Unilever stake in Hindustan Unilever thereby went up from a 54.5 per cent to a little over sixty-seven per cent – almost eight percentage points short of its intended seventy-five per cent level. This shareholding level would undergo further changes only in early 2020 when the Rs 45 billion GlaxoSmithKline Consumer Healthcare, makers of Horlicks and Boost brands, merged with Hindustan Unilever. This time around, in the acquisition-cum-merger, HUL offered 4.39 of its shares for each GlaxoSmithKline share and, for the process, Unilever had to issue new shares which brought down Unilever’s holding in HUL to 61.9 per cent.

Upon taking over as Unilever’s CEO, Paul Polman started off by issuing an annual progress report on Sustainable Living Plan with a grand launch in November 2010 from four global locations. For India too, the company started issuing similar annual progress reports, capturing information under three heads: improving health and well-being, reducing environmental impact and enhancing livelihoods for millions.

The reporting in the first and the last sections would appear more like the implementation of its aggressive sales and marketing programmes. For instance, Lifebuoy, Pureit, Domex and the food products would contribute to health and well-being, and Shakti sales agents, Rin Shine Academy and Fair & Lovely Online Academy, to enhancing livelihood.

The 2019 India report claimed that the company’s water purifier, Pureit, provided ninety-five million litres of safe drinking water, Lifebuoy had reached seventy-two million people through its handwashing programme and the Domex toilet cleaner impacted one million people through its Domex Toilet Academy.

There is a market for everything. And every sale contributing to a ‘cause’ became the driving philosophy, thus creating a bankable image that every product sold by the company was contributing to a larger noble goal. The credit for this vision belongs to Paul Polman.

Excerpted from Chapter 9 of Heavy Metal: How a Global Corporation Poisoned Kodaikanal by Ameer Shahul, with permission from Pan Macmillan India.