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June 12,2011 ?25

HUL's and Harish Manwani How Nitin Paranjpe and Harish Manwani forced change at a bruised Hindustan and got its mojo back. By SUMAN LAYAK and ANUSHA SUBRAMANIAN

/ wanna know you inside unL, le.ll nut mvylhint],,. an Uttar Pradesh village, about 100 km from - Bryan Adams, Inside Out Lucknow, knew the use of face wash. Copal Vittal, the company's Executive Director for home and hile Bryan Adams might personal care, says he was pleasantly taken aback succeed in gctUng his lans when he conversed with young schoolgirls in re- to toil all, Nitin Paranjpe, mote Bihar villages in English. Managing Director of This was Mission Bushfire at 111JL in 2010. , de- And, to get a feel of the company's recent success cided to turn his company five quarters of volume growth tiller nearly a insidWe out with one aim — to 14ct into the con- decade it would rather forget - Business Today sumer's mind. So. in 2010, about two years alter travelled to villages near Punc. The Bhegdewadi he took over the top job in April 2008, he made hamlet, 30 km from the industrial city of Pune, is HUIJ accountants, production and human re- perhaps as far removed from I he plush, steel and sources people go out. and meet consumers in vil- glass tlUL headquarters in Andheri, a Mumbai lages across . Just as he did himself - and suburb, as can be. there was learning. Village women frequent the modest home of At a village home in Tamil Nadu, Paranjpe Vandana Bhegde-a member of Project Shakti, an found a sachet of Comfort fabric conditioner and IIIJL programme of leveraging sell-help groups to thought something was amiss. "I was worried. I enhance hyperloca! distribution - to buy the com- thought the poor lady must have mistaken it to be pany's product s. One of the visitors, Renuka, wants a shampoo sachel and bought this brand wanting to buy soap, a product HUL positions as a to use it 0x1 her hair," says Paranjpe. "So, I asked premium, upmarket brand, and Domex floor her: what is this, what do you use it for? She cleaner. At a kiranu store in the nearby Ghotawade looked at me as if 1 was a strange guy and said, bazaar, Soupy noodles sell out the fastest. Tor clothes'." All this is good news for a company coming out The findings coming from elsewhere on the of a rough patch. HUL has spent the past decade ground were as surprising, if not startling. (Tirls in si niggling with incremental growth, and the slock

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2002: Hungry for more: >2000: Growth mantras: HLL starts seeds joint venture. HLL stock is split 1:10. KJi Dadiseth Acquires Modern Foods through disinvestment. Ayush is launched. # announces nine growth engines. HLL 2005: New face: • 2007: Parent's name to connect all distributors engage Harish Manwani takes over as is middlename: Company with women self-help groups. non-executive chairman of HLL changes its name to Hindustan §2003 • On a diet?: Hind Lever Chemicals from Banga. estates sold Unilever Ltd. Completes 75 Dadiseth hands over the merges into Tata Chemicals. Edible oils and fats and transferred to subsidiaries. years in India. Announces share •2008 • Demand dips: Nitin Paranjpe takes chairmanship baton to M.S. (Vindi) business transferred to Bunge. Glucovita is sold Starts review of power buyback at 7230 a share. over from Bailie. HUL sees consumer demand slip, Bangain May 2000. to Wipro. A Modern Foods factory is closed. brands strategy. models for . says a question mark over future demand.

Hindustan (Uni) Lever over a decade

•2001: Flavour is in foods: Banga announces Food Revolution: a plan that he claimed would reduce food prices, increase consumption and bring more money for the 2004 • Shakeout: Banga moves to • 2009: War mode: • 2010: Buying back: farmers. International Best Foods (Knorr brand) Unilever home and personal care head for Asia. is relaunched as a HUL announces its second merges into HLL. Starts JV with ICI called Quest He remains non-executive chairman, but HLL wide range of skin care products; buyback in four years- on flavours and fragrances. Decides to reward opts for diffused leadership in India. Home HUL rationalises distribution; this time at ?280 a share. shareholders with bonus debenture scheme. & personal care and foods have separate decides to grow despite pressure Rin gets a patented boost Announces focus on 30 power brands. leaders. HLL sells its mushroom business. on costs. for removing yellowness.

has been mostly listless. {See Vlatlinex) ft had a driven its volume sales up at the cost of profit will use this to extend loans to its distributors. shift production to supplier-owned factories close good year in 2008, and then in 2009 it got margins, or the ratio of profit to revenues. Today, Elsewhere, Shakti members have become last to the market led to savings of ,000 tof 1,500 caught in the vortex of a global slowdown. The liemant Bakshi, the company's Executive mile payment collectors for cable operators or per tonne," says Viltal. And, not everyone knows darling of the bourses as well management stu- Director for sales and distribution, says the com- even caretakers for low-cost telecom towers. HUL that Wheel has two mixes for different parts of dents In the nineties had turned a pariah. This pany will not cede tuiy space to competition even has cast a wide net, fuelled by Innovation (also the country: hnrdwater mix for northern India was a period when IHIL lost out as it was not if it. means cutting prices and allowing a higher see fiat Pray Love, on page 82). All this adds to the and softwater mix for the south. leading the sector, says Paranjpe. (See We Were. share of margin to retailers. importance of the Shakti Annna and adds to her in July 2010, Rin washing soap was infused Leaders But We Were Not: Leaclinfj on page 78.) With good reason, liarish Man want, income. Details of HUl/s game plan will be un- with a patented technology for removing yel- Kotak institutional Fquities's Manoj Menon, Chairman and also President for Asia, Africa and veiled as the pilots work out. lowness in clothes thai comes »wilh use. The an analyst who spent the first four years of Ills east and central Europe for Unilever, says the At the product and logistics level, too, mas- result was a }0 per cent career at IIIJL in corporate finance and thcri at a Anglo-Dutch parent wants 70 per cent of its sive change is aloof. For instance, Wheel deter- sales, which crossed the FTimachal Pradesh factory, delves into basic revenues to come from emerging markets, gent, which contributes more than ^2,000 crore, 11,000 crore mark in economic theory to explain how Hill, was over- against 53 per cent now. From 1 7 emerging or more than 12 per cent of H l II ,'s 119,000 crore 2010/11. And. Rin taken by nimble rivals. "Historically, the com- market countries on its radar, Tndia and Brazil sales, is now supplied from 20 supplier-owned is priced differently pany was too margin-focused. It kept losing are the two larger ones in focus for Unilever. factories across the country rather than being market share and allowed companies like (lodrcj concentrated in particular /ones. "This move to Consumer Products, Reckltt & Bencklser and Redlines to Greenlines Wipro to grab market share," he says. "With the ffow radical is the shift or change at HUT,? loss of market share, HUL also lost some bargain- Sample this: at Satara in Maharashtra and ing power.1'While Godrej.No. I Is the top selling Mysore in Karnataka, HUL is doing a pilot with soap by volume In northern states, Wipro's its Shakti self-help groups on financial inclusion , Santoor leads In the southern stales. The Shakti group members can open an ac- TheTndian arm of Unilever, among the most, count. in the State Bank of India "faster than BSE Sensex and HUL scrip daily closing charted on a common base of 100 aggressive global consumer companies when it they do at an SHI branch in Mumbai", says comes to emerging markets, seems to have shed Bakshi, Shakti Annua, as female Shakti entrepre- Flatliner Its margin obsession now. in fact, over the past neurs arc called, does this with a machine that five quarters, the company has successfully uses biomctric identification. Soon tile company The HUL scrip is up around 44 per cent since 2001 while the Sensex has catapulted over 400 per cent

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aloo Bhegde. a resident, of groups to sell its products. day and notching up sales of up to Bhegdewadi hamlet, 30 Now. as HUL makes a spirited ! f30.000. is able to cover the cost, of km west DI' Pune, knows push to expand and strengthen its distribution. But, when sales are what it is to juggle jobs to reach in the hinterland, it has only ^10.000 even after covering Bmake a livelihood. Born into a 10 villages, the economics breaks roped Bhegde in, too. He is a farmer family, the 43 year old Shaktimaim, roped In for the next down. "It. Is a trade-off between cost worked at the Rand Polyproduets' big leap the Anglo-Dutch multina- of distribution and revenue," says (a manufacturer of specialty poly- tional wants to make in India: Khanna. HUL has some 20,000 mer resins) factory near Pune, but distribute in villages with less than Shaktimmns signed up, in addition found it tough to make time to till 2.000 people, which would be ex- to 45,000-plus Shakti Animas. his two acre farm land. pensive to reach through its redis- HUL is looking to increase Its So, a year ago he quit his Job tribution stockists. rural reach three-fold: through a and took to full-time farming, Every day Bhegde sets out on combination of distributors and growing rice, wheat and jowar. But a bicycle provided by HUL to Project Shakti, About six million after tending to his patch (if land nearby hamlets to distribute popu- stores in the country sell its prod- daily, he found he had hours to lar brands like Wheel, , ucts, of which just about a million spare. Financially, his family of five Dove, Pond's and . : arc serviced by Its own distributors was not stretched since his wife, The consumers he caters to earlier or company salesmen (as of end- Vandana, earned an income. As a had to travel to the nearest village 2009). !HI wants to alter this ratio Shaktl Amma, a. grassroots-level where i ltJL had direct distribution, dramatically. distributor for Hindustan Unilever, The extended reach means the "We drew up a plan to Increase she made ^1,800-2,000 a month. Bhegdes sell products worth up to our coverage to two million stores HUL's Project Shaktl, launched in f 2 5,000 a month— and keep 10 within 24 months. This was our 2001, employs women self-help per cent, 'More Stores' agenda," says The Shukiinuum model, says HemantBalcshi, Executive Director, Ajay Khanna, an HUL veteran of Sales and Customer Development, over nine years and now a consult- Since 2010, HUL has added ant:, is designed to offset steep distri- 718,000 stores. It wants another See more pictures at bution costs. In bigger villages, a .300,000 by 2011-end. • I www.businesstoday.in/hul van travelling to, say five villages a ANIJSHA STJRRAMANIAN

72 BUSINESS TODAY jmie 12 2011 COVER STORY HUL

is not a competitive advantage, the quality of what, t.liey can execute in a store cau be a source of competitive advantage." HUL also introduced a system of zero-inventory - in Ihls, products arrive at its distributors' place from an HUL depot and stay there for just one night before being shipped to the retailers. Then there is the ambitious Project. TQ. It is a part of HIJL'S "More stores, better stores" programme and uses technology to the hilt.. "We've used technology to find out the buying behaviour and buying pattern of customers [here, customers are retail outlets] throughout the chain, fivery single urban outlet to begin with. Exactly what a shopkeeper bought, at what frequency does he buy, etc. - we have captured it all over the last few years," says Paranjpe excitedly. Each urban sales agent at TTUL- and it has an army of .12,000 employed by its distributors - now carries a Samsung Galaxy Tab. At every store he visits, the agent just has to key in its name and the tablet tells him what he has to do that day at that store. The tablet display shows in red which products are likely to run out of stock at the outlet and need to be replenished. It also tells him - t he analytics and logic has been developed in-house by HUL- which other products are likely to sell at this outlet. At the In southern and northern Tndia as its "equity is end of the day, the salesman uploads data of different in the two parts", says Vittal. Adds what he has sold and downloads his schedule Manwani: "We think local and act global, con- for the next day. trary to conventional wisdom. There is no global After the salesman leaves, the shop is visited consumer, the consumer is always local." That by the merchandising man. l ie, Loo, carries a is how the company dipped into its global port- tablet, which tells him how to arrange stuff on folio, and Dove, a ^80-crore brand t wo years shelves - and once all sales and merchandising ago, has now become a ^650-crore play with tasks are completed, a store becomes "perfect". face wash and shampoo categories added under With analytics, TTT11, gets a unique and powerful the brand. understanding of the market at. a very granular The innovation story is more dramatic in level, "No human being can look at. data from distribution. "We are moving from a situation million and a half outlets and come up with the where distribution is seen as a supply job to say- answers; the designed logic is to build an algo- ing how do we create consumer pull, it Is a very rithm and come up with certain recommenda- important shift in mind-set," says Manwani. tions of the system," says Paranjpe. The next, step Last year TTtTI. cut its number of distributors is to build predictive intelligence into the software. by around 20 per cent in large cities. In fact, from 10,000 distributors in 2002/03 it is now For Better or Worse down to 2,400; Mumbai used to have 22, but While the "perfect" store will take time to real- now has only nine. "In rural areas the advan- ise, the immediate gain lor Hi ll, is that it has re- tage might be going to more stores," says corded volume growth across categories. Its Paranjpe. "In urban areas going to more stores profit after tax for the quarter ended March 51, 2011, after excluding exceptional items, showed a 22 per cent growth over the same quarter of Dove, a ?80-crore brand two years ago, 2010. The much smaller foods category that has now become a ^650-crore play accounts for 20 per cent of its sales expanded

74 BUSINESS TODAY jmie 12 2011 COVER STORY HUL

margins. lie says: "There is only one way - to build efficiencies in our sys- tems and then transfer the benefits of that to brand building." Mahendran, a former Lever-ite. feels there is no point in worrying too much about the input costs, as they are cyclical and even out. Ajay Khanna, another former Lever-ite who led the company's agri- exports business al, one point and is now a consultant for start-ups in the consumer space, says the Indian mar- ketplace has changed from the past when Hill, was one of Unilever's most profitable units and regularly paid huge dividends to shareholders. "Today, there is a lot more competition for ITITL, from deep-pocket competitors Move closer to like TTG, Godrej and P&G. Other PMCG markets: Vlttal 2 I per cent. Ice cream sales, even before the companies are focused on rural markets and summer set in, jumped 26 per cent. For the fi- finding other ways to penetrate deeper into nancial year 2010/1 I, the company showed a those markets," he says. Also, some companies volume growth of I 3 per cent and sales growth arc willing to pay higher wholesale margins of 10.7 per cent, The last quarter showed an and Incentives of up to 10 per cent for better oven stronger 14 per cent growth in volumes. penetration into smaller villages. At the same time, it saw a 2.9 percentage point To be sure, it is not just the ITUL scrip alone contraction In its gross margin, reflecting in- that is languishing. Other FMCfl stocks are not crease in Input prices and intense competition setting the markets on lire either. As if to under- that resulted in price cuts and increased spend- score that it believes there is value in its Indian ing on advertising. unit in which it owns 52 per cent, Unilever is The investing community has taken notice. buying back the HUL stock. HUL announced a BrokerageKotak that had a "sell" recommenda- share buyback programme in June 2010 and tion for IIUL until March has changed it to an has just, completed the process: it has mopped "add". Says Kotak's Menon: "The company is up 2.3 million shares or around one per cent of signalling to its competition that it is not a equity, for 5 crore. It has also decided to hive pushover anymore and will fight for market off the export business as a separate subsidiary share. It has launched new products in new of the company and will focus on exporting niches, but unfortunately the competitive inten- Indian brands like Kissan and Fair & Lovely to sity is high and there is commodity inflation, the Indian Diaspora elsewhere in the world. too." Nomura India still continues with its "re- India, in fact, today means a lot more to duce exposure" recommendation. Angel Unilever. Some 140 senior professionals who Broking has an "accumulate" advisory on the work for the London and Rotterdam-based par- stock and 1-iDFC Securities says "buy on dips". ent in various parts of the world are Indians. The confusion among analysts reflects rising There are products and models developed in input costs, especially palm oil and crude prices. India being shipped out, too. Pureit, the low- Rivals of HUL are sanguine, meanwhile. A. cost water-purifier, an innovation developed Mahendran, Managing Director of Godrej here is being launched in other emerging mar- Consumer Products, says his company is yet to kets. Unilever is ready to take Project Shakti feel any impact of HUL's growing volumes drive abroad: some parts of Africa will be the next or its willingness to battle competitors on retail testing ground for the grassroots distribution model. II' that succeeds, the pains of the past decade that seeded the current powerful sales agent at HUL changes at HUL will be worth it. • now carries a Samsung Galaxy Tab ADDITIONAL REPORTING BY RAJIV BHIIVA

7fi BUSINESS TODAY June 12 2011