'We plan to drive up HLL's growth via innovation'

Part I: 'The challenge before HLL is to continue delivering good shareholder value'

Y Siva Sankar in Bombay

M S Banga, chairman, Hindustan Lever Limited, speaks about his Vision 2000 and Beyond for the FMCG giant:

On price-rise and impact on HLL's premier detergents:

It is not that price increases have been difficult. We have chosen not to take them. When you have low specific cost inflation, you can choose what to do with your pricing. We have chosen not to take price increases when they were not warranted. We will, instead, chase volume growth.

On HLL's personal products business

The personal products category consists of a whole set of categories. What has happened is that our hair business has done extremely well. In fact, it has grown by about 30-odd per cent. Our deodorant categories have also done very well with a growth of 20-25 per cent.

It is the oral care category, which is a large contributor, sales have been flat.... that has made the overall number what it is. Our skincare business is either flat or slightly positive. Within that, Fair and Lovely, post-relaunch, has been doing very well. There are certain other products, ranges, etc, where sales have been flat. Skin creams and oral care products have done significantly better than the first half, primarily because of all the initiatives that we have already taken.

As far as the growth in oral care is concerned, it is not mainly because of Aim. That is one of the three or four initiatives we had. The others are yet to unfold. I can't reveal them now. As far as margins are concerned, the inherent operating profitability of Aim is in line with the average for our oral care business.

On HLL's acquisition of Modern Foods and whether HLL would enter the bakery business:

We took over Modern Foods just a few months ago. We have sent in a full-fledged, multi-disciplinary integration team. Our first objective is to drive the volumes up of the current business. In our three or four months of our being there, volume trends have been very encouraging. In fact, last week's sales reflect an almost 60 to 70 per cent increase in the operating volumes.

Our plans are to build the Modern business, build capabilities, and to integrate it with out wheat business in the popular foods area. We will use the synergies and drive those businesses aggressively forward.

I would say that, in a small way, Modern is already in the bakery business. It sells biscuits. Cakes, too. But we would definitely like to expand there.

Unilever was involved in the decision to acquire Modern Foods and fully supported it. So I would not anticipate any change in mind at this stage.

On how downtrading has prompted HLL to adopt innovative strategies:

There has been a lot of effort to proactively reverse the trend of downtrading. We have taken a lot of steps to drive the growth of our premium products via innovation.

In the personal wash market, we have launched two new Lux products, with functional ingredients, using new technology. Lux now has a moisturisation cream which actually delivers on the skin. There is also a sunscreen protection benefit in another Lux variant.

We also launched a new brand called Savlon with a health benefit. All these products have responded extremely well and in the first half, our premium soap business has grown by 21 per cent, clearly reversing the downtrading that we were seeing in the previous year.

Tea is another area which witnessed a lot of downtrading. There again, we have concentrated on our premium brands. You would have seen a lot of heightened activity in Bombay on one of brands called Taj, which is our top priced brand and it is marketed as the best tea in India.

Taj has grown very well. As a single brand, it is growing in strong double digits and responding very well. So, I would say that we have begun to reverse the trend of downtrading through aggressive market activity.

On HLL's foray into the hitherto unorganised wheat flour market through Kissan Annapurna Atta:

We are building our business through a combination of good consumer understanding and leveraging technology leading to relevant innovation. You have seen, for example, a recent launch -- we led the launch -- of fortified atta into India. That was done by understanding that consumers in this country lack a certain degree of vitamin in balance. We were able to compensate for that through the launch of fortified atta which has done extremely well.

There are several such initiatives that are planned. In fact, we have lined up a slew of innovations over the next 12-18 months. As we build our competency in these key materials, be it salt or wheat, we will be using technology and consumer understanding to add innovations and value, and drive up the business.

On HLL's efforts to kick-start the sluggish ice-cream business:

We are following a two-step strategy. Our first objective is to reduce the loss in that business. We have taken a lot of steps to cut our cost structure and cost base. Those measures are on track. The business would be cash-neutral this year for the first time and cash-positive next year. Having achieved that, we will take necessary steps to build ice-cream growth on top of a stronger capital and cost base.

We will drive innovation based on local tastes. We are also looking at ways to break down the barriers that exist in consumers' minds that ice-creams are unhealthy and may cause harm to children. The third thing is to open up more points of ice-cream consumption.

On HLL's joint ventures:

I would like to talk about a couple of joint ventures of HLL: Kimberly Clark Lever and Lever-Johnson. Both are in Pune. Both are 50:50 joint ventures. Kimberly Clark Lever is primarily a venture in the area of paper products. We have two categories there: infant care and female protection. We are market leaders in infant care. The business is doing extremely well. We are already going quite aggressively.

We have established a strong niche in female care as well. Overall, I would stay the business is proceeding ahead of our expectation.

As far as Lever-Johnson is concerned, the story is not so good. We have not done very well. That business is primarily in the area of insecticides and hair-care products.

The insecticide market is fraught with pernicious trade licensing issues where each retailer is supposed to get a stocking licence for each product he keeps. This is a difficult bastion to break into for a company that is only willing to operate ethically. And, therefore, in that business I would say our performance is behind schedule.

On brand rationalisation by Unilever and its impact on HLL's plans:

The Unilever programme specifically is not going to impact our plans here very much. Most of the brands that we have in India are amongst the 400 brands that have been chosen by Unilever to focus on. However, the important thing is the principle behind it: if you focus on your bigger brand properties, you will drive higher growth. We are already doing that. And we are going to do that even more in future.

So we will be following the principle of brand focus in India. But that does not mean that we will not acquire new brands. If we think that a new brand gets value, we will certainly go out and acquire it. It does not mean that we will not launch new brands, either. If we think that we can launch a new brand and grade it to a scale where it is large enough to sustain itself, we certainly would.

On HLL's thrust on the premium segment:

I don't think any company in India can afford to choose just one segment and focus on it. I think the great thing about India is that it offers opportunity in every segment. The great thing about Hindustan Lever is that it has got the width and depth of capability and the resource to be able to attack every sector.

Therefore, we will continue to attack every segment. We will, of course, focus on the premium opportunity as the country upgrades itself. As the growth in GDP filters down into increased consumption levels, we would continue to drive the market up, but we will also operate at the middle of the market and at the base of the market.

Let me give you two contradictory examples, rather complementary examples. In the oral care business, we have launched Aim at a price which was never seen before in this country for toothpastes through use of technology and innovation.

At the same time, we are launching our most expensive range of fragrances into the country. So, we will tackle the market at all spectrums and in all segments.

On HLL's aggressive marketing of its new variant of Lux toilet soap brand

It is a brand. It has done reasonably well. I don't think it (Lux Skincare Sunscreen Formula) has created a category or anything. Only time will tell whether it has the staying power or not. One does not know. Every soap launch gets a degree of trial in India, very fast trial.

Lux Skincare was not in response to any competitor's product. We have been working on the Lux programme for the last 18 months. It was not in response to anything. That is why, it came out, and did what it did. We talked about sunscreen which is what others did later.

On whether competitors like Nirma have stolen a march over HLL in some personal care product segments:

When we box, you have to allow the other guy also to hit you once a while. Otherwise, what kind of a boxing match are you going to have? It can't be a unidirectional boxing match. But a boxing match goes on for 18 rounds. And it keeps going on and on and on. That's what I meant again about this Fair case.

Now Fair & Lovely, in growing very steadily, has faced some novelty. Its growth in the first quarter was very slow. In the second quarter, it was re-launched. And growth after the re-launch was 21 per cent. Now, will it be 21 per cent in the second half, I don't know. I don't want to hazard a guess. Something else may happen. But it is back on the growth track. I am not worried about it.

On HLL's venture capital fund for its employees with ideas and entrepreneurial spirit:

Entry into any new venture could qualify for that venture capital fund. Any new venture whatsoever, including e-tailing.

On the stagnation in the oral care products business:

When you look at progress in categories and businesses, one must look at them over a longish period of time. I would not like to see the progress of this particular category in the context of the last three or four months. First of all, let me roll the clock back…let's go back ten years. We didn't have an oral care business at all. Today, we have 35 per cent of the market. IN the last three years alone, we have more than doubled our sales in oral care. Coming to the future, we have very aggressive plans to continue our very strong growth record in oral care.

You could have seen one initiative which took place last month which is the launch of new toothpaste called Aim. This is specially targeted at increasing the base of toothpaste users in India. And is Aimed at upgrading consumers who are currently using either tooth-powders or non-traditional products.

We have also had another initiative which is a very strong foray into tooth-powders with the Pepsodent brand name. That is also just about happening right now. These are two initiatives that have already gone out. In addition to these, there are several others.

Our overall objective of step-by-step…firstly, securing urban leadership of oral care; and then subsequently, securing total market leadership of oral care in India remains a very strong objective for us.

On HLL less than 6 per cent volume growth when GDP growth rate is 6.4 per cent:

I am not sure we can directly relate these two variables. To begin with, I am not sure they have linear relations. I think that GDP growth is a summation of a whole set of factors. As for HLL's volume growth, at 5 or 5.5 per cent, it is a fairly steady, healthy growth rate intrinsically in volume terms across a very diversified business like ours. Can it be high? Of course! Should it be higher? All of us are going to endeavour to inch that volume growth up.

On parent Unilever's takeover of International Bestfoods and the deal's implications for HLL:

Unilever will be merging with Bestfoods internationally. And that merger will happen only after certain legal formalities, etc, and approvals are taken, especially in the US and parts of Europe. Those approvals are currently underway and it is expected that there should be no significant obstacle in obtaining those approvals. However, it is only after that process is complete that we would be able to think about what we should do here.

On the rates of growth of HLL and Unilever:

Hindustan Lever is growing faster than Unilever. The rate differential is quite significant.

On HLL's plans to tie up with NABARD and offer micro-credit to villagers in India to buy its products and improve living standards:

If we inject credit into rural India and use that credit for a gainful employment, then it becomes a very positive growth factor. The question is, what productive employment can you offer? Where Hindustan Lever comes in is to say that, perhaps, productive employment can be distribution of products. So when you link the possibility of credit with the possibility of productive employment being distribution of our products and sale of our products, then it is same. You can begin to see a virtual cycle developing. Will it work? I don't know. We will try it and we will tell you in six months.

On his understanding of the declining raw material costs like oil prices which are at a ten-year low:

I think it will stay like this at least for the next six months. It does not worry me. The point is, people believe you have to grow the topline by X per cent. The question actually is one of margin. That's why, price growth is irrelevant. The only thing that is important is volume and profit.

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