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Rediff.com  » Business » A walk through time: How HUL climbed the success ladder

A walk through time: How HUL climbed the success ladder

September 24, 2014 12:50 IST

While India's largest FMCG company remains a breeding ground for managerial talent, the aggression and independence that characterised its former chiefs can hardly be seen. 

 

"It's been 10 years since you have made any meaningful acquisition. Why?" Unilever chief executive Paul Polman was asked this question during his first trip to India after being appointed the conglomerate's global head.

Polman was meeting the Indian media for the first time, at a brand new office of subsidiary Hindustan Unilever (HUL) in Andheri.

HUL had moved here after 47 years at Lever House, the company's iconic headquarters at Backbay Reclamation, Churchgate.

It was a historic moment, celebrated with much aplomb. And, Polman was in high spirits, following the inauguration of the office. As such, the journalist's question caught him off guard.

He had no answer. To an extent, it reflected the growing grip of the Anglo-Dutch parent over the local subsidiary and the diminution of HUL's image in India.

 

To be sure, HUL remains the country's largest fast-moving consumer goods (FMCG) company and the jewel in Unilever's crown, providing the world's second-largest consumer goods company about eight per cent of its annual revenues. This contribution is expected to grow, as India's long-term consumption story remains intact.

Last year, in an affirmation of India's growing importance, Unilever increased its stake in HUL from 52.5 per cent to 67.3 per cent, with a Rs 29,200-crore (Rs 292 billion) open offer, the largest such offer in India.

While Unilever consolidated its presence here, its hold over the local management was, in a sense, complete. Unilever's domination was in sharp contrast to the culture of HUL, known as Hindustan Lever, or HLL, till 2007, through the 40 years of business history this series covers.

Since its inception in November 1956 to the mid-1990s, HUL had a history of powerful and, as company observers say "iconic", chairmen, following the merger of three subsidiaries - Hindustan Vanaspati Manufacturing Company, Lever Brothers Ltd and United Traders Ltd. Giants such as Prakash Tandon, T Thomas, A S Ganguly, S M Datta and K B Dadiseth were responsible for shaping the company's future, with entrepreneurial zeal and passion.

Like the Tata satraps during the time of J R D Tata, these men dominated the corporate world during their tenures.

Consider Prakash Tandon, HUL's first Indian chairman (appointed in 1961).

He was responsible for introducing many noteworthy practices such as the popular management trainee programme that ensured the company was a breeding ground for good managers.

 

To this day, HUL retains this edge, as a flag-bearer of premium management talent.

The company's relentless focus on market research, product development and innovation was also a legacy attributed to Tandon. He persuaded parent Unilever to set up a research centre here in the 1960s.

This allowed the company to develop products locally, using local ingredients and processes, helping cut costs and respond to market challenges quickly.

T Thomas, chairman from 1973 to 1980, contributed to bringing an end to the government's price control of soaps in the 1970s.

He did this by introducing a mass-market soap brand---Saral. At that time, India, among the world's largest importers of crude oil, was reeling under global oil shocks.

To tackle the resultant inflation, the Indira Gandhi government had imposed price controls on manufactured products, including soaps and vanaspati, in 1973.

Thomas's response, on a suggestion from senior Cabinet minister Jagjivan Ram (for which he sought approval from Gandhi), ensured HUL cut the losses it had incurred in the first half of 1974 (the first loss in the company's history), bringing it back on the growth path. In a special issue HUL brought out in 2008 to celebrate its 75th anniversary, Thomas wrote: "If price control had continued for some more time, HLL would have suffered mounting losses.

In that case, even Unilever would have lost patience and considered ways of pulling out of India, as it had done in some African countries." By the 1990s, HUL was pushing hard on mergers and acquisitions (M&As), led by S M Datta (1990-96) and, subsequently, K B Dadiseth (1996-2000).

 

Expansion of its core FMCG business and diversification into new areas such as cosmetics, foods and women's hygiene characterised HUL's 'M&A decade'.

In 1994, Datta led the merger of HUL's key competitor, Tata Oil Mills Company, with itself, a move that gave corporate watchers a shape of things to come, just as the Indian market was opened to global competition, following the end of the licence raj. Joint ventures with US-based Kimberly-Clark (for baby and women hygiene products) and Tata's Lakme (for cosmetics) followed.

In 1993, Unilever's second subsidiary, Brooke Bond, acquired the Kisan business (jams and ketchup) from the UB Group, and Dollops ice-cream from Cadbury's, marking its foray into the foods segment.

In 1994, the Kwality ice-cream business was acquired by Brooke Bond and the latter merged with Lipton India to form Brooke Bond Lipton India Ltd. In 1996, Datta merged this company with HUL by Datta to bring all businesses under "one roof".

K B Dadiseth, Datta's successor, kept the M&A momentum going, merging Pond's India with HUL in 1998, acquiring Tata's 50 per cent stake in the Lakme-Lever joint venture, and buying 74 per cent in Modern Foods, the first public sector company to be divested by the government, in 2000 (the remaining 26 per cent was acquired in 2002).

Much of this inorganic growth was a means for HUL to acquire market share in an arena that was rapidly turning hyper-competitive and to use the new-found domination to cut supplier costs and hold margins.

In the new millennium, HUL opted to go slow on the M&A front, choosing to build its business organically.

In part, the decision was led by a need to consolidate its operations, following the frenetic pace with which it had bought and merged companies in the 1990s. This was also a time when competition with rivals such as Procter & Gamble was heating up in categories such as detergents.

Thus began HUL's focus on core operations, under chairman M S 'Vindi' Banga (2000-2005).

 

He famously devised HUL's power brands strategy, which meant focus on 35 core products across detergents, soaps, personal products and packaged foods. Brands with a pan-India and international appeal (such as Lux, Lifebuoy, Fair & Lovely, Wheel, Surf, Rin, Knorr, Kissan, Dove, Ponds, Lakme, Brooke Bond) gained from this exercise, while regional gems (Breeze, Liril, Moti, Hamam, Rexona, etc) were relegated to the background.

With a focus on bigger and more global brands, it wasn't surprising that HUL's dependence on its parent grew.

At the same time, Unilever was also beginning to take greater hold of its Indian operations, under what it called the 'One Unilever' policy; this strategy would be increasingly determined by the parent.

The policy also paved the way for the company's name being changed from HLL to HUL in 2007.

In an increasingly globalised world, HUL's senior executives and managers turned to the parent for technological transfers, best practices and brands. While products such as water purifier Pureit were Indian creations, these were largely few and far between.

Chief executives came and went, but didn't quite dominate the scene as their predecessors had from the 60s to the 90s.

Today, HUL is on its way to increasing the royalty it pays to its parent - from 1.4 per cent (the rate till January last year) to 3.15 per cent of its turnover by March 2018. HUL's dependence on Unilever appears complete.

Timeline

• 1956: Hindustan Lever Ltd is formed following the merger of Hindustan Vanaspati Manufacturing Company, Lever Brothers Ltd and United Traders Incorporated

• 1961: Prakash Tandon appointed as chairman of HLL, the first Indian to be appointed to the position

• 1963: HLL headquarters at Backbay Reclamation, Mumbai, opened; called Lever House • 1975: Ten-year modernisation plan for soaps and detergent plants put in place

• 1982: Government allows 51 per cent Unilever shareholding in HLL

• 1993: Brooke Bond India acquires the Kissan brand from UB Group

• 1994: Tata Oil Mills Company merges with HLL • 1996: HLL and Lakme Ltd form 50:50 joint venture

• 1996: Brooke Bond Lipton India Ltd merges with HLL • 1998: Ponds India merges with HLL • 1998: HLL acquires Lakme Ltd's 50 per cent stake

• 2000: HLL acquires 74 per cent stake in Modern Food Industries

• 2007: Company name changed to Hindustan Unilever Ltd (HUL)

• 2008: HUL completes 75 years

Viveat Susan Pinto
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