'The challenge before HLL is to continue delivering good shareholder value'
Y Siva Sankar in Bombay
July 28, 2000 was an exceedingly long, hard day for M S Banga, 45, chairman, Hindustan Lever Limited, India's pre-eminent and largest As the day melded into dusk, Banga, displaying incredible enthusiasm and high energy levels, held forth on his vision for the blue-chip corporate, even as HLL's corporate communications managers turned protective: "Poor guy, he has been having non-stop activity since 8 in the morning. Leave him alone."
Excerpts from Banga's Vision 2000 and Beyond for HLL:
As the day melded into dusk, Banga, displaying incredible enthusiasm and high energy levels, held forth on his vision for the blue-chip corporate, even as HLL's corporate communications managers turned protective: "Poor guy, he has been having non-stop activity since 8 in the morning. Leave him alone."
Excerpts from Banga's Vision 2000 and Beyond for HLL:
On HLL's products being sourced by other countries in the Unilever world:
Many of Hindustan Lever's products are exported to other countries. A very large chunk of our export business consists of our own HPC products. And we are sourcing our products to countries where Unilever has operations. Toothbrushes are just a lone example. We have many such products.
'Made-in-India' is not necessarily a bad word. The response has been fine. We market our products to many countries. To Russia, Japan, the Gulf, Middle East, the US... Our export business is growing strongly. Does this mean HLL is increasingly becoming a manufacturing base for other countries? No. Not increasingly. We are doing it in certain areas where we have comparative advantages.
On whether Hindustan Lever would seek the same level of awareness its products have among Indian households:
We don't believe in that. We believe that we are in the business of selling brands, not of selling the company.
On whether he has toured rural India in tune with HLL's strategy to maximise its growth through aggressive marketing in rural markets:
Yes, I have toured rural India. In fact, the very first thing I did after taking over as HLL chairman was visit all the four regions within a month. I went to the marketplace. I went to the trade. I visited many places with our sales force because I believe that you learn a lot from the trade.
There is no interesting discovery there. I have been going there for a while. And, therefore, I have a good sense of it. The only thing I came back with is a tremendous sense of opportunity. I feel there is a great opportunity to grow the penetration and consumption of all our categories. And we are going to do that.
On how HLL is gearing up for the WTO regime:
The clear implication of the WTO regime is that you must have global competitiveness. Now, global competitiveness means the ability to have global technology, global quality and global costs. We have been setting standards since the last five years. We must benchmark not just against the best in India but the best in the world, both in terms of quality and cost.
I am confident that in our businesses, we will not be found wanting. We will be able to meet the onslaught of opening up of barriers without any problem. That is one.
Second thing is, it opens up a whole set of opportunities for us. Because we can now access imported products easily. We can access products, leverage them faster and start things without setting up a supply chain here. Those are the opportunities I foresee. We are well positioned to reap the benefits.
On HLL's major challenges ahead:
The big challenge before HLL today is to continue to deliver shareholder value at the rate at which it has always done. Equally, as I said earlier, concentration on topline intrinsic volume growth, building our categories, and building operational efficiencies will certainly be the way forward.
Then there is the challenge of living up to our ability to continue attracting and retaining the best management talent in a much more open market scenario.
Talent is an issue on which I have spent a lot of time. This is also been addressed in detail by the 'Project Millennium' team that worked on this area.
We plan to tackle this through a host of initiatives. First is to remain close to the marketplace (the talent market), to be in touch with people, and to understand what is it that drives them, what are they looking for, what energises them and to make sure that we can respond to them.
People are looking for bigger jobs and more responsibility earlier on in life. They are prepared to take greater accountability. We are responding by restructuring our business operations. We have taken on management trainees in the past. We are going to give them greater responsibility early on. We are also looking at situations where we are going to re-organise our businesses into category business units. Each of those category business units will be well empowered and they are going to drive decision-making deeper and deeper into the organisation.
Several steps like these have already been taken. We have also corrected and looked very aggressively at our revenue ratio to see what we can do in financial terms as well. So, it is a combination of factors that is being deployed to ensure that we continue to attract and retain the best talent.
On HLL's foods business:
We are committed to building a viable foods business. We are going to grow in all the foods categories. We must build tea because tea is our biggest category. In coffee, we are doing well this year. We seem to have come out of the problem that we had for the last 18 months. We are growing strongly, at about 40 per cent.
We will enhance our popular foods business very carefully. Three or fours years ago, I spoke about the popular foods business. At that time, I was running the detergents business. And I remember saying that I am going to stick my neck out and say that this (popular foods) business will one day be the biggest business of Hindustan Lever. I still say that.
It is Rs 2.5-billion business today. But we have got three-four years of learning. We understand the business and the consumer. We built up a wheat technology programme. We know the supply chain. We are now ready to ratchet it into a new level of capability altogether. Particularly, building all the Modern Foods acquisition. So we will certainly build that. We will build ice-cream, but slowly -- after having corrected our cost structure first which will occupy us for this year and the next.
We are also looking at other food areas. Progressively we will build them. One thing I can tell you about foods is, it will be a slow haul. Changing tastes and food habits of any nation is a very complex task.
As far as growing the tea business is concerned, the only solution is to increase the differentiation between packaged tea and loose tea. That's what we have focused on. We will either go for new packaging, go into teabags or launch new products. But increasing the differentiation will be the hard task.
These things can't happen overnight. This could take us a decade. Hindustan Lever is a company that has 100 years of experience. You can't build a foods business in India in a year. It will take some time. But, if you do it right, it will be a huge business. The reason being that there is so much expenditure on the centre of the plate. If you take the consumer's expenditure on detergents and soaps, and compare with that the consumer's expenditure on food, it is 30-to-1. That's the opportunity. Now, it took us maybe 30 or 40 years to build our detergent business to where it is. It won't take 30-40 years to build the foods business. But it won't take one year either.
Our premium chappatis, are on their way. They are in a pilot project. We had a problem with our product. We have now refined that -- in fact, I have tried out the new product. It really is good. I feel we should be launching in the next four months.
On why HLL allowed others like Pepsi to take the lead in new business growth engines, like mineral water:
We may not even do it at all. You must understand every company has certain inherent skills. The question I would ask for Pepsi is, why did they not do it till now? Pepsi actually has all the capabilities. Just think: a soft drink company already has the plant. All they do is add some colour and taste, and they are in business. They have water, they have bottling and they have distribution. But, should we do the same thing? I am not sure. Why should I compete with them the way they do it? When I enter the mineral water, I will do it in a completely different way. Otherwise, I would not enter it.
For this business, I may or may not need a bottler. I may change the paradigm. The important thing is that you don't try to compete in a market in exactly the same way as everyone else does. For, you have no advantage left.
Every market can be big or small, depending on how you drive it. If you look at the statistics, you will see that the consumption of water at home is far higher than the consumption outside.
You need cold water too. If you want to go outside, you need chilling. When I enter a business, I will enter with a very clear strategy. I don't want to enter and then falter.
To succeed in water out of home, you need access to chilling. Pepsi and Coke have great access to chilling. If I compete with them, can I compete with the number of chillers? No. So, if I play the water game, I will play it differently.
I am not even sure at this stage whether I will do it. I want to be absolutely transparent. We have set up a few growth engines. But just setting up these does not mean we are going to enter the business. They are identified as engines that have potential.
On HLL's forays into experimental laundry service and beauty salons:
Perhaps, this is an area we can link to the issue of GDP growth. There are several avenues of growth for our business. Apart from our conventional brands in conventional categories, there is an opportunity to leverage our brands and build service values. This is because of the huge opening up and growth of the service sector. We are looking at different initiatives to take our brands and add a service dimension and, therefore, generate greater value for the brands.
A very good example of this is the Surf Laundry Service. The Surf brand name stands for the very best wash results in India. What better brand name to establish a laundry service than Surf?
Similarly, Lakme epitomises beauty for the urban young woman. What better brand name to lead a foray into beauty salons than Lakme? Yes, these are different businesses. They will require different business models. And that is why, we are experimenting with both of these. We have already established Surf Laundry Service in Bombay. We have been running it for about six months. We have learnt valuable lessons from the experiment. We are now taking those lessons and putting them into a revised business model which will operate on an expanded basis in the next six months. Then, we will go right across the country.
We have identified areas that offer strong growth potential. Equally those are areas which leverage on some of our current capabilities. And, therefore, they reflect opportunities for us. We have established dedicated teams to explore those categories involved in more detail and to develop actual entry strategies for those which cover both organic entry as well as acquisition. That strategy development work is in currently in place. At this point, I can't be more specific.
On HLL's topline and bottomline growth targets, business paradigms, new engines of growth, sluggish consumer spending:
Let's talk about growth into the future: I am very confident that Hindustan Lever will continue its excellent track record of both volume growth and bottomline growth. Now there are some who say: "How can you continue to grow at the same pace?" All that I would say is, the company that it is larger, also is much broader; it has many more categories, and, therefore, many more opportunities and, thus, much stronger. That depth of capability can also be leveraged to power higher growth.
I have often heard that some of our categories are quite mature. I don't think there's anything called a mature category. There is only a mature mind. There is enormous scope to build every single category we operate in: in terms of increasing, both, penetration and consumption.
Let me focus on one of our most ostensively mature categories: personal wash. That is one of the oldest businesses we have here. We have been marketing soap for the last hundred years in India. People think that the soaps category is mature. We have a 70 per cent share of the market.
An average Indian bathes ten times a week. For each bath, you use five grams of soap. If you multiply the number of Indians by the number of baths and the amount of soap used, the potential value of the personal wash market is six to seven times than what it is today. That is the potential! That is the scale of the opportunity in our most mature market.
Apart from this, we have many other opportunities: to take our brands across categories. Who is to say that we should not have a range of Lux cosmetics? Or a Fair and Lovely soap? There are many such opportunities that we have identified already. And they will be progressing on as we look ahead.
Then there are opportunities to reach new thresholds, new ways, and new channels. We talk about Aviance. We are scaling that up...that's the direct-to-home channel. We are looking at out-of-home consumption for our food range and experimenting with that. That would be another opportunity to build quite aggressively.
There is also the service business that we talked about. All these are businesses and opportunities with our current business.
On top of this are the Project Millennium initiatives, or the new categories that we currently don't operate in. I have no doubt that we should be able to drive our volumes growth significantly higher. This drive will ensure that we continue to demonstrate strong bottomline growth too.
A few years ago, we had said that we would attempt to double our business, both in top and bottomline terms, every four years. I was very much part of the group that set that vision. I participated in bringing it this far. I have absolutely no reason to believe that we should alter that.
Everything I would say is that we must be cautious when we look at what constitutes the topline growth. There is a volume effect, and a price effect. The price effect, if it is mainly linked to specific cost inflation, has no role in driving the bottomline effect. It just is negated. In an environment where you have low specific cost inflation, it is still possible to continue to drive very high bottomline growth with low topline growth -- provided it is backed by intrinsic level of strong volume growth.
On whether consumer spending has reached its trough:
No. I think that consumer spending is moving up. I think that all indicators are false. I do not believe that there is any recessionary feeling in the market. I think that the crucial thing would be the monsoons. Good rains have been predicted this year. This would boost the rural market and see more money flow into the market. So I see a good prognosis for the second half on the economic front. The only downside in India is a certain lack of stability on the political front. Uncertainty, thus, is the only enemy of growth. The rest is up to people. I think the worst is behind us so far as the downtrend in consumer spending is concerned.
Other companies may struggle to keep volumes as well as quality up. But I am quite comfortable with the present scenario. We are seeing better quality products. That was our focus -- to drive premium products. And those are responding very well. So, we feel that this actually backs up the theory about the trend. Premium soaps would not have grown at 21 per cent if this trend was absent.
However, over the next two years new businesses will not contribute very significantly. The bulk of the growth in the immediate future will come from our current businesses. The new businesses will be in incubation for two, three, four years. And it is only over a five-year span that you will see the effect taking place.