HINDUSTAN LEVER LIMITED:RESTRUCTURING MARKETING STRATEGY*

GROWTH IS IMPERATIVE FOR Hll

Hindustan Lever Limited (HLL) is India's largest fast moving consumer goods company. withleadership in home and personal care products. foods and beveragesand specialiry chemicals.The vision that inspires HLL's 36.000 employees. including near!}' 1,300 managers. is "to meeteveryday needs of people everywhere. to anticipate the aspirations of our consumers andcustomers and to respond creative!}' and competitive!}' with branded products and serviceswhich raise the Qualiry of life." This objective is achieved through the 110brands that thecompany markets. Its deep roots in local cultures and markets around the world are HLL'sunparalleled inheritance and the foundation for its future growth. With this wealth of knowledgeand international expertise in the services of local consumers it is truly a multi-localmultinational.

HlllN 1999-2000In 1888. less than four years after William Hesketh Lever's company Lever Brothers launchedSunlight Soap in England. William Hesketh's company also started exporting the revolutionarylaundry soap to India and carved a niche for itself in the Indian market. The company mergedwith the Netherlands-based Margarine Unie in 1930to form Unilever. A year later. Unilever setup the Hindustan Vanaspati Manufacturing Company. its first subsidiary in India and furtherstrengthened its position by establishing two more subsidiaries. Lever Brothers India Limitedand United Traders Limited. soon thereafter. The three companies. which marketed soaps.vanaspati and personal products. merged in 1956 to form Hindustan Lever. in which Unileverhas a 51%stake.

Since then. HLL has entered virtual!}' every arena in the fast moving consumer goods marketthrough organic growth. diversiflcation. mergers and aCQ!.lisitions.Today. the company marketsmore than 110brands. in 950 packs. The products are sold in one million retail ot:tlets. almostreaching out to the entire urban population and about 50.000 villages in India. HLL has marketleadership in virtual!}' every area of presence. It is the market leader of soaps and detergents aswell as skin and hair care products. It is also the market leader in tea. processed coffee. ice-cream and frozen desserts. tomato-based products. jams and SQuashes.HLL's gross turnoverin 1997was Rs. 83.4 billion and profit after tax was 5.8 billion. Also. HLL has emerged as a

* Deepankar Mukherjee

100 1:1 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

major exporter. It is a super star trading house. an honour that on!>' seven Indian companiesenjoy. Hll's exports turnover in the year 1999was Rs. 1.803 crore. Hll' s introduction of avariery of products from the time of its conception till date is shawn in Exhibit I. Hll' s brandportfolio in various categories like home and personal care products food and beverages etc.,are listed in Exhibit 2.

Exhibit I: HLL from Conception Till Date

How We Got There

1888: LeverSoap. 'Sunlight', introduced in India through imports.

1918: Vanaspati(hydrogenatededible oil) launched through imports.

1930: Unilever created through the merger of LeverBrothers. UK and

Margarine Unie. Netherlands.

1931: Unilever registers compa'"!}'in India

HindustanVanaspatiManufacturingCompany

(HVM) - for local manufactureof vanaspati.

1933: LeverBrother's India Limited (LBIL) incorporated in India to market personal soaps.

1935: United TradersLimited (Un) incorporated in India to market personal products.

1956: The three subsidiaries. HVM. LBILand UTL merge to form Hindustan LeverLimited (HLL) .

1958: Hindustan LeverResearchCentre starts functioning.

1979: Chemicals complex commissioned at Haldia. West Bengal.

1993: HLL's largestcompetitor, TataOil Mills Company (TOMCO). mergeswith the company.

Erstwhile Brooke Bond India accwiresKissan,Businessfrom the UB Group andDollops ice-creamfrom Cadbul)'.Doom Dooma andTeaEstatesPlantationdivisions mergedwith BrookeBond, Brooke Bond and erstwhile Lipton India merge to form Brooke Bond Lipton IndiaLimited.

1994: HLLand US-basedKimberlty-Clark Corporation form 50:50 joint venture, Kimberlty-ClarkLever Limited

1995: HLL and Indian cosmetics major, Lakme limited form 50:50 joint venture. Lakme LeverLimited

HLLaccwiresKwalio/andMilkfood with 100%brand namesand distribution assets.

HLL and US-basedSC Johnsonand Son incorporated to form 50:50 joint venture, LeverJohnson(Consumer Products) Private limited.

HLL soapsand detergent salescross one million tonnes.

1996: HLLand associatecompany.Brooke Bond Lipton India Limited, India's biggest firm in foodand beverages.merge.

Contd...

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY • 101

1997: HLL and Gist Broacades BV form 50:50 jointventure. Lever Gist Brocades, to market 'GoldSeal Fermipan Instant Yeast' for baking industl)'.

1998: Group Company Pond's India Limited mergeswith HLL. HLL aCQuiresLakmebrand, factoriesand Lakme Ltd'sSO% eQui~ in Lakme Lever Limited, HLL aCQuiring manufacturing rights ofKwali~ ice-cream.

Appellate Authori~ of Government of India absolves HLL of insider trading charges. made bySEBI in 1997. in the BBLIL merger.

2000: HLl aCQuiresModern Foods. theJirst public sector company to be divested by the Governmentor India.

Source: www.hll.com

Exhibit 2: HLL's Brand Portfolio

Home & Personal Care

Personal ProductsSkin care• Fair & love!y• Pond'sOral care• Pepsodent• Close-upHair care• Sunsilk• ClinicDeodorants• AxeColour cosmetics• LakmeIce creams• Kwali~ Wall's Cornetto

• Kwalio/Wall's Feast

• Kwali~ Wall's Max

• Kwali~ Wall's Sof~

Popular Foods

• Annapurna

CullnalJ

• Kissan

Source: www.hll.com

Soaps & detergentsFabric wash• Surf• Rin• WheelPersonal wash• Lifebuoy• lux• BreezeHousehold care• VimFoods & Beverages• Beverages• Brooke Bond 3 Roses• Brooke Bond Red Label• Brooke Bond AI• Brooke Bond Taj Mahal• Upton Taaza• Lipton Yellow Label• Brooke Bond Bru• Lipton Green label

011 & Fats

• Dalda

102 [] THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

CORE COMPETENCIES

HLL is the market leader in soaps and detergents as well as hair and skin care products and isthe second largest manufacturer of dental care products. One of the HLL' s strengths that hasgreat!>, contributed to this success are the breakthroughs at the Hindustan Lever ResearchCentre. Their research center is India's largest in the private sector. The focus on reseaf(,:hgives HLL an edge over competitors by coming up with innovative products and processes.ma~ of which have been patented. Some of the researcheshave been in household cleaning insoaps and improving performance related to tough soil removal and dingy clothes. Studiesrelated to improving Qualiry in tea and enhancing characteristics like colour. aroma and tastehave enabled HLL to make better blends of tea. The company achieved remarkable success inice-creamswhen HLRC developed a 'eutectic mixture' which acts as a refrigeration 'battery' and'thus enables the sub-ambient temperature distribution/vending of ice-creams.. In the personalproducts segment. an important research based product is Fair & Love!>'. .

HLL has always stressed on constant technology upgradation. In 1999. there was a change inthe entire instrumentation setup of HLL Research to bring it on par with the latest researchfacilities in the world. The compa~ has alw'!}'s focused on aCQuiringknowledge-based softwarewith a view to creating knowledge-based communities in HLL Research. HLL has tied up withorganizations like the Indian Institute of Science (Bangalore). All India Institute of MedicalSciences (Delhi). National Chemical Laboratory (pune) and Department of Physics. Universiryof Pune in different areas of research. Besides. HLL has also funded research projects at thelawahar Lal Nehru Universiry. New Delhi and the MS Swaminathan Research Foundation atChennai.

Another factor that contributes to the success of HLL is its massive and eFficient distributionsystem. The operation involves 2.000 suppliers and associatesand 7.000 stockists and agents.Its operations are spread across 70 locations in India. There are around 100 factories. of which28 are in backward areas. In the recentyears most of HLL's major investments have been in Acategory backward areas or no-industrial districts. A few such areas where investments havebeen made are Khamgaon and Yavatmal in Maharashtra. Chhindwara in Madhya Pradesh. Oraiand Sumerpur in Uttar Pradesh. Dabgram in West Bengal. Silvassa in Dadra and Nagar Haveliand Pondicherry. Many of HLL's factories including export oriented units are ISO 9002 certified.Some of these. like the Khamgaon soap plant and the Sumerpur detergent bar unit. have beenrecognized as the best in the Unilever Group. To add to its distribution system. HLL has evenaCQuiredsick enterprises in Mangalore. Rajpura and Gajraula and converted them into viableoperations. HLL has over 36.000 employees. and has created 2 lakh indirect jobs.

HLL has an export portfolio of soaps. detergents. tea. tomato-based products. cosmetics. agro-products. leather products and marine products. carpets. chemicals and fatry acids and castoroil. Castor oil is one of the biggest export products and the company supplies 30% of the worlddemand. It is also the largest exporter of tea and branded fast moving consumer goods. HLL' sexport turnover in the year 1999was Rs. 1.803 crores. HLL is one of the country's five biggestexporters and has been recognized as a star trading house by the Government of India. It is anet foreign exchange earner. Due to its outstanding performance in exports of castor seeds.

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY • 103

castor oil and its derivatives. HLL received the Globeoil Gold Award. The company also receivedthe Silver Shield from Federation of Indian Export Organization (FIEO) for "Outstanding ExportPerformance in Superstar Trading Housing Category" for the year 1996-97.

Financial Performance: Hindustan Lever Limited has recorded a tax deducted profit ofRs.316.94crore in the Quarterended31stMarch 2001, an increaseof 20.7% over the correspondingperiod of 2000. After including a one time exception income of Rs. 22.59 crore on account ofprofit arising from the transfer of interest in the animal feeds business to the Godrej group. thenet profit went up to Rs. 33~.53crore. which was an effective increase of 29.3%.

HLL's turnover (net of excise) at Rs. 2642.51 crore grew by 1.1%.Sales of domestic FMCGproducts grew by 2.6%. Profit before tax at Rso406.33crore grew by 1804%.Annualized earnings.per share of Re I each. is Rs. 6.17 compared to Rs. 4.77 in MQ2000. Other income grew fromRs. 90.01 crore to Rs. 102.20 crore. reflecting efficient treasury management of surplus funds.

The results include an estimated business restructuring cost of Rs. 6.25 crore charged in theQuarter. compared to Rs. 30 crore in the same Quarter last year. The company reviews suchcosts each Quarter. on the basis of estimated annual spends. and necessary adjustments aresuitab~ made and disclosed. The sales performance of the company under various productcategories has been shown in Table I:

Table I: HLL - SalesPerformance

Soaps, detergents. scourers

Personal products

Beverages

Oils and Fat (incl. Vanaspati)

Ice-creams and frozen dessertsCanned and Processed Fruits &Ve etablesBranded staple foods

Speciali~chemicals

Animal Feed

Others

, Total Net Sales

Source: www.moneypore.com

4214018330

19870

6070164013602690217071011060106040

4017

19

6

2

3

2

I

10

100

4101017650

15750

61301710

123021802330332010110101420

4017

16

6

2

2

2

3

10

100

3

4

26

I

-4

II

23

-79

5

HUMAN RESOURCE MANAGEMENT

HLL has one of the best HR managementpractices in the world. One of the key focus areas hasbeen its stress on 'team building'. A constant interaction between employees. customers andcompetitors encourages a unified corporate focus. The idea is to keep the employees (includingsenior executives) in touch with external realities that confront the company. This facilitates

104 • THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

the understanding of value creation on behalf of the employees and this in turn facilitates abetter response from them. Every management trainee of HLL is sent to the field and spendstime with customers. This helps them to keep in touch with the marketplace and inculcates asense of not onlY business obligation but also a moral obligation to work harder. This alsomotivates the individual to understand the purpose of the company and what it stands for.

MARKETING

The company has a strong brand eQuio/which gives it credibilio/ and respect among its peersin the market. It haseven created a positive motivational climate in the organization asemployeestake pride in remaining associatedwith it. It attracts the best talent and inspires respect amongindustry professionals. Pursuing aggressive marketing strategies, HLL continues to be India'smost admired marketing company in the FMCG sector. HLL has in fact emergedas one of Asia'smost admired companies. The table below gives the relative positions of marketing companiesin India and Asia.

Table 2: India's Top 10Most Admired Marketing Companies

......,++ii:in:::v!1:illl1i,;;:;:iili :HH. ;::+1 +,HE .,I'ill11Iil:H;;;iH H.!. M".y!'.

HLL 1 1Coca-Cola 2 7Cadbul)' 3 8Pepsi Foods 4 3Colgate-Palmolive S . 9Nestle 6 5Britannia 7 4ITC 8 6Amul 9 10Lakme Lever 10 11

Source: A & M November 3D, 1999

Table 3: Asia's Most Admired Companies

Max Score 7

Hindustan Lever

Singapore Airlines

SonyReliance Industries

Microsoft

/ollibee Foods

Pohand Iron and Steel Company

Toyoto Motor

6.52

6.466.466.416.37

6.30

6.16

6.166.10

(ontd ...

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY • 105

Ayala Corporation

Larsen and Touhro

Honda Motor

Coca-Cola

Taiwan Semiconductor Mfg. Company

Acer

Last Year. the club had 21 members. or 33% more

Source: Far Eastern Review. December 1999-lanuary 2000)

6.09

6.06

6.06

6.06

6.05

6.03

Hindustan Lever continues to be among the top 200 marketing spenders. In the diversifiedindustries category according to the A&M Survey Report in October 1999 it ranks on!>'next toReliance. Its sales in December 1999were Rs. 10.978.31 crore and its marketing spend wasRs. 8.64 crore. Hindustan Lever continued to be the top advertising spender. having spentabout Rs. 71Scrore for this purpose in 1999and Rs. 669 crore in 1998-99.

Table 4: Advertising Budget

(Crare)

108.94

46.81

85.15

58.68

34.92

77.01

40.93

Source: Abstracted from A&M October 31. 1999

CHANGING PROFILEOF INDIAN CONSUMERS

22.89

The urban Indian consumer has undergone radical changes over the years. This has large!>,been shaped by the media and technology developments in the Indian markets. Due to theconvergence of technologies like electronics. computers. telecom and broadcasting. newermedia have developed and have brought about Qualitative changes in conventional mass medialike press. radio. television. cinema and so on. Television is now one of the cheapest sourcesof entertainment. Cable TV as a mass medium has already become very popular but in future.there is scope for more 'personalized' and interactive services like Direct Broadcast Satellites(DBS) and Direct To Home services is gaining ground.

106 II THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

The print media is witnessing a change due to availabiliry of the Internet. The Indian consumerhas become more Internet-sa\'\)'. The Internet grew at vel)' fast pace and took just 4 years toachieve a user/subscriber base of I million. This can be credited in great measure to theemergenceof cyber cafes in semi-urban areas.Therefore. companies are now taking e-initiatives I

to target these consumers.

Companies are now tapping rural markets to widen their consumer base and gain volumes... tailoring brands specificallY for these markets. There are approximatelY 700 million people in

rural areas and more than one-third of the population is exposed to television in one form oranother. Big players like Hll lay thrust on building brands in these markets as more and morerural consumers are beginning to insist on buying brands rather than products.

Changing patterns in rural consumption can be gauged from the fact that rural spending onconsumer goods has increased over a period of time. The latest figures from the NCAERdemographics survey shows the following consumption patterns:

Table5: RuralConsumption

Consumer expendables Rural share (%)

Tooth powder 78.85

Cooking medium (oil) 65.78

Tea S8.Q2

Toilet soaps 57.25

Washing powder 54.81

Hair Oil 47.24

Talcum powder 43.12

Tooth paste 38.94

Packaged biscuits 38.24Shampoos 25.37

Table6: RuralConsumption

Consumer durables Rural share (%)

RadiolT ransistor 79.20

Bicycle 78.08

Wrist watch (mechanical) 75.59

Fan (table) 65.89

Sewing machine 64.34

TV (Band W) 62.65

Cassette recorder S5.Q3

Wrist Watch (Q!Jartz) 54.00

Pressure cooker 51.51

Fan (ceiling) 50.36

Thus. today companies are formulating different strategies to capture both urban and ruralmarkets.

--

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY a 107

AMBITIOUS STRATEGIES OF SOME OF THE MAJOR COMPETITORS

CavinKare Limited

Chennai-based CavinKare Limited has launched the Fairever skincare cream. taking the dominantHLL's Fair & Love!)' by surprise. Fair & Love!)' had a 97% market share but Fairever has alreadygarnered a good 14%share of the rough!)' Rs. 650 crore fairness cream market.

The company has also entered the toilet soap market with the launch of Meera herbal soap. Itis planning to introduce a range of other soap brands as well as detergents. thus direct!)'competing with Nirma. Procter and Gamble (P&G) and HLL.

In the hair care segment too. it launched its Chik brand through the small packaging sachetroute. and has picked up a sizeable marketshare-rough!)' 15%of the RS.840 crore shampoomarket - in just two years. This has clear!)' rumed the feathers of both HLL and P&G. CavinKarehas. as a part of its marketing strategy. sought to be different. It has decided that apart from anorganic growth. it would even take to the brand aCQuisition route. It plans to introduce anumber of new products in existing categories like skin. hair and personal care. CavinKare isalso trying innovations in pricing and packaging areas. For example. in May 2001 it launcheda single-use perfume Spinz Singlez priced at Rs. 1.50 per sachet. This is expected to driveusageand volumes by expanding the Rs. 66 crore category. Current!)'. it is estimated that on!)'one percent of the population use perfumes. Chik's shampoo sachets priced at 50 paise havealready created waves in the market. Within ayear of its launch. the shampoo penetration in the

country grew from 17.90% to 19.4%.

Today. the company spends around 4% of its turnover on R&D and close to 25%on advertisingand marketing. while constant!)' upgrading its offerings. based on consumer feedback. It hasemployee forums like 'cross functional teams' which discuss and plan new product developmentswhile sharing learning and insights from its successesand failures. The company also recordsits brand histories on compact disks for the benefit of new employees. Thus. at the pace atwhich the company is moving. it is poised to offer competition to HLL.

Procter & GambleP&G has recent!)' announced price cuts in two of its premium brands. Earlier P&G cut theprice of its most popular and premium brand Whisper Ultra by 19%.Whisper Ultra sales areestimated to have doubled post price cut in February 2001. With the price cuts P&G's corebusiness of healthcare (Vicks) and hygiene (Whisper). have registered an 8.3% growth duringthe year. from Rs. 2.6 bn to Rs. 2.8 bn. This growth is primari!)' attributed to the success ofWhisper Ultra and strong growth in Vicks cough drops.

Last week it announced price cuts in Tide - its largest selling global detergent brand-launchedin India lastyear. Its price has been slashed by a massive29% from Rs. 120per kg to Rs. 85 perkg. Tide was initial!)' positioned midway between concentrates like Ariel and Surf Excel(Rs. 160 per kg) and the premium segment occupied by Surf (Rs. 85 per kg). Now the companyhas lowered prices. after creating a premium image. Ana!)'sts see this price cut on Tide as a

threat to HLL's Surf.

,.

108 1:1 THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

The technology-focused P&G is now concentrating on the value-for-money consumer. and thisis perhaps the company's most successful strategy and strongest effort to capture volumes :nthe market.

Marico Group

The group is following the strategy of being proactive in a:1areas of marketing. supported bynew product development and segmentation. Various initiatives are being undertaken for newproduct development and the group is also looking at building an aggressive cost structure.which will help in improving margins. It has hired Anderson Consulting in an advisory capaci~.Marico has adopted TCM (Total Cost Management) practices in all its operations. It will be a4-5 month project and will concentrate on the entire chain including manufacturing. marketing.distribution. and so on. Cost targets have been set and if these are achieved. the payback willcome within a month. It plans on tapping a larger number of consumers and expanding itsdistribution reach. special!>,in rural markets. Marico hasmade significant progress in enhancingsales capaci~. Quali~ of its distributors. and the size of the distributors' field force. Thecompany has also taken several initiatives to improve penetration in rural areas. Marico'sparallel rural sales and distribution network ranks among the top three in the industry tod'!}'.Marico has leadership in the coconut oil category and in fact, Parachute has gained marketshare in the last oneyear and current!>,has a market share of about 53%. It has expanded rangein the value-added segment by recent!>, launching the Parachute Dandruff Solution Hair Oiland has positioned it on a herbal platform. Marico's Saffola is positioned in the premiumcategory and has a well-entertained brand eQui~. It is also test marketing Saffola Kardi-Cornblend in Bangalore. which is receiving a good response. Besides this. Saffola Salt which ispositioned in the premium category. has also been doing well.

Godrej Consumer Products Ltd.

Godrej's Ezee. common!>'recognized as a detergent for woolen and delicate clothes. has beenlaunched in a range of variants including an expensive T-shirts wash and a fabric softener forcottons. The company intends to invent a niche segment and make it grow through this umbrellabrand. It plans on aCQuiringa household category brand. especial!>,in the floor cleaner segment.This category is growing at over 20% annuallY and Godrej so far had been !>,ing low in thehousehold segment with just the Godrej liQuid Cleaner.

Godrej is well entrenched in the fairness cream category. It launched Fairglow last year whichhas picked up 2.1%share of the market. The market share in the hair care category has alsoimproved from 39.4% to 41.7%. The company however. does not intend to get into shampoosand detergent bars as it does not have the reQuired technology to manufacture such products.

Dabur

Strong brand eQui~ in the ~urvedic segment has helped Dabur sustain growth despite asluggish demand situation. Apart from its large range of ~urvedic products like Chyawanprash.over a period of time. the company has forayed into personal products like Dabur Amla Hair

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY 1:1 109

Oil and Lal Dant Manjan by capitalizing on its distribution strengths. Dabur has a strongtransnational distribution network of more than 5.500 distributors servicing 1.300.000 retailoutlets. through 21 sales offices. The successful repositioning of Chyawanprash. Pudin Haraand Dabur Honey has led Dabur to modernize its portfolio of traditional products. Honey.which was always advertised as a therapeutic product. changed track in 1993, and positioneditself as a food item. Honey sales rose from Rs. 5 crore (Rs. SO million) to Rs. 12 crore in ayear. Dabur now has an unparalleled dominance in various niche categories. Brands such asDabur Amla. Dabur Chyawanprash.Lal Dant Manjan (LDM), Hajmola. Pudin Hara and Hingoliare undisputed leaders in their respective categories. Dabur has built a loyal user base that hasexpanded with an increase in the popularity of 'nature-based' products. particular\)' in theurban market. It is this loyal and expanding user base in its niche categories which has helped

the company to tide over the FMCG's slowdown.

The company has shown healthy double-digit growth rates during this period of FMCGslowdown. Its hair care segment. which contributes 61% to its fami\)' products division. grew9% during the financial year 2001. This was main\)' fueled by a 15%growth in Dabur Amla.which constitutes over 54% of revenues from the hair care business. Also. with the Vatikabrand of anti-dandruff and plain herbal product. Dabur has created a niche in the shampoomarket. Vatika shampoo hasgrown 78% in 2001. Dabur dominates the red tooth powder categorywith about 67% market share. Despite a shift towards white tooth powder. Dabur Lal DantManjan has achieved a growth rate of 12%during 2001. Dabur has also launched Binaca whitetoothpowder as a reaction to the shift in preference towards white tooth powders. It has alsolaunched Binaca toothbrushes and has garnered a 2% share of the estimated Rs 300 crore

market.

Ana\)'sts expect that the company will continue to grow. main\)' driven by growth in the Vatikabrand of hair oil and shampoo. Dabur Amla. LDM. and Binaca brand products. Moreover. theayurvedic specialities business grew by 19%to cross the Rs 100 crore mark for 2001 (Rs 105

crore).Now the company's energies are focused on Real and Hommade pastes. It is looking at thepossibility of launching tomato pastes and at the same time. is doing research in chutneys andpickles. Dabur is also working furious\)' on tetrapacks to take on the competition in fruit drinks

and nectars.

lTC's initiative

lTC's e-choupal has redefined the way the supp\)' chains can be integrated and distributionsystem streamlined for the cutting edge competitive advantage.

How to face competition

In the midst of such tight competition. HLL is coping in numerous ways.

New Business Opportunities: HLL is exploring new growth areas. It has evaluated 9 feasibleareas where it can venture and is current\)' experimenting in five such areas. These areconfectionery. consumer healthcare. water. direct consumer distribution and rural marketing.

110 EI THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

HLL plans an organic entry in the water business and further strengthen it through brandaCQuisitions.Consumer healthcarewill be an extension of its current personal products business.It will sell non-prescription products over the counter.

HLL is also considering entry into food retailing by piggybacking on its ice-cream business. Itplans to expand the product mix at its exclusive Kwaliry Walls ice cream parlours by includingconfectionery and other offerings. HLL is opting for the franchisee route to open these parloursand hopes to take this concept to all cities of India.

Brand Portfolio Restructuring HLL, like its parent brand Unilever. plans to prune its brandsand focus on the top 30 out of a total 110brands. These top 30 brands contribute more than75% of the turnover. The rest will either be dropped sold, migrated or continued as regionalbrands. HLL is not planning to vacate any category it is present in. and is only eliminatingbrands. With the rational ising of these brands an enormous simplification is expected to takeplace. According to Chairman, Banga "Becauseyou cut down on the number of SKU's, thesupply chain gets simplified and that saves costs". The company plans to support the powerbrands with strong advertising.

Brands which contribute to about 25%of HLL's turnover, have been classified into three groups.First, they are the 'regional jewels', that is, brands which are exceptional~' strong in certaingeographic areas. Hamam, for instance, gets about 60% of its volumes from Tamil Nadu. whereit has more than 30% market share. HLL will keep such brands as purely regional brands. andsupport them heavily in these limited geographies. HLL, though tightlipped about its powerbrands gameplan, has started to announce its list of casualties. or brands which are both smalland unprofitable, and are to be discontinued or sold off. HLL has delisted two toothpastevariants. Close-Up Renew and Close-Up Oxyfresh, which are off the shelves. the washingpowder Revel and the rural toothpaste Aim which will also go off the shelves soon. Breeze, amass market brand in the toiletries market is growing at 50% plus per annum. Hence, thecompany plans to phaseout the other massmarket brand /ai soap. which is now being supportedlesser and lesser.Another brand that might be phased out is Moti soap which sells only in oneor two states and just about 5,000 tonnes ayear, mostly during the Diwali season.Among theemerging categories Rexona and Axe deodorants are the power brands. Rexona has been usedto build the deodorant market by HLL. Axe. though launched only last year. has been doingwell. However Denim and Impulse are likely to go since they have not fared well in the market.Bangaexplains, "Wheneveryou have the samebenefit and sameprice point there"s no advantageto me to carry two brands. So what we would do is to merge those brands with some of the 30".The company through intelligent communication and use of pack graphics intends to migratethe consumers of the phased out brands to existing brands.

After almost a month of research, The Economic Times shortlisted what it considered theprobable power brands of HLL. The criteria for selecting the 30 brands was brand's currentsale, its differentiation vis-a-vis the rest of the market and its future growth potential. The 30power brands as listed by The Economic Times are shown in Exhibit 3.

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY C III

Exhibit 3: The HLL Sensex

I~

30 Power Brands

Lifebuoy: Lifebuoy. Lifebuoy Active soapslux: soap. shampooUri!: soapDoveBreezePears: soap, face washFair & love!y: cream. soap, lotionClose-Up: toothpastePepsodent : toothpaste. tooth powderSurf: Surf Excel. Surf ExcelmaticWheelComfortVimRinSunsilkClinic: Clinic Plus. Clinic All clear. Clinic Hair OilAxeRexona: deodorantRed LabelBrooke Bond A ILipton TaazaThree RosesTaj MahalBruKissanKissanAnnapurnaKwali~WallsPondsLakmeElle 18

Brands

Lifebuoy: Lifebuoy liQuid. Lifebuoy Plus/Gold

Jai:soapLiril: Tale. LiQ!JidMoti: soapDenimPears: NaturalsSuper SO IClose Up: 0lo/-Fresh, Renew, toothbrushesPepsodent: toothbrushSurf: Surf EasywashOK

501 Half BarSunlightAimSunsilk: CeramidesFruitamins

OrganicsRexona: soapImpulseDomexSavlonRevel

Some mega brands like Surf and Lifebuoy are likelY to undergo pruning. In the fabric washmarket there are likelY to be three distinct brands: Wheel catering to the massmarket, Rin andSurf operating from the middle upwards. However, Rin talks about whiteness while Surf occupiesthe stain removal platform. Surf has Surf Excel and Surf Excelmatic. both of which hold greatpotential for growth and positioning of technology leadership, though at present in volumeterms they are less than 5%. However, other variants like Surf EasyWash may be pulled off theshelves as they have not been doing well. Lux is a power brand, which started out in thepersonal wash market initiallY and is now a brand that talks all about beauty care. Lux enjoys awide appeal amongst consumers as a beauty brand and has a lot of authority since it has beenendorsed by film stars. Banking on the eQuity of Lux, HLL is pushing Lux shampoo sachets inrural markets. According to analYsts brands like Pears. which are small in terms of turnover

112 D THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

and profitability. but have the potential to be the products of the future. are like!}' to beconcentrated upon. Though the Pears brand has less than 5% market share in the toilet soapsmarket. it has a uniQue position that has been extended into face wash ana off late into an oilfree. green variant.

Hll has designed the power brand portfolio in such a way that the Company has a presence inall categories and key consumer segments.

New Product Introductions: At the top end (premium soaps) segment of the personal washcategory. Hll launched Savlon and Liril Rainfresh. In the fabric wash category. Surf Excel wasrelaunched with a new and improved formulation. thus enabling Hll to further consolidate itsnumero-uno position in the concentrates segment. Hll launched "Operation Streamline" toenhance the rural coverage of its detergents. which led to an increased contribution from ruralmarkets.

In the culinary products category Hll introduced Tom Pudina in the Ketchup category. In theTomato Puree. a single use pack was introduced to give consumers convenience and lower themoney outlay. Hll has recent!}' introduced popular foods like wheat flour and edible salt underthe KissanAnnapurna brand name.These products are changing consumer habits in a remarkablemanner by the consumer giving more preference to processed. hygenic. healthy and convenientproducts.

Hll is also concentrating on improvement in the manufacturing sector by laying stress onareas like productivity. Quality, energy conservation. safety and environmental protection. Ithas been able to improve operational performance through significant improvement in its TotalProductive Maintenance (TPM) at six manufacturing sites.

Mergers: The personal care segment of the FMCG market provides both high volumes andhigh margins. The merger of Hll and Pond's (India) will result in increased revenues for HlLAs compared to Hll's margins of 11.6%in 1997, Pond's achieved 18%margin while Lakme had45% margins in March 1997.Hll has also aCQuireda 50% stake in lakme lever Limited gainingtotal control of the company. This led to the restructuring of the manufacturing and distributionsystems of lakme with HlL It also fuelled the growth of Lakme's business through a focusedportfolio approach and increased the reach of lakme through more outlets as compared tobefore.

Hll also intends to aCQuireLakme's cosmetics brands. With this, it will own the largest colourcosmetic franchise in the country. once again making it the market leader.

e-commerce Initiatives: Keeping pace with times and the changing market scenario. Hll isnow taking to e-commerce in a big way. HLL is considering three opportunity segments-businessconnectivity. consumer connectivity and consumer commerce. Hll's vision is "connect. attractand fulfil" on a large scale.

In the area of business connectivity, HlL plans to create an extranet linking in phase I withabout 5.000 stockists. 30.000 retailers and 100 suppliers spread over 1,000 locations. Asimilar plan also aims to link suppliers. factories and the purchasers through an extranet toachieve real-time. vendor-managed inventory. The company is planning e-banking initiatives to

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY 1:1 113

enable paperless financial settlements. The company's Aviance business. which has a newinternational and customized skin care and beau~ cosmetics portfolio of 70 products. is beingconfigured to run on the Net. The Aviance range of products consists of the best Unileverformulations. selected from across the world and promises technology that works with theskin's natural processes to provide high perform;mce beau~ solutions. HLL is already workingin the area of consumer connectivi~. through the Pond's website. Hello Hindustan and MeraHindustan initiatives in the detergents business and events like Clos~. Up Antakshari on theNet. The company is also testing interactive kiosks for the Lakme and Pond's ranges, in a fewcities. These will enable the consumer to try out, various beau~ products on screen. beforebuying. It is also considering the possibili~ of joint ventures with woman's portals.

HLL is poised to gain from e-retailing as it will have the widest distribution capabili~ withabout I million outlets across urban areas, over 100.000 in villages and a privileged relationshipwith around 7,000 stockists.

Working for a Social Cause: HLL is a social!)' responsive organization. HLL believes that "anorganization's worth is eQual!)' reflected by the service it renders to the communi~". HLL hascontributed to the socie~ in many ways. Through different projects, it provides care for HIV-positive patients. education and support for children with challenges. a hospice for dyingdestitutes. basic education for children in rural areas, and support to government relief measuresin natural calamities.

The largest FMCG company of India provides employment to around 36.000 people in thecountry. It has worked f~om time to time to spread awareness regarding various issues. Forinstance. 6 out of 10 children in India and a large percentage of women are deficient in iodine.HLL carried out "Project Iodine". a school contact programme to spread awarenesson iodineand sampling of iodised salt. The company's plantation division has a large workforce of about19,000 people. It started "Project Dialogue" in 1999 where more than 3,500 workers wereexposed to basic level awareness. This was one of its major initiatives in carrying out a non-management level training programme. It also started special education centres for handicappedchildren in Ankur in Assam and Kappagam in Tamil Nadu. Ankur has been vested with theprestigious World Awareness Business Award for Social Progress by HRH the Princess Royalin lanuary 1999. HLL has saved precious jobs and developed local economies by taking oversick enterprises and converting them to viable profit making units.

Business Concerns

HLL has been going through a rough phase. The FMCG industry witnessed an almost flatgrowth in the April-lune Quarter of the fiscal year 2001-2002. According to ORO data in April2001, the industry grew at 0.6% which marginal!)' improved to 0.7% in May 2001. HLL' s woesare two fold - distribution and product portfolio.

With a well-entrenched network of a million retail outlets, HLL has already attained optimaldistribution levels. Therefore. potential to achieve meaningful volumes in growth. by expandingdistribution, is limited. On the other hand. many of its competitors still have a long way to goin terms of distribution and reach, thereby making it easier for them to achieve growth involumes by snatching away marketshare from HLL.

114 • THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

Its portfolio seems to be going through a structural shift with high growth products moving tothe mature category. Therefore. further penetration is unlike\>'. accounting for 72% of Hll'srevenue. This means that margins will be under pressure in the coming years. Although Hllhas been making investments. there will be a time lag before new products to move into the starcategory. Categories like ice cream. culinary products and coffee constitute on\>' 5% and arestagnating despite the company's efforts to make them grow. Hence no spectacular growth isexpected in these procijJct categories. Also. with increasing competition. the company willhave to increase its ad spend. which will affect its margins. even though on~' marginal\>'.

Table 7: HLL Profit & Loss Account

Rs.lakh 1991 1992 [993 1994 1995 1996 t[997 1998 1999 2000Profit and Loss AccountSales 150761 175703 206317 28248 336695 66001 781971 948185 10142 10603Other 616 1200 2976 5621 6670 11808 18387 24474 31898 34507IncomeInterest 2063 3219 2723 2954 2015 5700 3389 2928 2239 1315Profit before 13770 16598 22277 30271 37222 60525 85025 113044 13879 16650taxation (a) ,Profit after 8020 9848 12727 18996 23922 41270 58025 83744 10699 13 100taxation (a)EPSof Re I(adjusted for 0.57 0.70 0.91 1.30 1.64 2.08 2.81 3.67 4.86 5.95bonus)DPS ofRe 1(adjusted for 0.39 0.42 0.56 0.80 1.00 1.25 1.70 2.20 2.90 3.50bonus)Balance SheetFixed assets 19353 22275 25434 32890 39556 72171 79409 105377 10871 12034Investments 760 1224 5095 19145 12283 32877 53157 69751 10061 17697Net current 25408 29858 19560 34202 45767 37867 12242 22606 18725 37338assets

45521 53357 50089 82637 97606 142915 144808 197734 228053 259983Share capital 13999 13999 13999 14699 14584 19917 19917 21957 22006 22006Reserves 15047 19331 24569 39127 49244 79236 106233 149346 188320 226816and SurplusSharepremium - - - 17757 17757 17757 - - - -suspenseaccountLoan Funds 16475 20027 11521 14654 16021 26005 18658 26431 17727 11161

45521 53357 50089 82637 97606 142915 144808 197734 228053 259983Source: HLL Report and Accounts 2000

As mentioned earlier. due to intense competition and slowdown in the demand for FMCGs.HlL's margins could come under ~train. The parent company's decision to charge a royalo/ of1%on a part of the turnover will also affect the bottom line of the company. Some of the sunrisecategories that the company has been banking on have failed to take off. Although there have

I~,

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY C liS

been no indications so far, other than a couple of separate joint ventures, there is an apprehensionthat the parent company may set up a 100% subsidiary in India to pursue future business

opportunities.

The chairman of HLL, M.S. Banga, however is optimistic, "Our objective is to improve theunderlYing Quali~ of our business and achieve sustainable and profitable growth. According[y,we have embarked upon a three-pronged strategy of leading growth through focusing on 30power brands, improving the profitabili~ of our foods business and taking steps to secure thefuture of the non-FMCG businesses. Significant investments have been made in improvingproduct Quali~ and brand support stepped up by 15%for our power brands. Actions initiatedfor improving foods prontabili~ through rationalization of the portfolio and supply chaininitiatives have also started yielding results. loint Ventures are being formed for two of ournon-FMCG businesses to protect their value-one with Godrej Agrovet for our AFS businessand another with the ICI group for our fragrance/flavours division".

The chairman also stated that the company intends to reinvest a portion of the exceptionalincome from these divestments to fortify its competitive position in the FMCG sector, especial[yin personal care and fabric wash and oral care. Strategic initiatives to improve the portfoliomix, overall cost management measures and benefits of previous restructuring led to animprovement of about a 1%point in operating margins.

In the past five years, HLL has seen its profitabili~ margins expand continuouslY due toimprovement in operational efficiencies and working capital management. Operating 'profitincreased from 10.81%in December 1995to 14.11%in December 1999.Net working capital <yclereduced from 27 days in 1995to 4 days in 1999. However, analYstsare Quick to point out thatfurther improvement in productivi~ is ruled out. Ana[ysts estimate that sales for HLL will fallby around 3-4% on account of the higher revenue base and lower rural consumption of theprevious year. The company's decision to focus on 30 power brands is ~xpected to result inrevenue pressure in the short term. There is however, a likelihood of the margins for increasingonlY slight[y, given the lower restructuring costs, rise in product prices and lower input costs.

Issue

Given the nature of problems HLL is facing today, it will take Quite a while for the company toreconstruct its product portfolio to counter the impending slowdown. The managementwonderswhat strategies HLL should use to increase both volumes and margins and fight off the stiff

competition.

References

I. Brockbank, Wayne, "This will be the decade of the human side of business', BusinessLine, May 2001.

2. Mahalakshmi, N, "HLL: Diminishing marginal returns, the smart investor", BusinessStandard, October 2001.

3. Brand EQui~, May 23, The Economic Times, May 22, 2001.

-r'- __ ,...,,,,_m.~'"",,,,""",,,,"~""",""","~'"""'" ~~~

116 C THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

4. www.hll.com

5. The Financ:al Express, Ju!>,16, 2001.

6. www.lndiainfoline.com

7. www.bs~trategist.com

8. "The smart investor". The Business Standard, www.business-standard.com

9. NCAER Consumer Demographics Survey. 1998.

10. A&M October 31,1999.

II. Far Eastern Economic Review, December 1999-Ianuary2000.

12. HLL Reports and Accounts. 2000.

PART IIHLL Network is going to be a powerful source of growth. Our objective is to buildsteadi!y so that we have more than one million entrepreneurs.

M. S. Banga*

HLL'AND DIRECT MARKETING

HLL made its foray into direct marketing in 1999with the launch of a range of personal careproducts under the brand nameAviance. Though Aviance was not a roaring success in absolutesales numbers. it laid the foundation for HLN, which was launched on January27, 2003.

In terms of market share, HLL is India's largest consumer goods company and the leader inbeaury, personal hygiene and home care products in the country. The innovative distributionchannels created by HLL to accessthe Indian market have spelled success for the company forover five decades. HLL's formula has been successful!>,replicated by many competing brandsand small players in the FMCG segment. The wide range of products offered by HLL to tapevery conceivable price point. tapped the unexplored Indian market optimal!>,.and HLL becamethe jewel in Unilever's crown, contributing to revenue growth even when the parent companywas struggling. But in the late 1990sand ear!>'2000s, an influx of foreign players and n~riadlow-price local rivals started eroding HLL's dominant position.

The compa!'!)' zeroed in on the idea of meeting the growing needs of the time-starved Indianmiddle class population through direct marketing via HLN. The direct marketing industry wasestimated to be worth more than Rs. 15bn as of ear!>'2003. and was growing at the rate ofapproXimate!>'25%year-on-year. Through value-added services like expert advice and homedelivery, and a range of world-class products which mirrored the aspirations of its targetconsumer, HLN aimed to be the most preferred network marketing company in the country. It

*Chairman. Hindustan Lever in 2003.

- --_-- --_--~_..."...".,"'" ••••,._. m

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY 1:1 117

envisioned partnering with its consultants (salespersons) and providing them with a businessand self-development opportuni~ that was tru!)' rewarding. In the words of Dalip Sehgal.ExecutiveDirector - New Ventures and Marketing Services. HLL, "We need to be present in allchannels. And we see network marketing as a bigger opportuniry than a threat."

Network Marketing Indlistl)' in India

Indian Direct Selling Association (IDSA) defined direct selling as the act of marketing ofconsumer goods and services through personal contact. away from a fixed location or a shop.In the words of Ka!)'anRanjan. Manager. Corporate Communications. Amway India Ltd.. "Thedirect selling system adopts methods of door-to-door selling. group meetings. and networkingmarketing." By selling direct!)' to the consumers and avoiding lengthy intermediaries in thedistribution network. companies save on time. transaction and retailing costs. and reapsubstantial benefits in the process. It is estimated that with the success of Amway. Oriflameand other direct marketing brands. direct selling constituted around 1.5%approximate!)' Rs. 20bn of the total annual retail market in India in the ear!)' 2000s. Initial!)'. restricted to limitedproduct offerings like home care. personal care. education and kitchenware. this innovativedistribution system has expanded over theyears to include sophisticated categories like softwareproducts. banking and other services as of 2004. Companies such as Eureka Forbes pioneeredthe direct selling system in the country with a sales force that was trained to make directhouse-to-house sales.

In its nascent phase. the direct selling industry had to confront the negative attitude of theIndian populace who rypical!y viewed direct selling as an intrusion into their priva0'. Untrainedsales personnel. de-motivated distributors. poor Quali~ of the products and the 'hardsell'tactics adopted by salespeople left consumers wary of the credibili~ of this distribution system.But with the advent and success of global players like Amway and Oriflame in the Indianmarket in the 1990s. growth in the direct sales market aCQuireda new momentum.

MLM or Multi-Level Marketing is the fastest growing sector of the direct selling industryworldwide. In multi-level marketing. also known as network marketing. salespeople not on!)'sell products but also recruit other sales personnel who become a leveraged sales-force andcontribute to the commission earned by the initiating salesperson. In the pre-liberalizationera. network marketing in India usual!)' took the form of various chit fund companies whichoperated a system of agents. who simultaneous!)' mobilized deposits and appointed sub-agentsfor further deposit mobilization.

Oriflame International was the first international major to begin network marketing operationsin India in 1996. This was followed by the entl)' of Avon in late 1996. Tupperware. with aproduct portfolio comprising plastic food storage and serving containers. also entered India inthe sameyear. The biggest success story in this field. Amway India Ltd.. started commercialoperations in the country in May 1998. The first homegrown MLM major was Modicare. startedby the Modi Group in 1996.Modicare's network covered northern and western India. Like otherdirect selling companies. network marketing companies are affiliated to the Indian Direct Sellers'Association and are bound by its code of conduct. (Refer Exhibit 5 for a list of direct sellingcompanies in India).

118 • THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

Exhibit I: Direct Selling Companies in India;:;;;""1. ...... " .. iii;:!!;:; ;:\!I:';\\,;;;;> .~",,~~.;•..~~.~;:;i. ,iin. I t:jjJ;;.l]'lO"UY,. nn

I 1981 Eureka Forbes ltd. Home Care

2 1992 Time Life AsiaEducational Products andMultimedia

3 1992 lotus learning (P) ltd. Educational Products andMultimedia

4 1995 Avon Beauo/ Products India Pvt. ltd. Personal Care and Cosmetics5 1995 Oriflame India Pvt. ltd. Skin Care and Cosmetics

6 1995 Amway India Enterprises Home Care, Personal Care,Cosmetics, Nutrition

7 J996 Quantum International (P) ltd. Ayurvedic Health Care, Personal andHome Care, Food and Beverages

8 1996 Tupperware India Pvt. ltd. Plastic Moulded Kitchen Containers

9 1996 Modicare ltd. (Home grown) Home and Personal Care. Everyday-use Products

10 1997 AMC Cookware India (P) ltd. Stainless Steel Cookware/I 1998 Herbal life International Weight Management12 1999 Aviance Hindustan lever Cosmetics and Skin Care

13 1999 Sunrider India Home and Personal Care, Everyday-use Products

Source: www.indiandsa.com

Exhibit 2: Tupperware's 'Food Preparation and Storage' Product Range

a) One touch reminder KitchenEQuipped with a see

Clear Plastic Storage ContainersCanister Set

through window to seeand Canisters

b) Classic Sheer I Gallon Pitchercontents. Easy pouring.prevents dripping

24 half egg holdera) Egg-ceptional Server Set To store and serve

2.Food Preparation Serving

b) Impressionall Gallon Pitcher beveragesContainers and Sets

c) large Pick-A-Deli Containers For handling pickles withcare

Baking mat:

Food storage and preparationa) Silicon Wonder Mat Two containers to hug

3. b) Butter Huggers Set com and dispense butter.methods and suppliers

c) Chef Series Knife Sets For cutting. slicing andpeeling.

To steam vegetables and

a) Tupperware Mealmaker Setbrown ground beef

4. Handy Households To store food inb) Crystal Wave Small Set Bowls

refrigerators. Also usablein microwaves.

5.Insulated Freezer Containers and a) Freeze Smart Products For frozen food storageCold Food Storage b) Chillin'out Sets Higher capacio/ storage

Contd ...

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY a 119

6.Long-Term Food Storage and a) Pasta Mates For storing PastaHome Food Preservations

7.Lunch Box and Portable a) Lunch'N Things Con~ainer Lunch box with four compartments.

Storaj?,eContainer Ideas b) Sandwich Keeper Sets For sub-style sandwiches

Microwave Cooking Safe a) Oval Microwave CookerTo steam. brown and bake

8.Dinner plate sized container for

Plastics and Dishes b) Crystal Wave Divided Dish reheating and serving

Srylish carrier for organizing beaury

a) Barbie Beaury Carry All accessories.

9.plastic Barbie Doll Products: b) Barbie Mini Beverage Set Mini beverage set including miniLunch and Toy Boxes c) Barbie Lunch Set pitcher. plates and tumblers.

Slim sandwich keeper and a tumble

10.Plastic Food Storage a) Modular Mates Store food. fit in narrow placed.

Containers and Canisters b) Serving Center Set Six components tray for TV snacks

Plastic Home Storage a) Fridge SmartFor storing vegetables

II. Solutions and Ideas forFor easy spaghetti measuring and

Pantriesb) Spaghetti Dispenser pouring

Plastic Storage Pitchers and a) Open House Tumbler Four unbreakable tumblers set.

12. Bowls Sets b) Refrigerator Pitchers Sleek pitchers to save space

13.Portable Plastic Storage a) Insulated Commuter Mug To reheat contentsContainers and Bins

14.Spice and Seasoning Storage a) Spice Shaker Set To keep spices fresh for Pouring.

Containers in Modern Designs b) Classic Sheer Midget Set measuring or shaking

Stackable Small Plastic To store. reheat and serve15. Container and storage a) Rock'N Serve individual portions.

solutionsSource: www.tupperware.com

HINDUSTAN LEVERNETWORK (HLN)A dominant player and market leader in the fast moving consumer goods segment HLL forayedinto direct marketing in 1999with a premium brand of personal care products for women, withwomen acting as consultants. Aviance. the brand name under which the products were sold.was limited in its domain and scope of operation. It offered customized beauty solution and arange of cosmetic and skin care products to its consumers. The Aviance range of productscatered to the premium section of the Indian population. However. the consultants selling theproducts belonged to the SEC B&C strata and this led to visible mismatch between the brandpositioning and the consultant profile. The brand Aviance. therefore. never reallY managed to

attract and retain its target consumer segment.

At the same time. aithough Aviance had failed to attain its desired level of success. the directselling industry in India was undergoing great change with the emergence of a number of newproduct categories. Network marketing expanded. engulfing a wide spectrum of products fromkitchenware and home care to food and jewellery. In such a scenario. HLL stood conspicuouSlYlimited in its positioning as a premium women's brand with women-oriented beauty products.By the end of 2002. the company therefore decided to rethink its strategy and not onlYbroadbaseits products but also open the distribution network to men. who wanted to act as consultants.

120 a THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

Past experienceswith Aviance (the brand name failed to communicate the origin of the productfrom the House of Levers and therefore failed to instill trust and confidence in its target segment)made HLL skeptical about using a neutral, new or foreign name for its revamped efforts in thedirect marketing segment. The company wanted to leverage its goodwill and brand eQuiry thatit had built over a period of 100years in the Indian market, and decided to stamp its own nameon the rejuvenated venture. HLN was formal!>,launched on January27, 2003. Speaking of theimportance of leveraging the corporate name, Dalip Sehgal, Executive Director, New Venturesand Marketing Services. HLL commented. "HLL has built a reputation built on trust and Qualiryover the last 100years. With its existing position of strength as the leading consumer goodscompany in India, HLL will leverage its capabilities across manufacturing. supp!>,chain, R&Dand consumer understanding to provide a strong!>' differentiated proposition in HindustanLever Network that redefines the business of network marketing."

A comprehensive range of more than 175to 200 products was sold under the umbrella brandHLN. Aviance was incorporated as a sub-brand within HLN. Several other products that wereadded onto the expanding portfolio included Lever home-range of kitchen care. home care andlaundry care products. HLL also launched a food supplement Nutrium Plus, exotic tea, specialcoffee and value-added foods such as sauces in its direct marketing network. Consumer offeringswere expanded to oral care (Mento dent). confectionary gifting items and the 'Denim' brand ofmen's grooming and personal care products. The company aimed to expand its reach over time,by adding a new product every alternate month to cover all product categories. Internal sourcesstated HLN's intentions to introduce a complete range of products similar to its existing retailrange in the future. Apart from this. the company also decided to increase the product line ofits existing retail brands, Denim and Ayush. Denim Xclusive and HLL Ayush Spa were the twonew brands that were in the offing. Most of the HLN products were manufactured in-house inthe world class centre set up by HLL at Mumbai.

-----w---',_, -~~-II

PART IIIMANAGING WORKING CAPITAL

Unilever's Indian subsidiary. Hindustan Lever limited (HLL) is the country's largest Fast MovingConsumer Goods (FMCG) compa'"!}'.It hasbrands spreadacross20 distinct consumer categories.HLL holds a place of pride in the Unilever global system. In India, HLL is known for its tightmanagement of working capital and the company has been operating with a negative workingcapital since 2000. But the management realizes that as competition intensifies, there is stillscope for improving operational efficien<}' and cutting working capital needs.

"Our capital to turnover ratio is 1:4 and last year we used zero working capitaL"

-M. S. Banga. Chairman. HLl

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY • 121

,~--------------------!,,1

Exhibit I: HLL - Key Financials

Rs. Lakhs

2002 2001

Gross turnover 1095161 1178130

Turnover. net of excise 995485 1066756

Profit before tax 219712 194337

Tax on profits (47985) (40242)

Exceptional income 3842 10036

Net profit 175569 164131

Taxation adjustments of previous years 1435 (\01 )

Dividend (inc I . tax on distributed profits) (\21068) (\1583 I )

Transfer to general reserve (17700) (16500)

Profit & Loss Account balance carried forward 119816 75998

Source: HLL Annual Report 2002

Exhibit 2: HLL - 10 Year Performance

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

# Sales (Rs. Cr)By Segment % of 2436 3240 3775 7120 8343 10215 10918 11392 11781 10952

Sales

Soaps.Detergents 68 65 61 45 45 39 41 40 . 40 45& HouseholdCare

Personal8 9 12 10 II 16 17 17 21 22

Products

Foods 2 5 7 34 34 35 34 37 33 30

Chemicals. AgriFertilizers & 14 12 13 6 6 6 6 4 3 2

Animal FeedsOthers 8 9 7 5 4 4 2 2 3 I

EBIT as % of 9.9 9.2 9.4 8.0 8.8 9.5 10.7 12.3 14.0 17.6SalesFixed Assets 9.6 9.9 9.5 9.9 1035 9.7 10.0 9.5 8.9 8.3Turnover (times)Working Capital 12.5 9.5 8.3 18.8 68.2 45.2 58.3 -* - -Turnover (times)Economic Value-Added (EVA) 60 107 126 272 3.65 548 694 858 1080 1236

(Rs.Cr)EPS ofRe. 1 @ 0.91 1.30 1.64 2.08 2.81 3.67 4.86 5.95 7.46 7.98

DPSofRe. I @ 0.56 0.80 1.00 1.;25 1.70 2.20 2.90 3.50 5.00 5.50

PAT/Sales (%) 5.2 5.9 6.3 5.8 7.0 8.2' 9.8 I 1.5 13.\ 15.7

RaCE (%) 49.9 48.5 49:1 52.9 61.1 58.7 61.8 64.6 62.4 59.4

RONW(%) 33.0 35.3 37.5 41.6 46.0 48.9 50.9 52.7 53.9 48.0

# Sales before excise duty. Adjusted for bonus issue. *Denotes working capital is negative

Source: HLL Annual Report 2002

122 • THEORYAND PRACTICEOF CASE METHOD OF INSTRUCTION

Exhibit 3: HLL Balance Sheet (December 31. 2002)

1"1l1li11 I~J.lr ...•... ,., RS);;lakh~

Sources of Funds

Shareholders fundsCapital I 22012.44 22012.44Reserves & Surplus 2 343875.14 365887.58 282356.74 304369.18loan Funds

Secured loans 3 1961.50 4304.39Unsecured loans 4 3868.26 5829.76 4069.4 7 8373.86

3717/7.34 312743.04Application of Funds

FixedAssets

Gross block 199436.41 193587.62Depreciation (77889.64) (72634.20)Net block 5 121546.77 120953.42Capital work-in-

/0686.88 132233.65 1105.60 132006.02'progressInvestments 6 236474.10 163593.12Current assets,loans and advancesInventories 7 127873.62 124003.62Sundry debtors 8 36785.04 42478.4 7Cash and Bank balances 9 94262.60 91315.69Other current assets 10 4630.22 5061.56loans and advances II 79555.40 79818.70

343106.88 342678.04Current liabilities andprovisions

liabilities /2 (246534.09) (241041.86)Provisions 13 (120555.34) (109140.42)

(367089.43) (350182.28)Net current assets 23982.55 7504.24Deferred Tax

Deferred Tax assets 14 38730.63 34961.26Deferred tax liabilities 15 (11738.49) 26992.14 (10313.12) 24648.14

371717.34 312743.04Source: Hll Annual Report 2002

HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY • 123

India's economic liberalization. which started an 199.marked an inflexion point in HLL's growthcurve and allowed the company to explore new business opportunities. Deregulation permittedalliances. aCQuisitionsand mergers. In one of the most celebrated events in Indian corporatehistory. the erstwhile Tata Oil Mills Company (TOMCO) merged with HLL, effective from AprilI. 1993. In 1995.HLL andyet another Tata Group company. Lakme Limited. formed a 50:50 jointventure. Lakme Lever Limited. to market Lakme's cosmetics and other products of both thecompanies. In 1998. Lakme Limited sold its brands to HLL and divested its 50% stake in thejoint venture to the company. HLL formed a 50:50 joint venture with the US-based Kimber\)'-Clark Corporation called Kimber\)'-C1ark Lever Ltd.. which marketed Huggies Diapers andKotex Sanitary Pads.

Exhibit 4: Hll P&l Account (December 31, 2002)

Income

Sales 995485.30 1066755.69

Other Income 2 38454.22 38179.05

Total 1033939.52 1104934.74

Expenditure

Operating expenses 3-5 (799899.50) (895357.13)

Depreciation (13410.06) (14465.97)

Interest 7 (918.40) (774.42)

Total (814227.96) (910597.52)

ProfJt before Taxation and Exception Items 219711.56 194337.22

Taxation for the year - Current Tax 10 (45894.00) (39769.00)

Deferred Tax (2091.00) (473.00)

Profit after Taxation and before Exceptional Items 171726.56 154095.22

Exceptional Items (net of tax) 14 3841.90 10036.13

Net Profit 175568.46 164131.35

Taxation adjustments of previous years (net) 1405.17 (101.36)

Balance brought forward 75997.56 44298.62

Available for distribution 252971.19 208328.61

Dividends (2002-subject to deduction of income-tax)on eQuit shares:Interim - Rs. 2.50 per share--declared on Ju!y 22. (55031.09) (55014.88)2002

Interim dividend payable to the (16.22)shareholders of the erstwhile

Contd ...

124 D THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

11!

International Best Foods limitedPursuant to the Scheme of Amalgamation

Final- Rs. 3.00 per share- proposed

Tax. on distributed profits [2002-Credit (200l-afteconsidering Credit of Rs. 5457.48 lakhs) pertaining tthe previous year]

Transfer to General Reserve

Balance carried forward

Earnings per share (Rs.) - Basic& Diluted (Facevalue of Re. I each)

Source: HLL Annual Report 2002.

17

(66037.31)

5913.17

(17700.00)

119815.96

7.98

(55031.09)

(5768.86)

(16500.00)

75997.56

7.46

In 1992. Brooke Bond India aCQuiredKothari General Foods. with significant interests in InstantCoffee. In 1993, it aCQuiredthe Kissan business from the UB Group and the Dollops ice creambusiness from Cadbury India. Also. Tea Estates and Doom Dooma. two plantation companiesof Unilever. were merged with Brooke Bond.

In ju!>' 1993. Brooke Bond India merged with Lipton India. to form Brooke Bond Lipton IndiaLimited (BBLlL). In 1994. BBLIL launched the Wall's rangeof Frozen Desserts. By the end of theyear. the company entered into a strategic alliance with the promoters of Kwaliry Ice Cream. In1995. the Milkfood 100% ice cream marketing and distribution rights too were aCQuired.Final!>,BBLIL merged with HLL, with effect from january I. 1996. In 1998. Pond's India was merged withHLL. With this merger. HLL got the high!>'popular Pond's Dreamflower Talc. which had a 53%share of the RS.250 cr talcum powder market. I,part from Pond's Dreamtlower. the companyalso had Pond's Dreamflower Magic. and Pond's Sandal Talc.

In lanuary 2000. the government of India decided to award a 74% eQuiry stake in ModernFoods to HLL. In 2002. HLL aCQuiredthe government's remaining stake in Modern Foods. In2003. HLL aCQuiredthe cooked shrimp and pasteurized Crabmeat business of the AmalgamGroup of Companies. a leader in value-added marine products exports.

Working Capital

Unilever companies in India integrated all aspects of finance. accounting and logistics intoone all-embracing commercial function. 'Commercial' focused on cutting working capitalreQuirements through innovative supp!>,chain management and use of Information Technologyto improve the efficiency of transactions. With sales plateauing in the last fewyears. workingcapital efficiency had become one of the prime drivers of operating margins for HLL.

In 2002. HLL' s net current assets (current assets-current liabilities) as a percentage of saleswere on!>' 2% compared to near!>'20% for competitors like Godrej Soaps. This meant that ifthis shortfall were to be funded through borrowings. Godrej Soaps would need a much largeramount than HLL. Due to better working capital management.HLL' s liQuidiry was higher whencompared to Godrej Soaps.

,HINDUSTAN LEVER LIMITED: RESTRUCTURING MARKETING STRATEGY 1:1 125

QlJestion

Shiva Shankar, a young MBA graduate, had joined HLL in its Corporate Finance Department.His supervisors asked him to understand and analYzethe financials of the company and makesuggestions on further improving HLL's working capital management. They wanted him tocompare the inventory managementof HLL with that of Dell, one of the most efficient companiesin the world in working capital management. Shiva Shankar also had to suggest what bestpractices of Dell could be replicated.

PART IV

RURAL DISTRIBUTION IN HLL

This case describes an innovative 'win-win' partnership between Hindustan Lever Limited (HLL)and rural self-help groups. By assisting rural women to access micro-credit. buy HLL productsand sell them in their villages, HLL was creating new markets while creating a stronger economicbase within the rural communities. The case focuses on the challenges of scaling up this modelin a difficult socio-economic environment.

Mumbai, India - lulY 2000: Dalip Sehgal, Director of the New Ventures Unit at HindustanLever ltd. (HLL), came out of a long team meeting with many Questions on his mind. As aseQ1JeIto Project Millennium, he had brought together a new team to help implement a daringnew growth blueprint for HLL. The blueprint consisted of seven new business initiatives thatwould drive the company's ambition of continuing to double its turnover every four years.Manvinder Singh 'Vindi' Banga, who just two months earlier had been appointed Chairman andManaging Director-at a time when the company appeared to be losing market share-wasconvinced that Dalip had the necessaryenthusiasm and vision to help achieve this goal.

Rural Venture, one of the seven new initiatives, led by KT Halli Srinivas with assistance fromPratik Pota, charted out an ambitious plan-to stimulate new demand at the lower end of themarket by creating a self-sustaining cycle of 'business growth through people growth.' Theteam planned to develop a win-win partnership with rural Self-Help Groups (SHGs) by assistingthem to access micro-credit. buy HLL products and sell them in their villages. If successful, theinitiative would create hundreds of jobs, train new entrepreneurs and extend HLL's distributionreach into the most inaccessible rural villages of India.

Penetrating the informal sector in this way was a potentiallY risky endeavour; furthermore, wasit reallY the company's role to develop rural areas in this way? Dalip was concerned aboutpotential channel confiicts with the existing, successful distribution network. Coordinatingwith governmental and NGO partners would be a key success factor, but this also brought itsown complexities. Training mostlY illiterate women in sales and promotion techniQues was amajor challenge. The payback in terms of new markets and wealth creation was potentiallYenormous, but what would a successful rollout reQuire to enable the SHGs to achieve economiesof scale?

126 I:l THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

Exhibit 5: Unilever's Corporate Purpose Statement

At the hea,t of the Corporate purpose. which guides us in our approach to doing business, is the drive to serveconsumers in a uniQ!Jeand effective w~. This purpose has been communicated to all employees worldwide.

Our purpose in Unilever is to meet the everydayneeds of people everywhere- to anticipate the aspirations ofour consumers and customers and to respond creative!y and competitive!y with branded products and serviceswhich raise the Qualiry of life.

Our deep roots in local cultures and markets around the world are our unparalleled inheritance and thefoundation for our future growth. We will bring our wealth of knowledge and international expertise to theservice of local consumers-a tru!y multi-local. multinational.

Our long-term success reQuiresa total commitment to exceptional standards of performance and pmductiviry.to working together effective!y and to a willingness to embrace new ideas and learn continuous!y.

We believe that to succeed reQuires the highest standards of corporate behaviour towards our employees,consumers and the societies and the world in which we live. This is Unilever's road to sustainable. profitablegrowth for our business and long-term value creation for our shareholders and employees.

When Unilever first becameengagedin India in the 1930s,the opportuniry to conctuerunexploredmarkets was enormous. The company broke ground by establishing the first edible oil. soapand personal product companies in India: Hindustan Vanaspati Manufacturing Company (edibleoil), Lever Brothers India Limited (soaps) and United Traders (personal products), all createdbetween 1931and 1935.The three Unilever companies merged in 1956to form Hindustan LeverLimited (HLL).

By the 1990s,Unilever's business in India was entirelY represented by HLL. Given its longstandingpresence in India, it had become a uniQuelYIndian company and was perceived by the Indianpeople as a local company and not a multinational. The company made painstaking efforts tobecome implanted in the hearts and minds of people by showing that it cared about localcommunities. Its corporate purpose statement noted "to succeed reQuiresthe highest standardsof corporate behaviour towards our employees. consumers and the societies in which we live."HLL had several ongoing projects that focused on rural development. education. health,communiry welfare, resource conservation, sustainable development and national heritage inart and culture.

By 2000, HLL was India's largest fast-moving consumer goods company-with market leadershipin home and personal care products and one of India's seven biggest exporters. HLL operatedover 100 manufacturing facilities across the country, with several third-parry manufacturingarrangements.

THE HLL DISTRIBUTION NETWORK

HLL already had one of the widest and most efficient distribution networks for consumer productsin India; in fact, this was recognized as one of its key strengths. HLL' s products were distributedthrough a network of about 7,500 Redistribution Stockists (RS) who sold to shops in urbanareas and villages with over 2,000 people that could be reached by vehicle (refer to Exhibit 2for an illustration of HLL's rural distribution model). Its supplY chain was supported by asatellite-based communication system, the first of its kind in the fast-moving consumer goods

lj

HINDUSTAN LEVERLIMITED: RESTRUCTURING MARKETING STRATEGY • 127

industry_ This sophisticated network with voice and data communication facilities linked over200 locations all over the country. including head office. branch offices. factories. depots andkey redistribution stockists. This was a tried and tested model. The various Levels of HLLdistribution channels is shown in Exhibit 6.

Exhibit 6: Rural Distribution Model-Indirect Coverage

'only~tornble villages covere<E25" of ruml population serviced

Soorte:Company i'!.formation y . ".::::::::r

Exhibit 7

Level Channel Measure ••Piace/ :::/ ./

Level A Company depot National/State

Level BRedistribution stockist. C&F agents. semi- Districtwholesalers and retailers HeadQ!larters

Level C Semi-wholesalers and retailersTehsil HeadQuarters. Mofussil towns.Industrial townships

Level DItinerant traders. vans. petro bunks semi- Haatswholesalers. retailers. Cooperative societies Large villages

Level ERetailers. vans. sales people. NGOs. Government Villagesagencies

Central to the success of rural marketing strategy is distribution. Product distribution andretailing has developed into a highly specialized activiry in urban markets. However. thedistribution channel. a much-publicized meansof merchandising in urban markets has remainedin the background in the rural areas. Now. distribution has to be virtually reworked fromscratch with full rural orientation and awareness of existing rural channels of distribution.

Many companies view the burgeoning rural markets as a great opportuniry for expanding theirsalesbut find distribution asa major problem. Unfortunately. it is almost impossible to transplantstrategies which work successfully in urban markets onto rural markets. namely. extensiveretailing and sustained pull generation through mass media advertising. The impediments forthem to reach the rural customers are:

• Lack of adeQuate transport facilities.

1_'. -----'"-.-.--.--~- ~-~l128 EI THEORY AND PRACTICE OF CASE METHOD OF INSTRUCTION

o Large distances between villages.

o Lack of pucca roads connecting villages to the nearest townships. Lack of proper retailoutlets. and

o Lack of mass media infrastructure.

Issue

What distribution strategy will be appropriate for HLL to optimal!>, exploit the rural demandpotential?