In medium to long term, rural looks promising: Sanjiv Mehta

Interview with CEO & MD, Hindustan Unilever

Hindustan Unilever (HUL) reported muted volume and revenue growth for the three months ended March 2016 as the company, India's largest consumer goods maker, continued to feel the slowdown pangs in the sector. In a media interaction, HUL's managing director and CEO Sanjiv Mehta highlighted the way forward for the company. Edited excerpts:

How painful is the rural slowdown for HUL?

The rural market has slowed down. For several years, rural markets were growing twice the rate of urban markets. Then the gap began narrowing. It was more or less at the same level with urban in the last quarter and now it is growing lower than urban. So, the trend has been that rural is slowing. Rural contributes to 40 per cent of (sales) in our overall portfolio. So there is an impact.

With the monsoon forecast being positive this year, do you see the tide changing?

Monsoon should help especially in the areas where the drought has been severe. Also, the government has recognised the stress in rural areas and, therefore, it has allocated more spends to rural in this year's Budget. In medium to long term, rural looks promising because the penetration is so low in these areas. Growth rates will eventually pick up.

With commodity prices moving up, do you see price-led growth kicking in?

We have to keep all things in perspective before increasing prices. One is the price-value equation; the second is the strategic price point of each of our brands. We'll respond based on these factors. Commodity prices have gone up and down; it is cyclical in nature. But, we have managed this quite adroitly so far. Our turnaround time, in fact, has dramatically improved from what it was earlier. So, even as we take into account market reality, we are also conscious of the price-value equation to consumers.

What are the bright spots for you in the midst of this slowdown?

If you look at our numbers annually, volume growth has consistently gone up in the past three years. It was four per cent in 2013-2014, five per cent in 2014-15 and six per cent in 2015-16. At the same time, we've also ensured that operating margins keep improving. Similarly, if you keep aside performance of personal products this quarter, it has been robust over the year. We saw the 10th consecutive quarter of double-digit growth in packaged foods. Our premiumisation in laundry continues. So, it is a story of different parts.

What are the learnings for you in a year that remained challenging?

Our strategy of 'Winning in Many Indias' is something that is giving us interesting insights into different regions in the country. It is also allowing us to respond to market realities in these regions in far better way, helping us drive sales throughput. 'Winning in Many Indias' saw us divide our operating framework into 14 consumer clusters (from the four-branch structure of north, south, east, west that existed earlier). We needed granular understanding of consumers as well as competitors in these markets. This has helped us at a time when the rural slowdown was pronounced.