Lower prices fostering premium segment: Sanjiv Mehta

Interview with Managing director, HUL

Sanjiv Mehta, managing director at HUL, shares the factors impacting the quarterly results, as well as the road ahead. Edited excerpts:

When do we see return of pricing power for HUL?

Our brands are strong and we do have pricing power. But, if commodity prices go down to the extent that they have, it's very important for us not to lose consumer franchise. And, that is the reason why we have corrected the price-value equation. We have been very satisfied with the kind of volume growth that has come in.

If the commodity prices start looking northwards, we may reconsider our pricing, especially in the soaps and detergents segment. If we would not make price corrections, a lot of players would come up.

Tell us about the rise in premiumisation in your portfolio

We are making sure the strategic pricing of our brands are sustained in the new context. Our biggest and fastest growing brands are in the premium segment such, as Dove, Surf Excel, TRESemme and Magnum. When prices are cut, volumes witness an uptick but consumers aspire to buy premium products. In today's context, when prices are a little subdued, there is premiumisation going on in the urban markets, which is a good sign.

With weak monsoons, how do you see the rural markets?

From a value perspective, rural growth of 1.5-1.6 times that of urban has come down to more or less similar levels. We believe this would continue in the next few quarters. Urban markets are showing some kind of stabilisation. It does not mean the growth has gone back to the high levels seen in 2011-2012. Having said that, it is still too early to say what will be the impact of weak monsoons on rural demand.

What will be the key margin drivers over the next few quarters?

One is the cost of goods sold. Second, the mix, also impacted by various factors such as the channel mix, category mix, pack size mix. Then, it is also between the mass products, mid-tier products and premium products. There is a different nexus which has an impact on the business. Operating margin is also impacted by our cost saving programme, and what we spend behind the brands, which is impacted by several factors. The innovations, activations, the competitiveness of the spends and market development activities.

How much price cuts have you taken in the first half of FY16?

Effective price cut in FY16 so far is about 7 per cent. Price cuts are more in Q2 versus Q1.

Is Patanjali's fast growth having an impact on HUL?

Patanjali now has a wide portfolio. We respect our competitors but we are not obsessed about them. We are obsessed about our consumers. So we focus on our brands and the improvements they need. From a consumer lense, we are looking at new emerging consumer trends constantly. We want to be represented in every segment which has a future to grow in the market.