Packaged food takes prime spot in HUL strategy

The move is a part of company's objective to exit the commodities space

Hindustan Unilever (HUL) trying to sell off its atta (flour), salt and rice; all sold under the Annapurna brand. The move is a part of HUL's objective to exit the commodities space.

Now, branded packaged food is likely to be the wind in its sails. The company has followed such a strategy for quite a few years now. For instance, in 2006, HUL sold off Nihar hair oil to Marico, which it had bought 13 years before from the Tatas.

In December last year, it reentered the hair oil market by acquiring Indulekha, from Kerala-based Mosons for Rs 330 crore. This, too, experts claim, was a strategic move, to up its game in the herbal and ayurveda sector. Indulekha operates in the super-premium hair oil category; said Abneesh Roy, associate director, research, institutional equities, Edelweiss. A bottle of Indulekha oil is priced three time that of brands such as Kesh King.

Price realisation is, therefore, significant; something that HUL has been seeking in most of its products. The challenge with commodity-led businesses, notably those in the staples category, is the inability to derive a price premium, analysts claim. Margins are typically thin, which is not the case with branded packaged foods, where the price premium is comparatively better.

Sanjiv Mehta, MD and CEO, HUL, has also frequently reiterated how branded packaged food remains an under-penetrated category in India and has a significant scope for growth. While releasing the company's recent third-quarter results, Mehta said that brands including Knorr (soup) and Kissan (jam, ketchup etc.) were doing well.