Hindustan Unilever faces tough challenge from small FMCG companies

Company has been losing out in the soap segment, say analysts

Responding to Unilever chief financial officer (CFO) Fernando Fernandez’s recent statement that he will not hesitate to put millions of dollars to defend its position in India, if needed, analysts have said his remarks came on the back of the company’s slower revenue growth compared to other fast-moving consumer goods (FMCG) firms in the country.

Fernandez had said this at the Bernstein Annual Pan-European Strategic Decisions conference last week.

Also, the company lost out to competition due to the unorganised sector gaining market share, especially in soaps as raw materials prices declined.

While its India unit Hindustan Unilever (HUL) also cut prices to counter competition, in May, the management had given guidance of marginally negative price growth for the short term.

Sachin Bobade, vice-president at brokerage firm Dolat Capital said, “HUL has been losing out in the soaps segment. Therefore, it took price cuts to compete with unorganised players.”

Another analyst said that smaller FMCG companies are growing faster compared to the maker of Lifebuoy soaps.

“It already has a pan-Indian distribution presence, so incremental revenue from expanding its distribution is difficult,” the analyst added.

He said, “Incrementally, the company has to focus on premiumisation, which it is doing. It is a gradual process, and it will take some time. This is because it has to also educate the consumer and market development is needed to gain substantial traction at a higher price point.”

However, HUL now sees a third of its revenue come from the sale of its premium products.

The company has been focusing on premium products across its portfolio. It has set up a unit to manufacture products for the new-age customer.

“HUL is addressing the problem where the focus is on digital and premium products as it started to witness tough competition from new-age brands. In soaps, as well, it replaced the formulation with other alternatives, which take out the price fluctuations of palm fatty acid distillate (PFAD),” the analyst added.

Rohit Jawa, managing director (MD) and chief executive officer (CEO) at HUL is also focused on driving growth at the premium end, especially in beauty and personal care.

Fernandez also said at the conference that e-commerce continues to grow in India at around three times the growth seen in modern trade, brick and mortar channels. So, the growth of ecommerce is significant from a very small base.

“We are around 200 basis points (bps) of corporate market share in India since Covid. We lost a bit during the deflation period but we are back now. And, we are in kind of a stable state when it comes to market share and we have an incredible position,” Fernandez said.

He said that Unilever has an established position in the country and it has an unblinking commitment to defend its business in India.