High coffee bean prices hit HUL

High coffee bean prices have affected the profit margins of Hindustan Unilever's (HUL) beverage segment.

"Coffee bean prices witnessed significant increase in 2007 causing pressure on the profit margins for the category (beverages)," the company said in its management discussion and analysis.

"Profitability was managed with strong efficiency improvements and judicious price increases. However, overall margins were lower than that of last year," the report added.

HUL's beverages business, which involves selling branded coffee and tea, witnessed 14.71 per cent rise in 2007. The beverage sales in 2007 was Rs 1,520 crore as compared with Rs 1,325 crore in 2006.

The company's beverage business had a good year led by strong growth in 'Bru' instant coffee. The company continues to focus on and invest in Bru. Strong trade and consumer communications also helped the company to consolidate its position in the branded coffee market, which includes roasted and ground coffee.

"Bru Cappuccino continued to attract new consumers. During the year (2007), the company introduced ice Cappuccino coffee, which has received good consumer acceptance and results," report said.

In the tea business, packet tea market continued to be competitive with national, regional and local players vying for increased share and volumes.

"The tea business performed well during the year, with all brands under the Brooke Bond franchise achieving growth. Value market shares either improved or were steady across brands except Brooke Bond 'Taaza', resulting in marginal erosion of our overall value share," report said.

Prices of garden tea remained steady during a large part of the year. In 2007, Brooke Bond '3 Roses' and Brooke Bond 'Red Label' were relaunched with improved propositions. A new concept tea, Taj Mahal Dessert Teas, has been launched to add excitement and image to the premium segment of our tea portfolio.

Lipton continues to grow strongly in the out-of-home vending channel through acquisition of some major national and regional clients and by strong activation at key consumer points. Advertising spends were increased across all tea brands.