Regional players have hit Hindustan Unilever where it hurts the most.
Personal care products, the firm's most profitable segment, has been losing market share consistently over the past several quarters.
The first quarter of this financial year hasn't been too exciting either. Domestic sales grew by 12.8 per cent, with underlying volume growth of about 2 per cent.
Though that was a distinct improvement as volumes had declined by about 4 per cent in the previous quarter, the country's largest fast moving consumer goods company isn't happy. So HUL is fighting back.
But to understand its new strategy, let's look at what the competition has been doing of late. Chennai-based CavinKare, the second largest manufacturer and marketer of shampoo in India with brands like Chik, Nyle, Meera and Karthika, came out with single serve packs to make inroads into a market dominated by multinationals like Hindustan Unilever's Sunsilk and Clinic All Clear.
Similarly, Anchor Health & Beauty Care took on HUL's Pepsodent and Close-up by launching 100 per cent vegetarian Anchor toothpaste. It also forced the market leader to drop prices to retain consumer loyalty.
In detergents, too, smaller regional players like Ghadi, Sasa and Power have dented the volumes and market share of HUL's Rs 2000 crore (Rs 20 billion) detergent brand Wheel.
Likewise, in soaps, Wipro Consumer Care and Lighting's Santoor has now become the largest soap brand in South India and Godrej Consumer Products Godrej No 1 is the market leader in the lucrative Northern market.Stung by the loss of market share, HUL is now tweaking its go-to-market strategy by focusing on individual states and even districts. The strategy is 'glocal' -- think global, act local.
"There are three key things that we are trying to do," says Gopal Vittal, executive director, home and personal care, HUL.
The first is winning state by state. Each state presents a different nature of competition and a different growth challenge -- whether it is increasing penetration or driving consumption through deployment of the relevant portfolio, Vittal says.
The state-led distribution strategy will give the Anglo Dutch Unilever's Indian unit an opportunity to play out its full portfolio of brands to arrest its falling market share and volumes as consumers were down-trading to smaller regional brands.
The company is now strengthening its regional brands like Hamam in Tamil Nadu; Rexona in Andhra Pradesh and Karnataka; Breeze in the Hindi belt and Sunlight in Kerala and West Bengal.The maker of Lifebuoy, Wheel and Lux is also playing the pricing game -- it has already reduced the price of Lifebuoy by Re 1. This was necessary as the latest Nielsen data showed that Lifebuoy has lost value marketshare and was down 176 basis points year-on-year (y-o-y). Likewise in detergents, volumes declined 8.8 per cent y-o-y over the same period, last year.
That's something the company wants to correct as fast as possible. The stakes are high indeed - for example, Wheel is a crucial volume grosser for the company and HUL has no option but to ensure that consumers stay with the brand.
So HUL has identified 'right pricing' as a primary tool to increase its competitiveness in a market where most of its brands were losing customers to their rivals.
A key enabler to 'right-pricing' is reducing the cycle time substantially, says Vittal. What this translates into is a more flexible supply chain at the backend, consolidation of distributors, reduction of inventories at distributor points, more frequent despatches and therefore greater speed at the front end.
The second part of the strategy is greater focus on Return on Marketing Investment. "We are looking at different aspects like promotion, distribution and advertising to understand what drives growth and how much growth. We have developed a model and are using this across the company to make decisions of investment dynamically. Based on this we have substantially increased investments on our brands," Vittal says.
The third part of HUL's strategy is increasing the quality and speed of innovations and launches that it brings to the market. In the just concluded quarter, the company's y-o-y advertising spends increased by 26 per cent.
During the quarter-ending June 30, 2009, the company stepped up its investment on brands. The quarter also saw activities across segments -- in soaps, Lifebuoy and Liril were re-launched; and in shampoo, Clinic All Clear was relaunched. There were new brand launches -- Ponds White Beauty, the premium skin lightening cream, and Vaseline Healthy White body lotion.
A global brand Cif, in the surface cleaning segment was introduced. In oral care, Pepsodent returned with its orginal proposition of fighting germs for longer hours. And Wheel saw its net content (grammage) increase.
Image: An ad campaign for Clinic All Clear shampoo