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HLL to reset ice-cream business

Parul Gupta and Partha Ghosh

FMCG major Hindustan Lever Ltd is restructuring its ice-cream business. The company will now shift focus to the high end of the market, that is the top six metros of the country, and on 20 premium products out of 30-odd items in the Kwality Walls portfolio.

Ad industry sources said the company has decided to promote premium products and though there are no plans to phase out the other products at present, advertising for the low-end Max range has been curtailed.

The company had already transferred some of its products from Lintas to McCann Erickson. While Lintas is now looking after Max and Feast, McCann is working on Cornetto, Sundae and softies.

The idea is to derive revenues from markets which yield higher return on investment rather than expanding markets with low priced products targeted at increasing penetration. Ice-cream, like carbonated softdrinks, is still perceived to be a premium product in the domestic market and its penetration depends on price positioning. But cost of production is still high.

The company's ice-cream sales declined by four per cent in calendar 2001. However, according to independent estimates of ORG in Mumbai and Delhi, HLL's value market shares have improved from 40.2 per cent and 43.3 per cent, respectively, in March quarter 2001 to 44.5 per cent and 49.8 per cent respectively in December quarter 2001. This explains the rationale behind the shift to metros, the source said.

In the quarter ended December 31, 2001, HLL made a provision for fixed asset write-off and other estimated costs in respect of ice-cream business worth Rs 430 million (net of deferred tax Rs 277 million).

HLL is also rightsizing its production capabilities in cities including Ahmedabad and Nagpur, the sources added.

A company spokesperson, however, said that with increase in productivity and modernisation of technical capabilities, it is possible to shed excess capacity/numbers wherever such improvements take place.

"Supply chain cost focus is an ongoing activity across all functions and businesses," he added.

"More attention is going to these focus cities in terms of media, launch of new products, resource mobilisation.

"The rationale for geographical focus is because the per capita consumption of ice cream is higher in urban centres as compared to rural markets," the spokesperson added.

For Kwality Walls, geographical focus is intended to improve on profitability front in line with HLL strategy on improving foods business profitability, he added. He denied there was any move to withdraw from some markets.

The spokesperson said that focussing on priority cities is a statement signifying geographical equivalent of power brand focus. Kwality Walls has recently revamped its complete brand portfolio and brand proposition in line with HLL's brand focus exercise.

HLL is launching a host of new innovative products including Viennetta, Cornetto Soft, Black Currant Sundae, Super Cornetto, Feast bar and Vanilla gold under the Kwality Walls brand name.

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