Unilever has a food problem
The company’s recent move to club its foods and refreshments businesses may not yield much, considering the intense competition in those categories. While it is trying to change the game around, there are significant challenges ahead for reorganising the business.
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Soumya Gupta
12 Jun 2018
SANJIV MEHTA, MANAGING DIRECTOR AND CEO, HINDUSTAN UNILEVER LIMITED; TIMESCONTENT.COM
Last week, India’s largest packaged consumer-goods firm, Hindustan Unilever Limited (HUL), recombined its foods and refreshments businesses, just about two years after separating them. Both decisions were prompted by the global parent Unilever.
Both HUL and its parent firm have had trouble with their foods business, and the ongoing restructuring shows that the company is currently depending on better-entrenched, higher-margin home-care and personal-care businesses as profitability becomes a priority.
Signs of turmoil
Unilever’s first wave of trouble began last year, with a takeover bid from rival Kraft-Heinz, backed by billionaire investor Warren Buffett. While the bid was withdrawn a few days later, it jolted the Anglo-Dutch firm into shaping up financially.
Soon after, the restructuring began. In April last year, Unilever announced it was recombining its foods and refreshments businesses. According to Unilever’s latest annual report, the foods business includes mayonnaise, soup, and spreads (such as margarine), while the refreshments portfolio includes tea, coffee, and ice cream.
Unilever sold the spreads business to private equity firm KKR for EUR6.83 million in December last year. That left the foods business with just two major global brands — Knorr soup and Hellmann’s mayo (both EUR1 billion brands) — along with smaller ones, including Kissan in India.
This restructuring was not without good reason. Unilever’s refreshments business was not growing as well as the home-care and personal-care ones, and the food business was lagging. In India, HUL has a similar problem. It does not sell any of the spreads brands in India, and in spite of a strong home-grown brand like Kissan in its kitty, the foods business has been sluggish.
Compare the growth of its food business with the other listed FMCG firms in India that solely sell food and beverages. Here’s a problem that is leaving HUL hamstrung: The company sells nothing in India’s biggest packaged-food categories.
According to a 2017 report from market research firm Euromonitor, packaged foods’ top five categories are edible oil, dairy, rice/pasta/noodles, savoury snacks, and sweet biscuits/fruit snacks.
HUL’s biggest food brands are Kissan (sauces, condiments) and Knorr (soup), both categories significantly smaller than the top five. For instance, while the edible-oils market was estimated to be worth INR1,344 crore in 2017, sauces, dressings, and condiments was worth an estimated one-eighth, INR161 crore.
Besides, according to the Euromonitor report, rice/pasta/noodles, edible oil, breakfast cereals, and ice cream are expected to be among the fastest-growing categories. Given HUL’s current portfolio of brands, its refreshments business appears to be a more promising investment than the foods business.
The focus gets clearer
In combining the two businesses, HUL seems to be focused on new launches in certain categories. In a report by equities-brokerage firm Jefferies, the key takeaways from the HUL analyst meet on food included leadership in the tea business, growth in reach of Kwality Walls’ ice cream, and repositioning of instant noodles launched under the Knorr brand.
Last week, the company launched ready-to-cook breakfast mixes under the Lever Ayush brand, its first attempt to tap the breakfast cereals market.
The challenges ahead
HUL’s peers in the packaged foods business are making significant investments in the dairy business. While Nestlé has been selling milk and dairy products in India since 1961, Britannia invested INR94.72 crore in FY17, according to its latest available annual report.
However, these large firms have so far been unable to shake the dominance of local brands owned by milk co-operatives such as Amul, Mother Dairy, and Nandini. HUL will find it equally challenging.
Besides, packaged food in India (and globally) is increasingly seeing the rise of regional brands with a strong hold on their category. Recent successes include semi-urban and rural-focused mass brands like Yellow Diamond (from Prataap Snacks) and Mango Sip (from Manpasand Beverages), along with more urban brands including Paper Boat drinks, juice brand Raw Pressery, Epigamia yoghurt, and staples brand iD Foods. This leaves fewer spaces to tap and build national brands.
"This integration of foods and refreshments business will help HUL increase organisational agility and better serve local consumers while harnessing the advantage of global scale," an HUL spokesperson says via e-mail.
"Our foods business continues to deliver strong volume growth focusing on core categories. We have successfully landed innovations which will be critical to tap into a fast reshaping landscape of packaged foods."
The company’s recent move to club its foods and refreshments businesses may not yield much, considering the intense competition in those categories. While it is trying to change the game around, there are significant challenges ahead for reorganising the business.
Share Gift this article
Soumya Gupta
12 Jun 2018
SANJIV MEHTA, MANAGING DIRECTOR AND CEO, HINDUSTAN UNILEVER LIMITED; TIMESCONTENT.COM
Last week, India’s largest packaged consumer-goods firm, Hindustan Unilever Limited (HUL), recombined its foods and refreshments businesses, just about two years after separating them. Both decisions were prompted by the global parent Unilever.
Both HUL and its parent firm have had trouble with their foods business, and the ongoing restructuring shows that the company is currently depending on better-entrenched, higher-margin home-care and personal-care businesses as profitability becomes a priority.
Signs of turmoil
Unilever’s first wave of trouble began last year, with a takeover bid from rival Kraft-Heinz, backed by billionaire investor Warren Buffett. While the bid was withdrawn a few days later, it jolted the Anglo-Dutch firm into shaping up financially.
Soon after, the restructuring began. In April last year, Unilever announced it was recombining its foods and refreshments businesses. According to Unilever’s latest annual report, the foods business includes mayonnaise, soup, and spreads (such as margarine), while the refreshments portfolio includes tea, coffee, and ice cream.
Unilever sold the spreads business to private equity firm KKR for EUR6.83 million in December last year. That left the foods business with just two major global brands — Knorr soup and Hellmann’s mayo (both EUR1 billion brands) — along with smaller ones, including Kissan in India.
This restructuring was not without good reason. Unilever’s refreshments business was not growing as well as the home-care and personal-care ones, and the food business was lagging. In India, HUL has a similar problem. It does not sell any of the spreads brands in India, and in spite of a strong home-grown brand like Kissan in its kitty, the foods business has been sluggish.
Compare the growth of its food business with the other listed FMCG firms in India that solely sell food and beverages. Here’s a problem that is leaving HUL hamstrung: The company sells nothing in India’s biggest packaged-food categories.
According to a 2017 report from market research firm Euromonitor, packaged foods’ top five categories are edible oil, dairy, rice/pasta/noodles, savoury snacks, and sweet biscuits/fruit snacks.
HUL’s biggest food brands are Kissan (sauces, condiments) and Knorr (soup), both categories significantly smaller than the top five. For instance, while the edible-oils market was estimated to be worth INR1,344 crore in 2017, sauces, dressings, and condiments was worth an estimated one-eighth, INR161 crore.
Besides, according to the Euromonitor report, rice/pasta/noodles, edible oil, breakfast cereals, and ice cream are expected to be among the fastest-growing categories. Given HUL’s current portfolio of brands, its refreshments business appears to be a more promising investment than the foods business.
The focus gets clearer
In combining the two businesses, HUL seems to be focused on new launches in certain categories. In a report by equities-brokerage firm Jefferies, the key takeaways from the HUL analyst meet on food included leadership in the tea business, growth in reach of Kwality Walls’ ice cream, and repositioning of instant noodles launched under the Knorr brand.
Last week, the company launched ready-to-cook breakfast mixes under the Lever Ayush brand, its first attempt to tap the breakfast cereals market.
The challenges ahead
HUL’s peers in the packaged foods business are making significant investments in the dairy business. While Nestlé has been selling milk and dairy products in India since 1961, Britannia invested INR94.72 crore in FY17, according to its latest available annual report.
However, these large firms have so far been unable to shake the dominance of local brands owned by milk co-operatives such as Amul, Mother Dairy, and Nandini. HUL will find it equally challenging.
Besides, packaged food in India (and globally) is increasingly seeing the rise of regional brands with a strong hold on their category. Recent successes include semi-urban and rural-focused mass brands like Yellow Diamond (from Prataap Snacks) and Mango Sip (from Manpasand Beverages), along with more urban brands including Paper Boat drinks, juice brand Raw Pressery, Epigamia yoghurt, and staples brand iD Foods. This leaves fewer spaces to tap and build national brands.
"This integration of foods and refreshments business will help HUL increase organisational agility and better serve local consumers while harnessing the advantage of global scale," an HUL spokesperson says via e-mail.
"Our foods business continues to deliver strong volume growth focusing on core categories. We have successfully landed innovations which will be critical to tap into a fast reshaping landscape of packaged foods."
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