HUL’s Premium Push Drives New Business Revenue To Rs 10,000 Crore

Hindustan Unilever Ltd., known for its mass-market focus, has seen premium lotions to detergents drive growth in the past decade.

New businesses launched in the last 10 years have crossed more than Rs 10,000 crore in annual revenue. These include home care liquids, hair care, hand and body wash, skincare, spreads and dressings, colour cosmetics, spiced tea, green tea, and matic detergents.

The growth was driven by a portfolio shift towards premiumisation, India's largest consumer goods maker said in its first in-person analysts meeting after three years due to Covid-19. This portfolio, it said, is completely organic.

"The Rs 10,000 crore delta that HUL has created from new businesses is bigger than the sales of many consumer companies," Motilal Oswal said, citing a key takeaway from the analysts' meeting.

Over the last 10 years, India's largest fast-moving consumer goods maker has created 19 new brands, including Horlicks, Magnum, Indulekha, Hellmann's, Lipton, Boost, and TRESemme, among others.

HUL now has a portfolio of over four-dozen brands across 15 categories. Out of these, 16 have a turnover of over Rs 1,000 crore, including five digital-first brands such as Love, Beauty and Planet, and Simple.

In the past, the company's brands took more than a decade to cross the Rs 1,000-crore sales mark. Wheel, for instance, achieved the milestone in almost three decades, while Dove took two decades after its launch in 1993. That's because the majority of the business came from mass segments 10 years ago. Now, the premium segment has climbed the ladder.

"Market premiumisation benefits the company in terms of value while 70% of its volume remains in the mass end," HUL management told analysts. As a result, the company said it will not vacate the mass market while focusing on the premiumisation strategy.

The share of the premium portfolio, indexed at 120 and above, has grown to 33% from 22% of the product mix a decade ago with 25% of the demand being captured digitally. This puts HUL ahead of its competitors in the industry, whose share of the premium is 27%.

HUL's home care business has been the star performer in driving premiumisation, especially in the laundry category. The segment has grown to be the largest for parent Unilever in any country.

The volume contribution of premium laundry has grown from 31% a decade ago to 52% now. On the other hand, contribution from mass laundry declined from 58% in 2010 to 33% in 2021.

Brands such as Surf Excel and Rin have helped the home-care vertical’s turnover to double and profits surge over 7.3 times since 2012. "Surf is on track to become the first $1bn brand in HUL," according to the company.

Vim, the company said citing Kantar findings, is the fastest-growing brand of the decade.

The laundry liquids portfolio is already Rs 2,000 crore in size, despite only 10% penetration.

HUL's Chief Executive Officer Sanjiv Mehta said the company intends to maintain its margin profile via premiumisation despite short-term pressure from inflationary headwinds.

From FY17 through FY22, there has been a 15% shift towards the affluent and elite classes, which has significantly driven consumption through premiumisation.

Mehta expects that growing wealth and having the largest working population will continue to drive demand for high-end products.

The premiumisation play will also become larger once India moves from an emerging-income country to a middle-income nation, the company said.

There is no change in stance about the near-term operating environment, which remains challenging due to extremely high inflation and volatility in input prices. Mehta expects this to slow the company's earnings growth over the next few months. So it plans to focus on getting a bigger share of the market.

"As high inflation is still prevalent, which is leading to higher prices versus the cost gap, the focus will be to ensure that 75% of the business continues to win market share," the company said.

Pricing is driving the growth of the fast-moving consumer goods industry right now since a lot of people are still having trouble making ends meet.

"The continuation of free food grains to 80 million people is an indication of stress in the lower strata of the economy," Mehta said. "The cancellation of this program and no increase in MGNREGA will be a true indicator of the situation improving," he said. "Lower input prices and higher realisations will also lead to an increase in income in the hands of the rural population."

HUL also expects growing urbanisation, which is still in the low 30s, and an increase in the number of nuclear families to boost consumption. However, the management stated that in the short term, much will depend on how inflation plays out and how quickly rural markets recover.

"There is a need for a trigger to cool down commodity inflation," the company told analysts. "After which volume growth will be seen."