Analysis: Is HLL really new and improved?

In a widely tipped move, Hindustan Lever (HLL) responded quickly to match Procter & Gamble's 50 per cent price cut on its detergent labels (Media, March 26).

In addition to matching P&G's price reductions on its Tide and Ariel brands, the US$2.3 billion subsidiary of Unilever has also launched a massive buy-one-get-one free promotion on its shampoo brands. HLL's actions have unsettled analysts who worry about the impact on HLL's three-year-long exercise to put its house in order.

The biggest worry is that its margins could take a three to four per cent hit. "The concern is, why is HLL reacting to every move of P&G in such an aggressive manner," says an analyst with a foreign equities firm.

HLL chairman M S Banga's comment on the changes HLL has made could provide some clues. "The mindset now," he says, is that "we will grow at all costs - it doesn't matter if the market grows or not, if the rain falls or not, we will grow."

In dropping prices, the two consumer goods titans have underlined the difficulties foreign players face in India where a barrage of low-cost local competitors have made their presence felt. HLL's sales have been stagnant in the past three years, while P&G, despite decades in India, has single digit market shares in most categories. Indeed, some believe the presence of rivals like Nirma and Ghadi detergents, Jyothi Labs in fabric care, CavinKare shampoos and soap and Wagh Bakri tea may have goaded the duo into action.

P&G has responded by launching a low-priced shampoo, Rejoice - its first launch in years - and cutting detergent prices. Says a P&G spokesperson: "Cost savings, internal efficiencies in distribution, manufacturing, economies of scale at higher volumes will continue to deliver profits."

Prior to matching its rival's price cuts, HLL's strategy of getting its house in order involved dropping businesses that it saw no future in and migrating its brands to a core set of 30 'Power Brands'.

The marketing structure has also been split- each power brand now has a team focused on managing the brand in the short term (activitation) and managing it for tomorrow (innovation). That's freed up both sets of managers to focus on a smaller but critical set of brand issues. And when the company puts together teams to handle new ventures - forays into confectionery, ayurvedic products and direct selling markets - it incubates them separately within the company.

"There was an appreciation that these businesses were very new and different.

Therefore, keeping them outside the mainstream was a direct, proactive step," explains Vipul Chawla, manager for the Ayush brand of ayurvedic products and spas.

HLL may believe that it's now payback time - but just as it nears the end of this overhaul, it's been thrown up against rivals changing the rules of its market. How HLL reacts to the challenges might just prove the acid test of whether the group's actually new and improved.

BRAND BATTLES

Hindustan Lever

Skin care Fair & Lovely, Pond's

Oral care Pepsodent, Close-up

Hair care Sunsilk, Clinic

Deodorants Axe, Rexona

Colour cosmetics Lakme

Detergents Surf Excel, Rin, Wheel

Personal wash Lifebuoy, Lux, Liril, Breeze

Household care Domex

Ayurvedic Ayush

products/spas

Confectionery Max

Ice-creams Kwality Walls

Foods & Knorr Annapurna,

beverages Kissan, Brooke

Bond, Bru, Lipton

Procter & Gamble

Skin care Pantene, Head & Shoulders, Rejoice

Detergents Ariel, Tide

Feminine hygeine Whisper

Healthcare Vicks

Source: HLL