Eight years ago in mid-2016 Hindustan Unilever (HUL) decided it would split food and refreshments into two divisions and nurture the categories separately. “It’s about the share of stomach and share of throat,” the company said at the time. The experts interpreted the move as a signal of aggression.
Hindustan Unilever Limited However, two years later, the segments were once again integrated. The company believed this would help better serve local consumers and make the organisation more agile. It wasn’t public knowledge at the time. But how serious HUL was about the foods business and how aggressive it intended to get became clear six months later when it acquired functional nutritional drinks Horlicks, Boost, Maltova and Viva from GSK Consumer.
The acquisition has undoubtedly added heft to the portfolio. And while the numbers might not reflect this, it is a space that HUL is deeply invested in, even though it has had its share of ups and downs. In FY24, revenues from the food and refreshments segment came in at Rs 15,292 crore, posting a somewhat sluggish growth of just about 4%, dragged down by a poor performance from the tea segment. Moreover, at Rs 2,262 crore, the operating profits were up 7%. The foods business currently gives the FMCG giant about a fourth of its FY24 top line of Rs 59,579 crore.
That doesn’t sound exciting enough to many but the management is convinced this isn’t a bad place to be in. Rohit Jawa, HUL’s CEO & MD, doesn’t believe the company is a small player in the foods segment. “At over Rs 15,000 crore in terms of top line, we are not small in foods. We are among the leading food players in the country,” Jawa says. He is confident that food brands can contribute a bigger share to the company’s revenues especially packaged foods. At the same time, he acknowledges a “joined up” approach is needed to give the business more heft.
Indeed, the company’s thirst for growth is far from quenched. The CEO definitely wants a share of the big food market in India. “But we are clear that we don’t want to compete in all segments, just a few,” he says. It is open to importing brands from parent Unilever’s global portfolio and has been studying the Indian market to get a better sense of what products it could introduce here. “Where we go from here is something we are working on, but there are brands within Unilever that we can tap,” he says. That sounds like a good strategy because, in this competitive environment, the business will call for investments and as Jawa says, HUL must compete with all its might. That’s an ingredient that HUL has in plenty and one that has helped it combat the weak consumer demand environment in the country over the past few years partly due to high inflation. For instance, continued down-trading in tea by consumers in favour of loose tea has seen the beverages segment performing poorly. But it nonetheless remains the market leader. Moreover, it also has a strong presence in coffee.
It has not been an electrifying start for the functional nutritional drinks segment; the growth has been, at best, modest. But the strength of the brands — Horlicks has a turnover exceeding Rs 2,000 crore while Boost is poised to join the Rs 1,000-crore club — is undeniable. It has allowed HUL to take price hikes to be able to offset the weak volumes in some periods. The March quarter was a good one for this segment. Both Horlicks and Boost reported high single-digit sales growth, driven by a healthy mix of pricing and volume growth; additionally Horlicks gained market share both in value and volume terms.
While HUL doesn’t divulge details, industry executives say that Horlicks, which is the market leader in health food drinks (HFD), has over 50% share of the Rs 5,000-crore category, with annual sales of around Rs 2,500 crore. Its move to position itself as a brand targeting micro-nutrient deficiencies in both children and adults has found takers, mostly in urban areas. Naveen Trivedi and Pratik Prajapati, analysts at brokerage Motilal Oswal believe HUL has a clear intention of maintaining its leadership position in health food drinks with sustained market development actions. “The category is under-penetrated in the southern and eastern regions, in particular, where it is under 30% in the south and around 20% in the east,” they point out.
The Horlicks Plus range targeting mothers (Mother’s Plus), women (Women’s Plus), men (Protein Plus) and diabetics (Diabetes Plus), in particular, has helped Horlicks trade up and target health-conscious consumers, says a top executive with an F&B firm who added HUL is pushing the products via the chemist channel. Indeed, HUL’s legendary communication and distribution skills are now being seen on digital channels as well. Kissan already brings in more than Rs 1,000 crore in revenue. “Our entry into mayonnaise with Hellman’s and our work with peanut butter under Kissan are showing results,” Jawa says. The CEO doesn’t yet have an answer to whether the local outfit will also sell the ice cream business like its parent plans to. Kwality Wall’s ice-cream is a strong Rs 1,000 crore plus brand, not an inconsequential piece of the HUL foods pie. And it could help that pie grow bigger.
