Hindustan Unilever’s (HUL) acquisition of two digital first brands — OZiva and Wellbeing Nutrition — is in line with the premiumisation trend with an increasing number of FMCG players foraying in the high growth wellness and nutrition category, which has gained prominence amongst consumers in the post-pandemic world.
While, health and wellbeing (H&W) will be a separate unit within HUL’s beauty and personal care business, according to analysts the segment does not necessarily complement its nutrition business, as Horlicks operates at the mass price-point, whereas H&W is at the premium end. “If Horlicks is X, Horlicks Plus is 2.5X and OZiva is 8X and thus, their target consumer and business priorities are different,” analysts at Kotak Institutional Equities (KIE) said in a report.
Also, the move would be line with the trend of bigger FMCG players investing in direct-to-consumer (D2C) brands in India, as companies do not want to miss out the growing online shoppers market. Marico picked up 54% stake in True Elements, another healthy snacking and breakfast brand, while HUL itself has launched some of its own beauty and personal care brands like Dove Baby, Love Beauty and Planet, Simple and Dermalogica. Nestle India and tobacco-to-FMCG maker ITC’s are said to have interest in picking a stake in Sprout Life Foods, the parent company of Yoga Bar.
Some of the D2C brands have been disruptors in the space, which has led larger FMCG players to take cognisance of these companies of late. Yoga Bar, for instance has ambitions of entering the children and infant food category – a segment where Nestle enjoys a strong market share.
A fast growing category, H&W has a potential market size of Rs 30,000 crore over the next four to five years. While there are several demand spaces within the category, HUL plans to focus on high growth areas such as sleep & stress, women’s health, gut health, beauty- from-within and plant-based products.
“These categories target higher income cohorts and benefit from growing affluence,” said analysts at Jefferies.
“Both of these D2C premium brands cater to millennials, particularly Gen-Z with the right consumer cohort, and complement changing consumer preferences,” said analysts at Nuvama Institutional Equities.
The move to acquire the two small brands, mirrors the company’s past acquisitions where brands like Indulekha and VWash have proved accretive to the company. “In the past, HUL ramped up Indulekha and VWash sharply post-acquisition. Indulekha, a specialist natural hair care brand with strong ayurvedic credentials, was acquired in 2016 and has grown 6x. VWash, a female intimate hygiene brand acquired in 2020, is also gaining traction among consumers,” analysts said.
OZiva and Wellbeing have an annual run rate of Rs
100 crore andRs 50 crore, respectively. Additionally, both the acquisitions have gross margins—at around 55%, which are higher than HUL’s existing business, said Jefferies.
The company intends to grow the H&W category further through organic and inorganic route within the sub-segments identified. Analysts said that this means that more acquisitions could not be ruled out by the company going forward. HUL will tap into the global trends and the parent Unilever’s H&W portfolio for growth in the category as well. Unilever has a €1 billion H&W business globally, comprising of seven brands it acquired in the past four years. These include Equilibra, Olly, Liquid IV, Smarty Pants, Welly and Onnit.
HUL management told analysts that it intends to tap this portfolio at an appropriate time to scale its H&W franchise in India.
Further, the company will also be leveraging its market development expertise, vast distribution network, research and development strength, and build on HUL’s presence in the beauty and personal category to grow the category further.
To be sure, ayurveda players, pharma companies and D2C brands play in this broad space, however, have specific sub-segment focus.