HUL’s soap price cut is beyond slowdown; cost, competition, brand the real reasons

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Published: August 28, 2019 3:14:23 PM

Soap manufacturers are benefitting from the decrease in raw material prices, particularly palm oil rates, which have seen a decrease even after raised custom duty post-budget.

Hindustan Unilever’s popular soap brands Lux and Lifebuoy. (Image: Bloomberg)

As ongoing demand slowdown bites FMCG companies, one of the leading players — Hindustan Unilever Ltd — has cut the prices of its popular soap brands Lux and Lifebuoy. While the company has brought the prices down by 4-6%, certain packs of these brands may see a higher reduction, HUL spokesperson said. According to the Indian arm of Unilever, the commodity prices are expected to remain soft for a certain time period, hence the rate cuts. The company had even said it in June earnings call that the considering the commodity outlook for coming months, rate cut “is only right and the best way to be competitive,” Srinivas Phatak, Executive Director, Finance and IT and Chief Financial Officer of Hindustan Unilever Limited (HUL) said, acknowledging that sales of its popular brands have been sluggish.

However, the slowdown is not the only reason that has prompted HUL to bring down the rates. In the June earnings call, Phatak also said that the price cuts will also boost aggregate turnover. “After a point in time, there’s no point really chasing just the price – you need to chase the aggregate turnover,” he said. He added that the company is also looking towards brand building and will not mind lower margins for some time.

Soap manufacturers are benefitting from the decrease in raw material prices, particularly palm oil rates, which have seen a decrease even after raised custom duty post-budget. The same was also reaffirmed by HUL’s Sriniwas Phatak. “When you look at the overall commodity, let’s say if you compare palm about half a year ago or a year ago to where it is now, we have seen palm almost come off about 15% to 20%,” he said in June earnings call.

Meanwhile, HUL has hiked the prices of its face washes by 4-14% across brands such as Pears, Dove, Ponds and Fair and Lovely, according to a recent report by Kotak Institutional Equities. In soaps, Reckitt Benckiser has reduced the price of its popular Dettol soap by 8%, according to the same report.

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