We see these brands are likely to be a new premiumisation trigger for HUL, similar to Rs 10 SKU of Surf Excel in detergents.
Price cuts by HUL in soaps brands has been to pass on benefits of lower input prices (as explained by HUL) and make the brands more competitive (as stated by Unilever in its Q3CY19 result call on 17 October 2019).
We, however, believe that there is a larger story at play here. We believe that price cuts in Dove and Pears is more likely to accelerate consumer uptrading in soaps. We see these brands are likely to be a new premiumisation trigger for HUL, similar to Rs 10 SKU of Surf Excel in detergents.
We also note that for Lux, steep price cut in 100gm SKU (26% price cut to Rs 20 from Rs 27) is to correct the earlier disproportionate pricing versus the bundled pack (effective price was Rs 24 for 100 gm). We believe that this premiumisation driver becomes even more significant given potential delay in recovery of rural demand (agri-output could be impacted by heavy rainfall towards the end of monsoons) and channel inventory not likely to recover to earlier levels. Reiterate ‘Hold’ rating on HUL.
Further to the price cuts in Lux and Lifebuoy, HUL has now cut prices in both Dove and Pears. We note that, unlike for Lux and Lifebuoy, input price correction and competitive pressure on Dove and Pears is much lower. We believe that these price cuts are targeted towards accelerating consumer uptrading.
We believe that like Rs 10 SKU of Surf Excel has been the key growth driver over the past few years, these price cuts in Dove and Pears, backed by strong advertising campaigns (ongoing), can be the next growth driver.
Lux 100gm pack was an outlier in terms of the value offering, being priced at Rs 27, while the bundled pack pricing translated into Rs 24 / 100gm. The contribution of this 100 gm Lux SKU was 20-25% and therefore the overall price cut impact for the company’s soaps portfolio is much smaller than the headline numbers suggest.