HUL sends a team to Carrefour headquarters

HUL sends a team to Carrefour headquarters
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First Published: Sun, May 25 2008. 11 26 PM IST
Updated: Sun, May 25 2008. 11 26 PM IST
Mumbai: India’s largest consumer products company Hindustan Unilever Ltd has sent some of its key executives to the headquarters of Carrefour S.A. to better understand how the world’s second largest retailer by revenue functions, especially in terms of interactions with suppliers.
The move coincidentally comes just ahead of Carrefour’s planned entry intoIndia.
The HUL executives are likely to spend six to nine months at the Paris headquarters of the retailer, according to a senior HUL executive who didn’t want to be named because he was not authorized to speak with the media.
Carrefour said in December that it would like to set up wholesale cash and carry stores and a hypermarket in India in partnership with a franchisee by mid-2009.
HUL’s move is not unusual. Manufacturers such as Procter & Gamble Co. often send key executives to large customers such as Wal-Mart Stores Inc. to better understand retailer practices and preferences.
As Mint previously reported, HUL also sent employees to Wal-Mart. At Wal-Mart, HUL managers learnt to manage the way goods were supplied to stores and to synchronize the back-end operations with consumer demand, besides learning more about customer service, the HUL executive said.
Understanding such powerful customers will become more critical for Indian consumer products companies such as HUL as branded retail starts to make inroads, significantly affecting distribution, pricing, store-level promotions and advertising in times to come.
Indeed, a government sponsored report, to be formally released today by New Delhi think tank Icrier, is set to forecast that so-called organized retail, which grew by 20% annually in 2004-07, will, by 2011-12, account for 16% of all retail. Icrier also said in a March preview to the government that organized retail will grow at 45-50% annually between 2012-17 in India.
While much of the growth is likely to come from Indian branded retailers owned by Reliance, Bharti, Aditya Birla group, Carrefour and Wal-Mart are already significant buyers for HUL’s parent, Unilever Plc.
Martin Deboo, a London-based equity analyst for Investec who tracks Unilever says the company is expected to have sold products worth around €800 million (Rs5,385.6 crore) through Carrefour in 2007, or around 2% of Unilever’s global sales.
As branded retail chains spread, they are likely to partner closely with suppliers such as HUL, which has one of the strongest distribution networks in India. HUL will want to leverage this with new retailers and not allow global customers of such retailers, such as P&G, gain a march.
The coming of Wal-Mart and Carrefour “is a risk and an opportunity for Unilever”, says Deboo. “These are companies with whom Unilever has strong relationships worldwide and they would be natural partners in India. But, the growth of modern trade will also make it easier for Procter and Gamble to grow.”
P&G, the world’s largest consumer products company by sales, has limited manufacturing in India and analysts note it doesn’t come close to matching HUL’s distribution network in India’s largely unorganized retail market. But, the advent of fewer but growing branded chains could help P&G bridge the gap.
In the year ended June 2007, P&G Hygiene & Health Care Ltd’s total sales stood at Rs554.7 crore while HUL’s revenues stood at Rs13,718 crore in the year ended December. P&G’s sales don’t include data from P&G Home Products Ltd, which sells products such as Pantene shampoo, Ariel and Tide fabric wash and Olay skin cream data is not available.
A February report from broker Edelweiss Securities Ltd, says organized retail is currently growing at around 42%. While modern retail outlets accounted for only 4.3% of the total fast moving consumer goods (FMCG) sales, estimated at around Rs65,814 crore, in the year ended March 2007, their share is likely to go up to 9.3% by March 2009, according to UK-based market research firm Datamonitor Plc.
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First Published: Sun, May 25 2008. 11 26 PM IST