Mumbai: Hindustan Unilever Ltd’s market share by value in key product categories such as skin care, soaps, shampoos, toothpaste and tea declined in the quarter ended March, compared with the March quarters of 2007 and 2006, despite the company increasing prices and reducing pack sizes in at least some of these areas.
Analysts and others attribute the company’s loss in share, captured by market research firm AC Nielsen, to competitive factors. “While HUL got better in the last two years in terms of sales as there was a bounce back in demand, its competitors got much better,” says a former senior executive of HUL who did not wish to be identified.
The company itself doesn’t seem too perturbed by the ground it has lost. A spokesperson said that short-term losses in market share are a result of “market dynamics”. The company did not respond to specific queries from Mint on its strategy to increase its market share across segments.
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Still, the declining shares don’t fit in with the articulated objectives of one of India’s largest consumer products companies. On 9 March 2006, at a conference organized by Morgan Stanley India, HUL said market share gains were a key focus area for it.
Just nine days before the conference, the company had announced the appointment of Doug Baillie as chief executive officer. Baillie was the first expatriate to head HUL in at least 50 years. Then, as now, HUL was the market leader in most categories in which it operated. But it wished to reinforce its position in at least some of these.
That hasn’t happened. Baillie moved on from the Indian operations recently to head Unilever’s western European business, leaving behind a company that is still the market leader in most categories, but with a less dominant share than it had two years ago. The losses are less than a percentage point in some cases but they have come in a growing market.
Dwindling share (Graphic)
For instance, HUL’s share in the skin care segment, its most profitable division which accounts for at least 45% of profits, has declined by more than 3 percentage points to 54% in the last two years. Last year, the company’s rival Procter and Gamble (P&G) launched high-end skin care products under the Olay brand that have since emerged a significant threat to HUL’s offerings in the segment.
“Olay is the fastest moving product on the skin care shelf despite being one of the most expensive brands,” said a senior executive at a leading supermarket in Mumbai who didn’t wish to be identified.
Another multinational brand, Garnier, owned by the L’Oreal Group, has increased its focus on India, too. The brand, one of the most aggressive advertisers on television, has seen its share increase to at least 2% currently from 0.9% three years ago.
“India, along with China, is the last bastion for accelerating growth for most global consumer product companies. So, competition for HUL will continue to increase over the next few years,” said Ali Dibadj, senior analyst at Sanford C Bernstein and Co., Llc., a US-based brokerage.
“In particular, as India develops at such a rapid pace, its consumers are becoming more and more sophisticated and demanding new, more discretionary, and more innovative products that companies like P&G pride themselves in developing and supplying,” added Dibadj.
The competition doesn’t bother HUL. The company says that its brand development efforts, coupled with proper investments over time, will help it maintain its leadership position.
“HUL has maintained leadership position in many of the categories it operates (in). We continue to invest behind our brands and categories through innovation, product quality and marketing spends. Many of our brands are iconic in their categories,” said the company spokesperson.
Analysts say although HUL still dominates the Indian consumer market, other national and international companies are building their presence at a faster pace than expected.
“The erosion (in HUL’s market shares) seen could be because of players such as Dabur India Ltd and Marico Ltd. These companies are innovating, spending aggressively on their marketing and advertising and strengthening their distribution network,” said Unmesh Sharma, an analyst at Macquarie Securities.
In the Rs6,000 crore by sales soap market, HUL’s market share has dropped to 54.3% in March 2008 from 55.9% in March 2006. Last year, ITC, the country’s largest cigarette maker, entered the segment and has made a strong headway in a short time. According to AC Nielsen, its share has grown to 1.75% in just five months. And this, despite the fact that many of its brands such as Superia, Fiama Di Wills and Vivel are currently sold in only six states.
HUL’s share in the toothpaste market has also fallen 1.2 percentage points to 29.8% from 31% two years ago. The company’s biggest rival, Colgate, continues to lead the market with 48.5% market share, while Dabur’s share has grown from 7% in 2006 to 9.4% in 2008.
“Dabur India has been consistently making investments in every brand, including the ones acquired from Balsara. The investments are being made both in product upgradation as also in brand building activities, and these investments have been commensurate with market needs,” said V.S. Sitaram, chief operating officer (consumer care division), Dabur India.
Analysts say that despite reducing the number of brands in its portfolio, HUL still remains a large organization as compared with its leaner and nimble-footed rivals. “The company can avoid losing further share to aggressive competitors by increasing its advertising and promotional campaigns. But that will again put pressure on its margins,” added Sharma.
People familiar with the matter say HUL, under its new chief executive Nitin Paranjpe, has started consolidating its distribution network and setting ambitious sales targets.
“HUL has cut down on smaller distributors who handled select categories and has moved to large distributors who can handle all major categories,” said a distributor for the company who didn’t want to be named. “This is exactly the way P&G handles its distribution,” he added.