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Bangalore/New Delhi/Mumbai: Having seen off a year marked by economic stress, consumer goods companies will rest their hopes of a smoother ride in 2014 on a clutch of new chief executives.

The last three months of 2013 saw a bunch of new leaders taking charge of packaged consumer goods makers which were under pressure during the year as retail inflation, hovering around double digits, and slower economic growth, which slumped to a decade’s low of 5% in the year to March, forced households and individuals to cut spending.

On 9 December, beverage maker PepsiCo India Holdings Pvt. Ltd named D. Shivakumar the company’s new chairman and chief executive officer (CEO) for the India region. Shivakumar, a former senior executive at Finnish handset maker Nokia Oyj, succeeded Manu Anand, who left the company in June this year.

In October, three other large consumer goods companies appointed new leaders. Sanjiv Mehta took over as managing director and CEO of India’s largest consumer products company Hindustan Unilever Ltd (HUL) in place of Nitin Paranjpe, who has joined the Unilever Leadership Executive as president, home care.

United Spirits Ltd (USL), the Vijay Mallya company in which the UK distiller Diageo Plc. bought a 25% stake in July to become its largest shareholder, hired Anand Kripalu, former head of chocolate maker Cadbury India Ltd. He took charge on 1 October 2013 as CEO (designate).

Meanwhile, at the local unit of Swiss foodmaker Nestle SA, Etienne Benet took over as managing director replacing Antonio Helio Waszyk. Before coming to India, Benet was CEO of Nestle Central and West Africa Region.

And these are not the only packaged consumer goods makers to announce major top-level changes recently.

In the last one year alone, Godrej Consumer Products Ltd and the local units of L’Oreal SA, Reckitt Benckiser Group Plc and Perfetti Van Melle SpA have been among companies that have changed some of their top managers, seeking talent from both within and outside.

The sudden churn in the sector, say human resource experts and executive search specialists, results from a combination of factors.

Several top-rated Indian CEOs have taken up global roles, which left a vacuum in the local operations of their firms. In other cases, companies needed a change at the top levels to deal with the economic downturn that has forced consumers to cut spending and eroded profit margins.

Changing market

“From high growth years you are starting to see a flat or low single-digit growth. That’s making everyone, especially multinationals, look closely at the top management," said Vibhav Dhawan, managing partner at Positive Moves Consulting in Bangalore.

“People who have been replaced did not perform badly. It is the changing market condition that is forcing companies to look for change."

In a slowing economy the room for non-performance is limited as the stakes are high, said Chander Mohan Sethi, senior vice-president, South East Asia, Reckitt Benckiser. “Making a top-level change may be expensive but companies are not shying away from bringing in the best talent as good people will pay for themselves," he added.

In November, The Economic Times reported that Reckitt Benckiser would have a new India head in January after its existing managing director Akhil Chandra moves to a global role. Chandra had headed the India operations for barely a year.

At L’Oreal the appointment of Jean-Christophe Letellier signalled the importance of the India market for the maker of cosmetics under the Maybelline and Garnier brands.

The move came after Jean-Paul Agon, chairman and CEO of L’Oreal SA, said in January 2013 that India will play an important role in helping the company reach its next 1 billion consumers. L’Oreal reaches around 40 million consumers in India currently and the figure is set to grow to 150 million by the end of the decade, said Letellier, who wants to expand the business at three times the market rate in what is a difficult economic environment.

Unlike in the past, when multinational companies banked on emerging markets such as India to be their growth drivers, they are now looking at keeping costs down as well, given the economic uncertainties.

In an email to staff on the appointment of Sanjiv Mehta at Hindustan Unilever in India, B.P. Biddappa, the company’s executive director, human resources, said: “During his stint with Unilever Philippines starting in 2007 where he was chairman, the business delivered double-digit top and bottom line growth and took on competition headlong in key categories, and won."

Experts say companies are increasingly looking for leaders who can optimize costs. “When you are growing at 20% to 30%, nobody cares about costs. But now that margins are under pressure and growth has slowed, companies are looking for fix-it operations specialists rather than great strategic marketing thinkers," said Dhawan of Positive Moves Consulting.

Growth and efficiency

Ashutosh Khanna, head of consumer practice at the executive search firm Korn/Ferry International, agreed: “It is easier for companies to change their leaders in bad times. In poor growth years they realise they may need chiefs with a different skill-set. Earlier the focus was on increasing market share. Now the focus may shift to culling the portfolio or cutting costs," he said.

M.V. Natarajan, the India and Indian subcontinent head at chocolate maker Mars Inc., agreed that a more challenging economic environment entails a different set of interventions from companies. Efforts will be focused on efficiency and growth initiatives, he said.

For instance, some months ago, Britannia Industries Ltd’s promoter and chairman Nusli Wadia appointed Varun Berry as its new India head, pushing Vinita Bali, its MD of over eight years, to oversee the company’s fledgling international business. A former Unilever and PepsiCo. hand, Berry was given the mandate to improve Britannia’s margins and increase its market share in biscuits from the current levels of roughly 30%.

Growth in biscuit sales volumes is down because of increased competition and margins too have been eroded due to a steep rise in raw material costs. Although wheat and sugar prices have stabilized, Berry’s task will not be easy.

“Berry understands how to get depth and width in terms of market coverage. Territory development, retail expansion and penetration is what he does really well," said a former colleague of Berry’s at PepsiCo. The colleague declined to be named.

Vinita Bali, who has retained her MD designation, accelerated the company’s sales growth, strengthened its brand image and launched a host of health food products. Britannia declined to comment for this story.

In Coca-Cola, meanwhile, Venkatesh Kini, a man known for a process- and systems-driven approach, was promoted as president, taking over Atul Singh’s role and responsibilities.

The move was in keeping with plans for the next phase of the fizzy drink maker’s journey in India, said a Coca-Cola India executive on condition of anonymity. “We need to build strong systems leaders with local knowledge and global perspective," he said. Kini has worked for the company for 14 years across functions and continents.

Singh, who steered Coca-Cola’s operations in India for close to eight years, is known as a turnaround specialist. Under him, India became the seventh largest market for the world’s largest beverage maker. The Coca-Cola executive quoted earlier said companies are appointing new CEOs in preparation for the next round of growth.

“Companies are looking for fresh talent to push growth. But they also have mismatched expectations of growth," said Rachna Nath, leader, retail and consumer practice, at the consultancy PriceWaterHouseCoopers.

Some vacancies are being created as companies push their existing employees to take up bigger—often global—roles, she pointed out.

New challenges

Nitin Paranjpe, replaced by Mehta as CEO of Hindustan Unilever, now has international responsibilities at Unilever. “That is how companies mentor executives," said Anurag Aman, head of the leadership practice at Mercer India. “HUL and Coca-Cola chief executives have taken the next level of responsibility. New careers paths are created for them."

Organizations seeking to transform themselves also look for new talent at the top.

Mohit Mohan, executive director, New Delhi and Bangalore, at head-hunting firm Gilbert Tweed Associates, does not think the movement at the top signals a trend. “In some cases it may be the outcome of a shareholder acquiring bigger business," he said. For instance, Diageo followed up its acquisition of the stake in USL by hiring Kripalu.

Liquor volumes have barely grown 2% this year after consistent growth of 10% year-on-year for the last decade, according to industry executives. But that is not the end of USL’s challenges—its rivals are marching ahead too.

The French spirits company Pernod Ricard SA, for instance, makes more money than USL despite selling less than a fourth of its volumes. Kripalu’s appointment may not have come as a surprise because as its largest shareholder, Diageo has the right to appoint the CEO and the chief financial officer.

Currently, USL is run by Ashok Capoor, who will quit as managing director in April but continue as president, strategy, for a year. Kripalu will have to usher in and permeate Diageo’s culture in the organization.

In an interview last month, Diageo Asia Pacific president Gilbert Ghostine said the company’s top priority for USL were compliance, culture and performance. “It is important for us that USL as a publicly quoted company in India operates at the highest standards of controls, governance and compliance," Ghostine said.

On the financial side, Kripalu will need to bring about improvements on two fronts—margins, by cutting costs rather than relying on price increases, and sales of higher-priced brands. He will have the financial backing of Diageo to fix issues, but managing such a large product portfolio while dealing with whimsical state governments and egos—Mallya remains chairman and still holds more than 10% in the company—presents a formidable challenge.

Clearly, USL was on the lookout for a transformation specialist and saw the right one in Kripalu.

‘India is about growth’

Interestingly, in response to Mint’s query Kripalu said that CEOs working in a tightening, inflationary economy start out by “cutting costs" by trimming investments in sales and marketing, pruning staff and slashing discretionary overheads like travel.

However, he believes that more “seasoned" CEOs know that you cannot “cut your way out of the problem" as that’s a vicious cycle—it might help the results in the current year, but invariably stunts longer-term growth. “CEOs with vision recognize that India is about growth and will try and “grow out of the problem".

“They try to generate savings from other cost heads—but not necessarily people—which would be used to protect growth-oriented investments. This approach fuels greater demand and helps build market share which delivers long term value," he said.

But transformation is not easy: “It is not about change of business plans but changing the culture that is deep-rooted in people and processes," said Dhawan of Positive Moves Consulting.

The new CEOs will have to deal with a changed environment in 2014. For a start, the market is much more competitive now and the consumer far more discerning. “Rising prices, inflationary pressures, squeeze in consumer discretionary spends will all add to a more complex and challenging situation at large," said Aman of Mercer.

This also requires companies to look for chiefs with a wider exposure to markets beyond India. “You look for a CEO with international exposure, someone who has seen different markets—growing, developing, stagnating. Someone who has seen markets at different stages of evolution may be a better fit than someone who has been India for the last 20 years," said Aman.

Crisis man

Mehta, for example, has taken over from Paranjpe at HUL a time when the maker of Dove soap, Fair and Lovely fairness cream and Surf detergent is hurting from the economic slowdown. So the aggressive ‘growth and premiumisation strategy’ followed by Paranjpe is unlikely to work in the current economic environment. However, during Paranjpe’s five-year tenure beginning in 2008, the company’s market capitalization rose nearly three-fold.

According to a September report by India Infoline Ltd’s Institutional Equities Research desk, HUL’s sales growth is under pressure. “Moderating industry growth and deteriorating quality of growth (no premiumisation) is likely to weigh on HUL’s top-line performance," said the brokerage.

Mehta is known for his ability to handle such crisis situations. He started his career in 1983 with Union Carbide Corp. in India where he played a part in crisis management following the 1984 Bhopal gas leak tragedy. In his two-decade stint at Unilever across the Middle East and Asia, he is known to have turned around the business of Unilever Bangladesh. For Mehta the task at hand is to raise the bar. HUL did not respond to Mint’s emailed queries.

Going forward, the tenure of CEOs is likely to become shorter—from an estimated seven years, it is already down to three-to-four years. The role will change too. Where CEOs once had a more operational role, the growing complexity of business means CEOs need to be actively involved in every aspect of business, including legal and policy matters.

The stage is set for the evolution of the Indian CEO, said Mercer’s Aman.

Agreed Dhawan: “If someone can deliver now, that person will be rated among the best ever."

Yogendra Kalavalapalli in Hyderabad contributed to this story.

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