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Home Business ‘Government needs to act if consumption slows’ - Times of India

‘Government needs to act if consumption slows’ – Times of India


MUMBAI: After two waves of the pandemic and currently tackling cost headwinds, Hindustan Unilever (HUL) has said quite assertively it will navigate the third wave as well. Armed with a portfolio of brands straddling the price and pack pyramid, the one game HUL knows how to play is managing the price-value equation to retain consumers in its franchise.
The FMCG major’s CMD Sanjiv Mehta maintains that the focus of the company is volume-led growth. He also wants HUL to deliver a modest improvement on margins__a balancing act indeed__even as an untiring Mehta continues to ‘re-imagine’ HUL from his home office, visiting factories and engaging with multiple stakeholders `virtually’. What Mehta, however, misses is the energy of the marketplace and the buzz of the office. While he admits there will continue to be a good balance on how organisations would work in the future, he warns against writing the obituary of the office. Excerpts:
Q: Do you miss the office? What’s the way forward?
A:Innovations need Collaboration. You need people to physically sit around, discuss, debate and brainstorm. The future of work is not going to be either or. There will be a good balance. Not all the people will be required to come to work every day. And the crazy travel of the past will also reduce. But don’t write the obituary of the office and physical interactions. It would be a fatal mistake.
One is now looking forward to physical meetings. I still do my factory visits virtually but it’s not the same. We do consumer engagements, but it’s still not a substitute for going to consumer homes. We would visit their kitchens and bathrooms and you can’t do all that now! It was also about being with your sales teams, working the markets, and then having a nice meal in the evening, where they would let their hair down and express themselves. All that one misses

Q: Has the resilience of rural markets surprised you? Why is the urban market taking time to recover?
A:We should applaud the government for the intervention they did in rural India. Two-thirds of Indians live in rural India, which also has a large section of poor. The interventions in terms of MNREGA outlay, direct transfer of subsidy and free supply of food grains have been the right steps. These are some of the prime reasons why rural growth has remained resilient. Also, the first wave did not impact rural, the monsoons were decent, and the harvest was good. The per capita consumption of FMCG products in rural areas is 1/3 that of urban. Given the low base, the growth rates in rural should consistently remain higher than urban. If it slows down, then it becomes a big concern, because that would mean we are not lifting the poor. Growth in FMCG is in many ways reflective of the state of the economy. However, for the urban poor, there have been no interventions like direct transfer of money or free supply of food grains. The government should use technology and be able to identify the urban poor. And if economic hardships come in, they should be in a position to intervene. The more pointed and direct the intervention, the more beneficial will be the effect.
Q: Do you expect the government to come up with further incentives, given that the festive season is also around the corner?
A:On the supply side the government has taken series of steps including ensuring liquidity in the economy and providing support through guarantees. What remains to be done is on the demand side. Demand-side government hesitation could also stem from the thinking that if you put money directly in the hands of people, will they consume or will they save? With the rural poor, since their propensity to save is so little that whatever you give them, they are likely to spend it all. This should also be applicable to the urban poor. FICCI had given a very good suggestion to the government about using consumption vouchers and that’s something which has been used in the past in other parts of the world. And importantly consumption would also lead to more taxes. So, the net cost to the government would be less than the benefit provided to the people to spur consumption. These are some kinds of novel things the government could experiment with if consumption comes under strain.
The September quarter of this year will be very important. We’ve just come out of the second wave and are moving towards normalcy. If consumption remains robust, then the government will not have to intervene more. But if consumption remains tepid, then the government will have to do some serious thinking about what further interventions are required to spur consumption.
Q: What are the shifts in consumption patterns that you’re seeing today?
A:In the initial period of the pandemic, we had seen a move towards small packs and had also noticed that there were more frequent shopping trips by the poor whereas the higher income people were moving towards larger packs. We must also appreciate that in ecommerce, higher value density provides better unit economics. After that, we have not seen a very discernible change. But where the restricted mobility has impacted us, is in what we call as discretionary and out-of-home (OOH) categories – skincare, deos, color cosmetics, ice cream and our food solutions business. To give you a picture, if in the June quarter of 2019, the sales of these businesses put together, which are of reasonable size for us, were 100, it came down to 50% in June quarter 2020 and in June quarter of 2021, it has moved up to 75%. It has not fully recovered yet, as it is directly linked to mobility of people.
Q: You have defended discretionary categories for their attractiveness. But does it worry you that consumers may be getting habituated to not consuming these products?
A:No, it doesn’t worry me. It does take a knocking when mobility of people comes down but as the mobility starts to improve, we see a quick bounce back. One of the parameters we look at is penetration. Take for example skincare – I’m very happy with the improvement in penetration. These are categories which remain structurally very attractive, and we have leading positions in them.
Q: You’ve spoken about a focus on volume led growth, but with community cost pressures, would you keep a tight leash on price increases to ensure volume growth?
A:What is the game we play as HUL? These are unprecedented times, and it will require playing the different levers of business smartly. But we play the game for the long term, and the three imperatives are – we don’t want to lose the consumers or market share, we want to keep the price value equation and we want to maintain the sanctity of our business model. That’s how we are going to play.
Q: Is naturals still a trend?
A:Naturals is a secular trend. Our Indulekha brand both in terms of Oils and Shampoos is doing extremely well. On Ayush, we are focusing primarily on the southern markets. To strengthen our position in the naturals we have launched Simple and last year we had launched Nature Protect in the Home Care categories. The Naturals trend is not something which is going to go away.
Q: Patanjali has said that in five years it will overtake HUL..
A:Someone had said this five year back that by 2020, they will become bigger than HUL. Well, they did not and will not beat HUL, certainly not in my time and under my watch.





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