Unilever Looks to Recover Lost Indian Glory

As competition heats up, India's top consumer-products company woos affluent shoppers with global brands like Dove, while cooking up its foods biz

by Nandini Lakshman

The middle-aged Briton strolling the aisles and checking out the products doesn't attract much notice from other shoppers in Mumbai's Hypercity, the India hypermarket chain. That's how Douglas Baillie likes it. Baillie, the managing director of Hindustan Unilever, India's premier consumer-products company, wants to see how his products are stocked, what consumers are buying, and how shoppers are reacting to competitive brands. It's primary market research at its most elemental, and it's best done incognito.

Hindustan Unilever has traditionally relied on small traders and mom-and-pop corner stores to retail its products. But India's recent retail boom has created large stores and malls, so the company wants to make sure it's in with the new marketing crowd. Hence Baillie's Hypercity visits, and the calls he makes on the headquarters of the big retail chains.

This is quite a change for Hindustan Unilever, whose executives used to have emissaries make obeisance at Lever house in downtown Mumbai. "I can't imagine any head from Lever House ever visiting other company offices like this," says an amazed Damodar Mall, chief executive of innovation and incubation at Pantaloon Retail, India's largest retailer, and a former manager at Hindustan Unilever.

Facing Competition from P&G and Others

The reason for this newfound egalitarianism is that the $3 billion Hindustan Unilever is facing serious competition. The company, which is practically synonymous with India, makes everything from detergents, soaps, and shampoos to soups, sauces and tea, and dominates most of those categories. Yet early this year, Finnish handset maker Nokia (NOK) dislodged it as the multinational with the highest revenues in India, after ringing up India-based sales of $3.5 billion.

Now Hindustan Unilever is under siege from aggressive Indian and foreign competitors such as Procter & Gamble (PG), Nivea, and L'Oréal. In the last year, ACNielsen data shows, Hindustan Unilever's lead in hand soaps, including the popular Lux, is down from 55.2% to 54%. Favorite detergent brands like Surf Excel and Rin are barely hanging onto their 37% share. Hindustan Lever tea brands like Brooke Bond and Lipton have dipped from a combined market share of 29.2% to 24.3%.

All this has taken a toll on Hindustan Unilever's operating margins, down from 21% a few years ago to just 11.84% now. That's why the company is wooing consumers in big retail stores. These newly affluent shoppers present the best hope for the company's future in India. According to retail consultant KSA Technopak, organized retail, currently just 3.5% of India's total $336 billion retail market, will grow to 28% by 2017.

In Sync With Unilever's Global Realignment

Hindustan Unilever's managers hope their revenues from big retail will increase from 5% today to over 25% in 2012. "It is a big game for us," says D. Sundaram, Hindustan Unilever's finance director. Hindustan Unilever's strategy is to market its premium products through the hundreds of megastores springing up across India.

That dovetails with parent company Unilever's new global realignment of products. Parent Unilever will develop the brands and streamline product offerings across the world, while its subsidiaries will sell the products.