Hindustan Unilever Ltd., the largest consumer company in the world’s most populous nation, has been providing everyday products from detergent to instant coffee to Indians for decades. Now, it finds its fortunes flagging as an increasingly sophisticated consumer class with disposable incomes demands more. The Indian unit of Unilever Plc is battling a slowing rate of growth in revenue and profits while its share price is lagging.
The discerning tastes of India’s affluent are driving the thriving popularity of organic personal-care brands, propelled by polished social media marketing strategies. The emergence of players like homegrown newcomer Honasa Consumer Ltd, alongside the advancing presence of global giants like Estee Lauder Companies Inc. and Clinique Laboratories LLC, is compelling Hindustan Unilever to increase investments in both product innovation and promotional efforts.
The hurdles faced by the company echo those encountered by fellow consumer-goods behemoths like Procter & Gamble Co., L’Oreal SA, and its London-based parent company. These industry leaders have found themselves compelled in recent years to acquire niche brands that have been eroding market share from their own in-house offerings.
“In simple terms, larger companies such as Hindustan Unilever tend to move and strategize at a slower pace compared to the newer, more agile brands,” remarked Arvind Singhal, chairman of consulting firm Technopak Advisors Pvt.
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“The influence of major brands is dwindling steadily as challenger brands emerge across all price ranges. These newcomers provide retailers with better margins, enticing local shopkeepers to give them a try,” he added.
Hindustan Unilever declined to comment, stating that it is in an earnings quiet period.
Redseer Management Consulting Pvt. estimates that India’s personal-care sector will grow from $20 billion in 2022 to a projected $33 billion market by 2027.
As the producer of Dove soaps and Magnum ice cream, the competition for affluent clientele intensifies, necessitating price reductions for its most economical brands. This adjustment comes in response to reduced spending among rural consumers with lower income levels.
This situation is putting pressure on the company from both directions, a position often regarded as indicative of consumer spending trends in India, given the widespread availability of its household products across the nation.
The company’s revenue grew by 3% in the first nine months of the fiscal year that ended in December, which is a considerable decrease from the 17% growth that was seen in the corresponding period of the prior year. Similarly, net profit declined, increasing by only 4% to 77 billion rupees for the nine months that ended on December 31 as opposed to the 14% growth that was recorded in the corresponding period of the prior year.
The consumer products manufacturer spent a total of 48 billion rupees ($576 million) on advertising and promotional costs from April to December, up from 36 billion rupees in the same time of the previous fiscal year.
During January, Emkay Global Financial Services Ltd. and Centrum Broking Pvt. revised down their earnings forecasts for Hindustan Unilever. The brokerages expressed concerns that profit margins would be squeezed further as the company is compelled to allocate additional resources to compete against new brands in the premium segment.
The company has long enjoyed the advantages of its well-established supply chain network, effectively stocking shelves in both neighborhood convenience stores and large supermarkets throughout the country.
However, according to Nitin Gupta, an analyst at Emkay Global, niche competitors who sell directly to consumers online bypass the traditional distribution network.
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Gupta pointed out, “Even when HUL does introduce a premium product, they tend to be tardy in reaching the market. Their innovation hasn’t kept pace with consumer demands.”
Since the beginning of this year, the stock has declined by 15%, trailing behind the 4.5% decrease seen in the broader index of consumer stocks in India. Conversely, the market benchmark, S&P BSE Sensex, has shown gains in 2024.
According to Vidushi Agrawal, an independent brand consultant situated in Mumbai, Hindustan Unilever is encountering difficulties in introducing new products in the premium segment that generate market excitement.
Its modern competitors are targeting specific demographic segments—such as youth or new parents—and leveraging social media influencers to promote their brands.
Hindustan Unilever’s personal-care brands like Simple or Love, Beauty and Planet, which were introduced a few years back, are only now beginning to gain traction on social media. However, each of these brands has accumulated fewer than 92,000 Instagram followers, for instance. In contrast, Mamaearth, a personal-care brand by newcomer Honasa Consumer, boasts over 1.3 million followers on the platform.
Karthik M, an accountant from Mumbai, mentioned that he now tends to pass over most HUL items on store shelves. When shopping for personal grooming products, he prefers those from Bombay Shaving Co. and Beardo, which is backed by Marico Ltd.
“I extensively research the science behind shampoos and soaps and carefully select the chemicals I want on my face,” he explained. “Apart from Pears soap, I refrain from purchasing any other hair and beard products from Unilever’s India unit.”
In the past two years, Hindustan Unilever has launched numerous new body care products. Additionally, in December, the company divided its personal care division into two separate entities to enhance specialized marketing efforts.
During a January conference call with analysts, Hindustan Unilever Chief Executive Officer Rohit Jawa stated that over 80% of the company’s product lines are either experiencing growth or maintaining their brand identity among consumers.
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According to a statement from the company, the premium beauty business segment, which was founded three years ago, brings in over a billion rupees in recurring revenue annually. The unit’s profit isn’t disclosed, though.
Nevertheless, the company’s struggle to uphold its longstanding dominance over Indian consumers appears poised to escalate. Laxmichand Gada, owner of Mumbai retail chain Society Stores, noted that agile competitors are providing shoppers with greater variety and retailers with increased profits.
Because of this, he’s choosing to stock more niche domestic and international brands on his shelves and less Unilever personal care goods.
