Picky consumers jilting big brands are Unilever India’s new risk

THE largest consumer company in the world’s most populous nation has provided everyday products from detergent to instant coffee to Indians for decades.

Now Hindustan Unilever Ltd is seeing its fortunes flag 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.

India’s elite classes are becoming pickier consumers, fuelling the success of organic personal-care brands backed by slick social media marketing campaigns.

The rise of companies like local upstart Honasa Consumer Ltd, and the inroads made by global names including Estee Lauder Companies Inc and Clinique Laboratories LLC, is forcing Hindustan Unilever to spend more on product development and advertising.

The company’s challenges mirror those of other consumer-goods giants, such as Procter & Gamble Co, L’oreal SA and its London-based parent, which in recent years have had to acquire the niche brands taking market share from their in-house businesses.

“Simply put, the large companies like Hindustan Unilever are slow to move and develop strategies compared to the newer brands that are far more agile,” said Arvind Singhal, chairman of consulting firm Technopak Advisors Pvt.

“The power of large brands is decreasing by the day because there are challenger brands coming up at every price point. They offer better margins to retailers and the local shopkeeper is happy to try them out.”

Hindustan Unilever declined to comment because it is in an earnings quiet period, a spokesperson said.

India’s personal-care sector is estimated to become a Us$33bil market by 2027 from Us$20bil in 2022, according to Redseer Management Consulting Pvt.

The competition for wealthier customers comes as the maker of Dove soaps and Magnum ice cream has also had to offer price cuts for its cheapest brands due to a pullback in spending among the poorer, rural consumers.

That’s squeezing the company at both ends, which is often seen as a bellwether for consumer spending in India with its household products sold in every nook and corner of the country.

The company’s revenue grew 3% during the first nine months of the fiscal year through December – down from 17% growth in the year-ago period.

Likewise, net profit is sagging, increasing 4% to 77 billion rupees for the nine month-period ending Dec 31, compared with 14% growth in the same period in the previous year.

The consumer goods maker, meanwhile, spent 48 billion rupees (Us$576mil) on advertising and promotional costs in the April to December period, up from 36 billion rupees during the same time last fiscal year.

In January, Emkay Global Financial Services Ltd and Centrum Broking Pvt cut their earnings expectations for Hindustan Unilever. The brokerages had concerns profit margins will be pinched further as it’s forced to devote more resources to fend off new brands in the premium segment.

The company has for long benefited from its entrenched on-the-ground supply chain that can fill up shelves at mom-andpop stores, as well as supermarkets across the country.

But niche competitors selling directly to consumers online circumvent the distribution network, according to Nitin Gupta, an analyst at Emkay Global.

“Even when HUL does launch a premium product, they have been late to the market,” Gupta said.

“Innovation has not kept pace with the consumer.”

The stock is down by 15% since the start of this year, lagging the 4.5% decline in the broad index of consumer stocks in India. The market benchmark, S&P BSE Sensex, has advanced in 2024. —

“The power of large brands is decreasing by the day because there are challenger brands coming up at every price point.” Arvind Singhal