Egged on by activist investors, FMCG major Hindustan Unilever’s parent, Unilever Plc, rolled out a restructuring plan last week to simplify its organisation with a focus on driving sales growth and cutting costs. For HUL, the plan reinforces the strategy that it has followed in the Indian market for some time now.
With an average underlying sales growth of 2.9% from 2016 to 2020 and an underlying operating margin of 18.5% for the year 2020, the Anglo-Dutch parent has underperformed its Indian arm. Unilever has now decided to structure its business portfolio into five segments — beauty and well-being, personal care, home care, nutrition, and ice cream. Until now, the businesses were grouped into three verticals — beauty and personal care, foods and refreshments, and home care.
The reclassification at the group level would mean that HUL will also likely undergo a similar restructuring of its business segments from the current divisions of home care, beauty & personal care, food & refreshment, and others (including exports and consignment).
However, in some respects, HUL’s portfolio differs from its parent and shall continue to do so. While Unilever divested its developed markets tea business last year as a step towards portfolio rationalisation, HUL has had a strong presence in the beverage segments of tea and coffee in the Indian market. It also has a presence in water filters. It remains to be seen how these segments are regrouped to align with the parent’s plan.
While its parent failed in its latest attempt to buy the consumer healthcare business of GlaxoSmithKline (GSK), HUL had in 2020 bought the malted food drink brands of Horlicks, Boost, Maltova and Viva of GSK Consumer Healthcare in India — providing a strong fillip to its nutrition portfolio just before the Covid-19 pandemic struck.
Unilever is under pressure from investors to make growth a priority that needs to get reflected in stock valuations. The long-term growth of its food and refreshment business has been lagging behind the other parts of the portfolio. Focus on existing business, trimming out unnecessary or non-core segments and accelerating the use of technology seem to be the new plan of action.
The pressure on growth and profits from the parent will ensure HUL continues to favour profit over volumes in the current inflationary environment and become omnichannel across its offerings. Non-core brands, especially in the foods and refreshments segment, could be divested.
Besides, non-essential managerial roles in the organisation could face the axe — given that HUL has traditionally held the record in the FMCG industry of having the highest number of employees with crore-plus salaries.
Meanwhile, HUL’s consumers can expect product prices to go up or remain firm in the near term.
