The company’s India unit, Hindustan Unilever Limited (HUL), has ascribed the move to lower tea prices to its successful ‘Winning in Many Indias’ business model as well as an unusual decline in commodity pricing for tea.
HUL recently announced a 16% year-on-year increase in turnover for Q4FY2022 to INR148.7 billion (US$1.8 billion) from INR128.4 billion (US$1.6 billion) in the same quarter in FY2021, as well as a 20% increase in profits to INR26.2 billion (US$448.5 million) from INR21.9 billion (US$266.4 million) the previous year.
The business’s Food & Refreshment division, in particular, saw “solid performance” of 4% growth, notably in the jams and ice-cream categories – but the company took particular delight in successfully passing on cost-savings in the tea area to consumers.
“There are two areas [in India] where we have seen commodity costs falling off, which have been tea [and] vegetable oil,” Ritesh Tiwari, HUL CFO and Executive Director, Finance and IT, said during a discussion of the Q4FY2022 financial results.
“Aside from these two categories and commodities, there is still significant year-on-year inflation across the board, affecting all other categories – but for tea, our strategy has been consistent, and it is a portfolio play where our Winning in Many Indias strategy has been brought to life excellently well.”
“[This is reflected] in our goods, in our innovation, and in the way we handle formulation and price across the country.”
HUL’s Winning in Many Indias business model divides the country into 15 consumer clusters that provide localised insights into product development and marketing, and is supported by multiple country teams that operate as micro-organizations to shorten the time it takes for innovations to reach the market and commercialization stage.
According to firm CEO and Managing Director Sanjiv Mehta, the approach was devised because “dialects, cultures, and rituals change every 100km in India,” and considering the entire country as a “one homogeneous entity” would be a “gross under-service” to the prospects available.”
Tiwari went on to say that HUL’s tea company has effectively used this business strategy to not just develop, but also to secure market leadership and pass on price cuts to customers.
“[Our] pricing strategy has been that] if market inflation occurs, we take price increases in small bites to ensure that we are able to land those prices effectively and ensure that we are able to hold and continue to grow our consumer franchise – but conversely, whenever market commodities come off to some extent in select places, we take larger bite decreases,” he explained.
“And one must do so; else, trade inventory would become trapped between price points.” That is exactly what we have done in tea [and] how we have passed on the advantage of price reductions to customers through price drops.”
Tea is one of the few market areas that has seen price decreases in recent months, with other prominent names reporting price increases, from alcohol to ordinary food goods.
HUL also bought various F&B brands from GSK in 2020, including well-known names like Horlicks and Boost, and is currently concentrating on utilising these trademarks to produce goods geared at augmenting Indian customers’ nutritional needs.
“[We are aware of] one solitary understanding that India as a nation generally has micronutrient deficiencies,” Tiwari explained.
“Because our diet is strong in carbs, this creates a fantastic opportunity for us to leverage our functional nutrition portfolio and play to the demand area where people may be consuming enough calories but may not be getting the proper micronutrients as part of their food palate.”
“This could be Horlicks for bones or other products like chocolate drink Boost that is fortified with vitamins and minerals to increase stamina, or those in our high science range targeting diabetics, lactating mothers, women, and so on – we have also launched a range of gummies online, namely Nutri Gummies and Diabetes Gummies, which we are monitoring consumer reactions to.”