To address price increases for commodities like milk, food, and beverage major Unilever India modified a number of its products and increased innovation, albeit it currently feels the situation is stable. Recent statistics for the fiscal year 2023 from Hindustan Unilever Limited (HUL), also known as Unilever India, showed a 16% increase in sales to INR581.5 billion (US$7.09 billion) and a 12.9% increase in profits after tax to INR99.6 billion (US$1.21 billion).
The company has effectively navigated the effects of the economic downturn to sustain growth in its profitability, but it has had to make sacrifices to reduce inflation in a range of commodities, such as milk.
According to HUL CEO Sanjay Mehta, “Milk inflation has been the primary challenge as inflation has been high, so in the wake of this we piloted several innovations to make products like Horlicks more affordable.”
The development of Millet Chocolate Horlicks, which uses a range of millets such as ragi, jowar, Kanngani, and bajra to give natural sources of nutrients like calcium, iron, protein, and fiber, was also among them.
“This has been successful for us since we were able to grow our market share and build our consumer franchise. A drive to deseasonalize ice cream consumption and the development of several inventions, such as the Chuski range (non-milk ice pops with an emphasis on local tastes), are some other areas where innovation has been at the forefront.
Tea-ing up the tea
HUL CFO Ritesh Tiwari noted that although prudence is still advised and product innovation is a key strategy to guarantee minimum effects, the worst is thought to be gone as different commodity prices return to normal levels.
Over the past several months, he added, “We have seen various commodities correct from their peak inflation, which moderated on a year-over-year basis and saw easing in some of these commodities.”
“Clearly, the worst of the inflation is behind us, but inflation has not gone away – [so innovation strategies are still essential],” for example, in the ice cream industry, where even a well-known brand like Cornetto has focused on launching numerous new products like the Cornetto Salted Caramel Brownie, Hazelnut Chocolate Ice Cream tub, the Boost Ice Cream Sandwich, and more.
Going forward, “we anticipate that the price-volume growth will further rebalance [and] that] price growth will continue to fall down [due to a] price reduction in categories where we are witnessing commodity inflation. Due to the high levels of cumulative inflation and the fact that consumption patterns normally recover gradually, [keeping in mind] that FMCG market volumes have been dropping for about a year and a half, we likewise anticipate volumes to rebound gradually.
Given its market position and the fact that tea recovered from inflationary pressures in India the quickest, HUL also views its tea business as a significant growth driver. According to Tiwari, “We are the value and volume market leaders in tea and have expanded the distance over our nearest rival [using techniques like] designing special blends for different sections of the country and promoting premiumization.
“The development of the tea commodity has been different from other categories – the way the commodity market played out last year, premium tea which we use most in our products saw much higher inflation [compared to plainers] which go into making loose tea, which did not see that amount of inflation and in fact saw price correction. We believe that other markets will normalize this year, precisely as tea, as a result of the widening price differential between premium tea and loose tea. Despite consumer downgrading, tea sales sustained.