Jawa expressed surprise at the pace of change in India in an interview late last week, a day after HUL announced its earnings for the fourth quarter, where the company reported a 2% jump in underlying volumes, similar to the previous two quarters.
Comparing his stint in China—where he was Unilever chairman for five years (2017-2022)—with India, Jawa said, “Quick commerce is an example of how quickly the channels change. When I was in China, these changes happened like one big event a year. But here, they’re almost all happening at the same time.”
These are early days for Jawa in India, who described his challenge thus: “How do we become more agile and stay big? How can we atomize our organization, because we are now a very big company?” Atomizing a very big company may sound like an oxymoron, but HUL will constantly be looking for targets that make a “strategic fit”. On the ice cream business, which parent Unilever plans to hive off, its Indian subsidiary will look for cues before deciding on the next course of action. Till then, HUL will take advantage of the hot summer to sell more Magnum ice-cream in India. Edited excerpts.
What is your projection of mid- to long-term volume growth for the company?
We should disaggregate our performance in the last quarter where we delivered about 2% volume growth. We had a miss in skin cleansing, which dragged volumes down. However, you need to keep in mind that 75% of our business grew volumes, and half of our business grew mid-single digits. On the whole, there is inherently higher volume growth in the business when you disaggregate the portfolio. If you look back more as a trend rate, we were growing volumes around 4% and price at about 3-4%, excluding M&A. So that’s been generally the norm because consumers also upgrade in value terms; volume is not the only way to grow the market. But it’s a good indicator at this point because prices have been negative to flat.
So, volume is a good thing to chase at this time. It is the most virtuous thing to do to get more consumers, more consumption, and premiumizing them through product mix. That strive is making our company stronger. We are focused at this stage on what we can really control, which is to drive more volume and go to fast-growth spaces. Growth is, however, unevenly distributed. It’s somewhat slower in the rural markets, although they’ve come back. It’s higher in the premium end of the market and organized trade.
Basically, we’re moving our funds, resources and innovations into spaces with tailwinds. Overall, I do expect volumes to improve as we go forward. If the monsoons are good, that will also give us another bump on the agri side and clearly help the rural markets.
Investors appear to be dissatisfied with the results, and despite being a heavyweight in the index, HUL has barely moved during the recent market rally. However, you seem quite optimistic. Can you please explain what investors might be overlooking?
I’m optimistic about the consumer goods industry. I can speak on that first, but I cannot speak on the larger investment thesis—where the money is going, small caps, mid caps, and large caps. I think that’s not an area of my expertise. We are focused on serving our shareholders, and the best way we can serve them is by doing them right in the long term, which is by being multi-stakeholder and remaining true to our belief—what is good for India is good for HUL. So, as India grows, we will grow. The second is that the per capita consumption of all the categories we play in consumer goods is one-fourth to one-sixth compared to that of countries such as Indonesia and Thailand. They are all going to inflect. They have done so in the last 10 years; they will do for the next 10 years. Because growth is not smooth and straightforward, it is lumpy.
We, as the largest consumer goods company in this country with the deepest distribution and brand reach, with the highest capacity of R&D and supply chain, in what can be quite a complex market to navigate, with deep roots in communities, and a Unilever parent with a lot of brands and technology to transfer, are very well poised to play this game. There is clearly a new India that’s emerging, of course there are many India’s, I’m conscious of that, but there’s a new India that is emerging. We’ve got to be where the growth is. We have to transform our portfolio, our channel salience, our capability and our culture to be right for the future. So, I see us being a very good investment, and people who are long-term investors probably think like that, too. Now, what happens in the ebbs and flows of overall asset management funds is they are moved by every factor, not just HUL.
HUL is also a generous dividend payer. But the other way of looking at it is that you don’t have much to invest in, and that’s the reason you are paying out more dividends.
We have very strong accumulated cash balances and we do pay well in excess of 90%, because we do have a retail asset base of our investors who are looking for that dividend stream. If we get any good, attractive investment opportunity, we do have the funds and access to short-term and long-term financing for that. I don’t see that as an issue. If we hadn’t been committed to investment, we would not have done the largest M&A of consumer packaged goods (CPG) in this country (with the GSK acquisition). That was the largest M&A for HUL and for Unilever globally. There is definitely a high commitment, and we have funds to invest.
Are there any missing pieces in your portfolio?
We’re always looking at targets that meet a strategic fit to that question. The preferred spaces are in beauty care and, perhaps, food. We have already made a big acquisition in foods with GSK. This must be a target with strong commercial logic, and it must offer us a niche segment or a capability we don’t have. So, we have very strict guidelines, and much rigour is done. We are always on the lookout, and when something is appropriate, we have invested—our small investments in health and well-being recently or previously with Indulekha, which is now five to six times the size when we acquired it and, of course, GSK. So, we keep investing programmatically over the years. When a good target arrives and fits these criteria, then we will look at an acquisition.
We have many of our own brands, along with a stable of iconic Unilever brands. Our first port of call is to take 19 of our ₹1,000 crore-plus brands and look at extending them. The highest probability of success is to take our iconic brands and extend them into new spaces.
What do you plan to do with the ice cream business?
Globally, we have decided to split that as a separate company. Exactly what constitution it forms is still under evaluation at Unilever. We, as HUL, have an independent board, and with the independent board, plus us the management, we are discussing options for what would be good for HUL. At some point in the future, when we have more clarity and we have decided where to go with it, we will then share that more publicly. At this point, it is truly under evaluation.
But if it is no longer part of Unilever’s portfolio, would it make sense to have it in HUL’s portfolio?
This is exactly what we are discussing. What form Unilever takes is still to be clear because they are evaluating various options. What is quite clear is it will have a separate entity and what form that entity takes is under consideration at Unilever. At the same time, we are also evaluating options of what would be the best way forward for our shareholders. Then we will go through the process, consultation, agreement and, if required, approval from the shareholders. So, there is some path to cover here. It’s too early and too premature. At this stage, we focus on selling (more ice creams) this summer and growing the business.
As India’s largest consumer goods company, how do you look at the Supreme Court’s comments on Patanjali in the case of misleading ads? How will that impact the ayurveda segment? Would it mean you take some product reviews as well?
I would not want to comment on any competitors. Whatever the honourable Supreme Court‘s ruling is, it must be fully respected. I want to comment specifically on the ayurveda segment. We do have a very good equity called Indulekha, which has now been extended. Now, we’re piloting a soap bar in Kerala, which will be extended. We’re looking at other categories that the brand can go into. We intend to basically make that the main focus of our ayurveda thrust because it has an opportunity to build a premium ayurvedic, therapeutic segment. Indulekha is now five to six times what it was when we acquired it. We will continue to invest in that, and it’s one of the master brands in our beauty and personal care space.
Within foods, spices as a category has seen M&A activity in the past few years. Is there an appetite to do an M&A there?
We have a strong food and beverage business worth more than ₹15,000 crore. We are already focused heavily on tea, coffee and functional nutrition. Our packaged foods business has a big opportunity to grow with great brands like Knorr, Hellman’s and Kissan. We are at the moment looking at various levers of opportunity that exist in what’s a very exciting foods market that plays on our right to win, Unilever’s technical expertise, and what we can bring uniquely to the market. There are categories where we’ve decided not to play—say, by monetizing Captain Cook and Annapurna, we don’t want to be in the staples category. But we are constantly looking at opportunities and working through a reset or reshaping of our strategy on foods. Once we have clarity on how we can take it to the next level, we will share more.
Can you elaborate?
It’s in the early stages, so we’ll need a few months to zoom into that. However, our first port of call will be extending our existing brands. We already have a few success pivots—our mayo and peanut butter business is doing well, and it could potentially reach ₹100 crore ARR (annual run rate). Our peanut butter is quite popular with Kissan; we are extending the range there. Our Knorr Korean noodles entry is showing some promise. So, we already have three investable assets here. We have a lot of assets that we believe we can use way better than we’re using right now in terms of new categories and growth. We’re working on how to do that. In this course, we may have categories that we may enter, or we might look at M&A. All those options are still being explored.
Is quick commerce putting pressure on general trade in urban markets?
E-commerce is growing fast for us at HUL. Quick commerce is growing even faster than all of e-commerce. Quick commerce is limited to large cities at this stage. They are doing well, and our shares are going up. But it’s a fast-changing space. We are working with them and going where the growth is. In some categories, the salience is quite high; in ice creams, over 10% of our sales are via quick commerce. While they do have a proposition that consumers are lapping up, we need to keep in mind that kirana stores account for 70% of our sales, and that remains core to our business. It is definitely going to remain very relevant, and perhaps in some categories and some occasions and some cities, there will be a transition of business. But I don’t think it will change the importance of the small kirana store and the medium and small enterprises in our business.
HUL recently appointed a chief digital officer and then a chief human resources officer tasked with transformation. What is your mandate to them?
As I mentioned, there are three material secular changes—one being upgradation and, therefore, change in our portfolio, that is in brands, benefits, formats, and channels. The second is data; most consumers are moving towards the digital medium. Then, sustainability means being responsible to the communities, and that’s also the national agenda. As a big company in a big country, we are fully aligned with that.
So, we need to account for these forces in how we look to the future—by making portfolio changes, focusing on beauty and well-being, and extending foods to more premium spaces. Most of our funding goes towards new segments and more premium areas because that’s where the growth is. That shows you how we are pivoting towards a different portfolio and channels. If we have to build brands in a new India, we must be very comfortable building brands digitally. We want to also build a strong infrastructure in the consumer space. Because we reach nine out of 10 households, we speak to consumers through ads. So, we’re interacting with the consumers daily…millions of data points. How can we use all of that data to know our consumers better? So, our digital focus is to do what we’ve done around the general trade space around other parts—modern trade, e-commerce, consumer engagement, media, that’s the current thrust. That is why we need a digital officer and a digital team.
B.P. Biddappa knows HUL very well and will join the HUL management committee as executive director, human resources and chief people, transformation and sustainability officer for South Asia. He will help us look at how we’re organized. How can we move at the clock speed of the new India? How do we become more agile and stay big?
Many global business leaders are very bullish about the Indian economy, and HUL is often perceived as the de facto play on India. Why has its growth not kept pace with the Indian economy?
Yes, I agree, and we should grow the volumes faster. But if you look at the trend rate in the last decade, BCG did some work with CII—they generated the outcome that the market grew at a CAGR of 3-4%. So, the job to be done for us as an industry is to upgrade our consumers. Therefore, we will also have to start looking at the mix, so the premiumization aspect gets consumers to upgrade to high-quality products. So it’s not all volume; part of that is also mix. There’s going to be a combination of usage increase and value increase that we as the CPG industry need to drive. That’s basically our thesis on upgradation and premiumization.
You’ve been in your current role for nine months. Are there any surprises in the market?
Surprise is the pace of change; it’s even faster than I would have expected. Quick commerce is an example of how quickly the channels change. When I was in China, these changes happened like one big event a year. But here we’ve got almost everything happening at the same time. It’s really about how we as a company can move at the clock speed of India and faster than the clock speed of India. Go where the growth is and transform our portfolio. If the macro and the rural consumption starts to go up, as it will, we will see gradual improvement and that tailwind will also lift our boat.
What are the challenges in rural areas since growth is still trailing urban growth?
It’s already gradually improving. Monsoons have a big impact. Three sources drive the rural economy—agri, labour, and repatriation. Repatriation is driven a lot by people going back to work in cities and working on capex projects, and government capex has gone up by a third, driving the GDP. That money should trickle down. I think that we came through a tough monsoon last year. So, there’s more to look at optimistically. But that part we can’t control. We can control what we do with competitiveness in rural; we are growing shares.
