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

India’s elite classes are becoming pickier consumers, fueling 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. is forcing Hindustan Unilever to spend more on product development and advertising.

By Advait Palepu

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, fueling 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.

‘Challenger Brands’

“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 $33 billion (Rs 2.75 lakh crores) market by 2027 from $20 billion (Rs 1.66 lakh crores) 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 per cent during the first nine months of the fiscal year through December— down from 17 per cent growth in the year-ago period. Likewise, net profit is sagging, increasing 4 per cent to 77 billion rupees for the nine month-period ending December 31, compared to 14 per cent growth in the same period in the previous year.

The consumer goods maker, meanwhile, spent $576 million (Rs 4,801 crores) on advertising and promotional costs in the April to December period, up from $431million (Rs 3,593 crores) 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-and-pop stores, as well as supermarkets across the country.

Direct Sales

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 per cent since the start of this year, lagging the 4.5 per cent decline in the broad index of consumer stocks in India. The market benchmark, S&P BSE Sensex, has advanced in 2024.

Hindustan Unilever is struggling to offer new products in the premium segment that create market buzz, said Vidushi Agrawal, an independent brand consultant based in Mumbai.

Tapping Influencers

Its new-age competitors are marketing products to specific demographic groups— such as young people or new parents, and tapping social media influencers to spread the word about their brands.

Hindustan Unilever personal-care brands such as Simple or Love, Beauty and Planet— launched a few years ago — are just now gaining some social media traction. Still, each one has garnered less than 92,000 Instagram followers, for example. Mamaearth— a personal-care brand from newcomer Honasa Consumer— has more than 1.3 million followers on the platform.

Mumbai accountant Karthik M said he now skips by most HUL items on store shelves. When he’s shopping for personal grooming products, he’s looking for products from Bombay Shaving Co. and Marico Ltd.-backed Beardo.

“I research quite a bit on the science behind shampoos and soaps and what chemicals I want on my face,” he said. “Other than Pears soap, I don’t buy any of the other products for hair and beard” from Unilever’s India unit.

Recasting Businesses

Hindustan Unilever has introduced a slew of new body care products in the last two years, and in December split its personal care division in two in order to do better specialized marketing.

More than 80 per cent of the company’s product lines are either growing or maintaining brand identity among consumers, Hindustan Unilever Chief Executive Officer Rohit Jawa said on a January call with analysts.

The premium beauty business unit— created three years ago— is generating more than a billion rupees in annual recurring revenue, the company said. It does not disclose profit for the unit.

Still, the company’s fight to maintain its decades-long stranglehold on Indian consumers looks set to intensify. Nimble challengers are offering shoppers more variety and retailers more profits, said Laxmichand Gada, owner of Mumbai retail chain Society Stores.

This means he’s stocking fewer Unilever personal-care products on his shelves and more of local and foreign niche brands.