Competitive Strategies and Strategic Gaps of Hindustan Unilever Ltd.

This document is a report on the strategies of HUL for competitive advantage. Also this report contains strategic gaps as identified by HUL and actions taken for the same.

Submitted to: Prof. Sathya Priya Submitted by: Ankit Punani Aparajita Sharma Apurva Kumar Seksaria Deep Kanti Shome Manisha Joshi Mansi Madan 9/5/2012

Table of Contents
Introduction to HUL ...................................................................................................................................... 3 Strategies to gain competitive advantage .................................................................................................... 4 1. Hul's Association With Rural India ........................................................................................................ 4 2. Cutting Edge Distribution Network ....................................................................................................... 5 3. Product Innovations ............................................................................................................................ 10 1. Skin Lotion: Delivering Moisture Where Its Needed ..................................................................... 10 2. Clean Clothes, Less Water ............................................................................................................... 10 3. Knorr: A Revolution In Stock ........................................................................................................... 10 Strategic Gaps and Opportunities ............................................................................................................... 11 Opportunities over time: ........................................................................................................................ 11 Opportunities for new market segments: .............................................................................................. 12 Opportunities in other strategic groups or strategic spaces: ................................................................. 12 Opportunities in substitute industries: ................................................................................................... 12 References .................................................................................................................................................. 13

Introduction to HUL
Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years in India and touches the lives of two out of three Indians. HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Ponds, Vaseline, Lakm, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit. The Company has over 16,000 employees and has an annual turnover of around Rs. 21,736 crores (financial year 2011 - 2012). HUL is a subsidiary of Unilever, one of the worlds leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about 46.5 billion in 2011. Unilever has about 52% shareholding in HUL The four pillars of HULs vision set out the long term direction for the company where it wants to go and how it aims to get there:

HUL works to create a better future every day. HUL helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. HUL inspires people to take small everyday actions that can add up to a big difference for the world. HUL develops new ways of doing business with the aim of doubling the size of the company while reducing the environmental impact.

Strategies to gain competitive advantage

Competitive strategy varies from sector to sector and company to company. Thus it is not easy to predict a single or to find a single strategy for the whole sector. When it comes to FMCG sector, main focus lies in market strategies, cost, and quality strategies. HULs (Hindustan Unilever Ltd.) up and running business model is a treat for investors seeking exposure in the FMCG segment. The company has delivered in the past and has potential to do better in the future. HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others.HUL was earlier known as Hindustan Lever Ltd. This is Indias largest FMCG sector company. According to brand equity, HUL has the largest number of brands. Below is a description of main competitive strategies of the company

1. Hul's Association With Rural India

Hindustan Unilever has a strong association with rural India. More than 40% of its products are consumed in the fast growing markets of rural India. They have been pioneers in developing rural markets through affordable brands and an unparalleled distribution reach. Their distribution network directly reaches nearly 1.3 lakh villages and provides direct and indirect employment to thousands of people. In November 2010, Unilever globally announced its Sustainable Living Plan. The Plan commits to decouple the companys growth from environmental footprint while at the same time increasing its positive social impact. The Plan will result in three significant outcomes by 2020: help more than a billion people to improve their health and wellbeing, Halve the environmental footprint of its products, and Allow the company to source 100% of its agricultural raw materials sustainably.

Sustainable Sourcing HUL is working with small holder tomato farmers in Karnataka, Punjab and Maharashtra to help them adopt sustainable agricultural practices. The program focuses on improving soil fertility, water management and pest control. The use of drip irrigation has not only reduced water consumption and improved yields, but also reduced fertilizer and pesticide use. In 2011, 60% of tomatoes used in Kissan Ketchup in India were from sustainable sources. They have initiated work to encourage the adoption of sustainable farming practices by its suppliers of tea, fruits and other vegetables both for India and other Unilever markets.

Enhancing Livelihoods The Sustainable Living Plan is also about making a positive social impact. A great example of this is Project Shakti, a unique win-win initiative that has created income generating opportunities for 45,000 rural impoverished women (Shakti Ammas) and has also helped to increase the rural distribution of the Company. Project Shakti is an excellent example of 'Doing well by doing good'. More recently, HUL is collaborating with the State Bank of India to bring financial inclusion to rural India. Health & Well-Being Hindustan Unilever is also leveraging innovation to address the whole area of safe drinking water, which is a big issue in rural India. The Pureit innovation addresses one of the biggest technological challenges that of making safe drinking water available without the need for electricity or continuous tap water supply. The launch of Pureit sachet will help in a big way to make safe drinking water accessible and affordable to millions of consumers in India. Lifebuoy has been at the forefront of a sustained direct contact health education program aiming to raise hygiene standards in Indian rural communities. Lifebuoy took hand washing messages to remote villages, reaching around 30 million people directly in 2010-11 alone. This has the potential to reach 150 million people.

2. Cutting Edge Distribution Network

The distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes, maintaining favorable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. Each business of HUL portfolio has customized the network to meet its objectives. The most obvious function of providing the logistics support is to get the companys product to the end customer. Distribution System of HUL HUL's products, are distributed through a network of 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. There are 35 C&FAs in the country who feed these redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging selfservice stores and supermarkets. Around 2,000 suppliers and associates serve HULs 40 manufacturing plants which are decentralized across 2 million square miles of territory.

Distribution at the Villages: The company has brought all markets with populations of below 50,000 under one rural sales organization. The team comprises an exclusive sales force and exclusive redistribution stockists. The team focuses on building superior availability of products. In rural India, the network directly covers about 50,000 villages, reaching 250 million consumers, through 6000 substockists. To penetrate the rural markets, HUL launched a unique four tier distribution system. Markets were segmented based on their accessibility and business potential.

1. Direct Coverage: HUL appointed a common stockist to service all outlets within a town and sell a limited selection of the brand portfolio. Towns consisted of populations of under 50,000 people. In the 25% of the accessible markets with low business potential, HUL
assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. This substockist distributes the company's products to outlets in adjacent smaller villages using transportation suitable to interconnecting roads, like cycles,

scooters or the ageold bullock cart. Thus, Hindustan Unilever is trying to circumvent the barrier of motorable roads.

2. Indirect Coverage: HUL targeted retailers in accessible villages close to larger urban markets. Under the Indirect Coverage (IDC) method, company vans were replaced by vans
belonging to Redistribution Stockists, which serviced a select group of neighbouring markets.

Retail stockists were assigned a permanent route to ensure that all accessible villages in the vicinity were served at least once a fortnight. 3. Streamline: Streamline leveraged the rural wholesale channel to reach markets inaccessible by road. Star Sellers were appointed among wholesalers in a particular village. Star Sellers would purchase stock from a local distributor and then distribute stock to retailers in smaller villages using local means of transport (e.g. motorcycles, rickshaws). 4. Project Shakti: Project Shakti targeted the very small villages (<2,000) and tapped into pre-existing womens self help groups (SHG). Underprivileged rural women were invited to become direct-to-consumer sales distributors for HUL products. Termed Shakti Ammas (literally strength mothers), these women represent HUL and sell its homecare, health, and hygiene products in their villages.The model consists of groups of (1520) villagers below the poverty line (Rs.750 per month) taking microcredit from banks, and using that to buy HUL products, which they will then directly sell to consumers. In general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as 'Shakti Amma' receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually service 610 villages in the population strata of below 2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis'. The following diagram shows the Project Shakti model as initiated by HUL.

Project Streamline To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than 2000 people with the help of rural substockists/Star Sellers who are based in these very villages. As a result, the distribution network directly covers as of now about 40 per cent of the rural population. Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors (RD), who has 1520 rural substockists attached to him. Each of these substockists / star sellers is located in a rural market. The substockists then perform the role of driving distribution in neighboring villages using unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross functional initiative, the Star Seller sells everything from detergents to personal products. Higher quality servicing, in terms of frequency, credit and fullline availability, is to be provided to rural trade as part of the new distribution strategy. The diagram given below shows the model of Project Streamline:

Hindustan Lever Network (HLN) It is the company's arm in the Direct Selling channel, one of the fastest growing in India today. It already has about several lakh consultants all independent entrepreneurs, trained and guided by HLN's expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population, backed by 42 offices and 240 service centres across the country. It presents a range of customised offerings in Home & Personal Care and Foods.

The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in addition to offering rewards like revenue sharing through the innovative concept of pools. Mother Depot And Just In Time System In order to rationalize the logistics and planning task, an innovative step has been the formation of the Mother Depot and Just in Time System (MDJIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or biweekly basis. Leveraging Information Technology HUL customers are serviced on continuous replenishment. This is possible because of IT connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. This sophisticated network with its voice and data communication facilities has linked more than 200 locations all over the country, including the head office, branch offices, factories, depots and the key redistribution stockists. They have also combined back-end processes into a common Shared Service infrastructure, which supports the units across the country. All these initiatives together have enhanced operational efficiencies, improved the service to the customers and have brought the company closer to the marketplace. RS Net Initiative: The RS Net initiative, launched in 2001, aims at connecting Redistribution Stockists (RSs) through an internet based system. It now covers stockists of the Home & Personal Care business and Foods & Beverages in close to 1200 towns and cities. Together they account for about 80% of the company's turnover. RS Net is one of the largest B2B ecommerce initiatives ever undertaken in India. It provides linkages with the RSs own transaction systems, enables monitoring of stocks and secondary sales and optimises RSs orders and inventories on a daily basis through online interaction on orders, despatches, information sharing and monitoring. The ITpowered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. Today, the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. Information on secondary sales is now available on RS Net every day. RS Net is part of Project Leap. Project Leap begins with the supplier runs through the factories and depots and reaches up to the RSs. This ensures HULs growth by ensuring that the right product is available at the right place in the right quantities and at the right time in the most

costeffective manner. Leap also aims at reducing inventories and improving efficiencies right through the extended supply chain. RS Net has come as a force multiplier for HUL Way, the company's actionplan to not only maximise the number of outlets reached but also to achieve leadership in every outlet. RS Net has enabled stockists to place orders on a Continuous Replenishment System. This in turn has unshackled the field force to solely focus on secondary sales from the stockists to retailers and market activation. It has also enabled RSs to provide improved service to retail outlets. Simultaneously, HUL is servicing the rural market, key urban outlets, and the modern trade as a single concern.

3. Product Innovations
HUL uses science and knowledge to translate science into products that meet a range of customer needs.It bets on innovation to reach sustainable goal and tackle competition. It was ranked 6th in the list of The Worlds most Innovative Companies in 2011. Given below are a few examples of a few innovative products that HUL has recently come out with.
1. Skin Lotion: Delivering Moisture Where Its Needed

Unilever is set about developing a new moisturizer that binds four times more water within the cells of the skins top layer. It forms the basis of Vaseline Sheer Infusion. Launched in US and Canada in September 2009, and in UK in March 2010 and will be rolled out to further markets throughout the year. In the course of its development, Sheer Infusion went through 33 separate clinical and consumer trials involving over 1000 participants.
2. Clean Clothes, Less Water

In India, the laundry detergent Surf Excel is used mostly for hand washing. When washing clothes by hand, its rinsing that often takes most time and uses most water water that is extremely scarce. The innovation team of HUL took up the challenge so less rinsing is needed, while still getting clothes as clean as before. For this the team first understood the hand wash process really well. Typically people keep rinsing till all the lather has gone. The new Surf Excel Quick Wash , which has anti-foam molecules, can deliver a good lather at the washing stage, and reduce the need for the rinsing saving two bucketfuls of water per wash. HUL has supported the launch of Surf Excel Quick Wash with an advertising campaign that promotes the message that you can have cleaner clothes with less lather with the aim of helping to reduce the water used in washing even more in the future.
3. Knorr: A Revolution In Stock

Bouillon cubes are used around the world to add the base flavor to dishes such as sauces, soups and stews. Knorr is now launching the biggest innovation in stocks and bouillon for nearly 100 years: a little pot with an authentic bouillon: Knorr Stock Pot.

By interacting closely with consumers, HULs research team realized that the jelly format of Knorr Stock Pot is very close to home-made bouillon in how it looks and smells and how customers use it. Unilever chefs and product developers worked closely together to cook and stabilize in a natural way, rich bouillons with big and fresh pieces of vegetables and herbs. HUL has applied for patents around this innovative technology.

Strategic Gaps and Opportunities

Strategic Gap is an opportunity in the prevailing market scenario which hasnt been fully exploited by the competitors. As far as the company HUL is concerned it consistently seeks the gaps with the help of its proficient and proactive market research teams which further indentifies the various gaps in the competitive environment and helps the company to develop products for its end consumers. The various opportunities identified to gain competitive advantage are as follows:

Opportunities over time:

HUL successfully predicted the impact of changes in the macro environment and its effects on the consumers. It identified new market space where no one else had assessed thereby gaining a first mover advantage by specially designed policies. Some of those policies are as follows: In November 2010, a ten year plan named Unilever Sustainable Living Plan (USLP) was set up in order to develop sustainability across their complete value chain. The three significant outcomes to be achieved by 2020 are: Help more than a billion people improve their health and well-being Halve the environmental footprint of our products Source 100% of our agricultural raw materials sustainably

Some of the valuable outcomes of Brands delivering Sustainable Growth are as follows: 30 million people reached with Lifebuoy soap hand washing programmes in 2011-12 Around 60% of the major food and beverage brands Brooke Bond, Bru, Knorr, Kissan and Kwality Walls comply with the Healthy Choice guidelines 30 million people have gained access to safe drinking water by using Pureit in-home water purifier, since 2005 60% of tomatoes in Kissan Ketchup are sourced sustainably. R&D for a new product MAGIC, an after wash laundry detergent which reduces the water usage by 2/3 times.

Opportunities for new market segments:

HUL is consistently endeavouring towards new market segments to provide products and services in order to increase its competitive gap and secure itself as a market leader. The example of the above strategy is Lakm Ivana, a new unisex salon format. This way HUL has created an edge over its competitors. During the year 2011 HUL achieved another milestone in its mission of making safe drinking water available to every Indian with the launch of Pureit Intella at a very affordable price of Rs. 900/-. The Company also expanded the Pureit purifier portfolio with the launch of the premium Pureit Marvella RO.

Opportunities in other strategic groups or strategic spaces:

HUL has been consistently trying to penetrate the market with increasing standards of service, making special efforts to reach even the remotest corners of India. Their Flagship programme PROJECT SHAKTI has been strengthened in 2010-11 under which men of the Shakti families are given bicycles to cover surrounding villages to increase HULs distribution and sales as well as enhance the income of Shakti families. Such programmes are not only increasing the revenues for the company but on a broader scale boosting customer loyalty.

Opportunities in substitute industries:

Threat of substitute products is high because the never ending consumer needs open up to the birth of substitute products. There are plenty of substitute products available in the market and upon dissatisfaction the consumer does not hesitate to replace an existing preference. The company has shown its responsibility towards its consumers by consistently introducing new products with better value proposition than the competitors. Some of the efforts are reflected as follows: The tea bag market in India has tripled in the last three years Taj Mahal and Lipton last year launched 11 new flavours in the flavoured tea bag and green tea bag segment. The burgeoning caf culture in India has been driving growth of in-home consumption of coffee as well. To leverage this, Bru introduced three new brands in the premium and mass premium segments of the instant coffee market viz. Bru Exotica, Bru Gold and Bru Lite and initiated a pilot in the retail space by opening eight Bru World Cafs in Mumbai in 2011. In another innovation, Fair and Lovely introduced a future tube to upgrade sachet consumers to an affordable yet aspirational format. This enabled incremental volume and value consumption by inviting existing sachet users to trade up to the future tube, which apart from being innovative and easy to use was priced to deliver greater value.The above efforts are surely in resonance with the mission of the company i.e to create a Better future every day. Their focus on doing every small thing better every single day is bringing consumers and customers better quality and service while delivering substantial savings and accelerated growth.

References
1. 2. 3. 4. www.hul.co.in www.socialmarketplace.org Principles of Marketing(13th Edition) by Philip Kotler Exploring Corporate Strategy by Jerry, Scholes and Wittington