Unilever India Faces Peril as Discerning Consumers Spurn Big Brands


Unilever India Faces Peril as Discerning Consumers Spurn Big Brands

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For decades, India’s largest consumer firm has produced everyday products ranging from detergent to instant coffee.

Hindustan Unilever Ltd’s fortunes are changing as a more sophisticated consumer class with discretionary cash expects more. Unilever Plc’s Indian unit is facing decreasing revenue and profit growth, as well as a lagging share price.

India’s wealthy classes are becoming more discerning consumers, boosting the popularity of organic personal-care companies supported by sophisticated social media marketing strategies. The rise of local upstart Honasa Consumer Ltd, as well as advances made by worldwide names such as Estee Lauder Companies Inc. and Clinique Laboratories LLC, is prompting Hindustan Unilever to increase its investment in product research and advertising.

“Simply put, large companies like Hindustan Unilever are slower to move and develop strategies than newer brands that are far more agile,” said Arvind Singhal, chairman of consultancy firm Technopak Advisors Pvt. Ltd. “The influence of large brands is dwindling by the day as challenger firms emerge at all price points. They provide greater margins for businesses, and the local shopkeeper is eager to test them out.”

A spokesman for Hindustan Unilever declined to comment, citing an earnings quiet period.

According to Redseer Management Consulting Pvt. Ltd., India’s personal-care market is expected to grow from $20 billion in 2022 to $33 billion by 2027.

The rivalry for wealthier clients comes as the manufacturer of Dove soaps and Magnum ice cream has been forced to give price concessions for its cheapest products due to a drop in spending among poorer, rural consumers.

That is putting a strain on the company, which is widely regarded as a barometer of consumer spending in India due to its household products being sold in every corner of the country.

The company’s sales increased by 3 percent in the first nine months of the fiscal year through December, down from 17 percent the previous year. Similarly, net profit is falling, increasing 4% to 77 billion rupees for the nine-month period ended Dec. 31, compared to a 14 percent growth in the same period

Meanwhile, the consumer goods company spent 48 billion rupees ($576 million) on advertising and promotional spending between April and December, up from 36 billion rupees the previous fiscal year.

Emkay Global Financial Services Ltd and Centrum Broking Pvt. Ltd reduced Hindustan Unilever’s earnings forecasts in January. The brokerages were concerned that their profit margins would be squeezed even more as they were obliged to commit more resources to fending off new premium brands.

The company has long benefited from its established on-the-ground supply system, which can stock shelves at mom-and-pop stores and supermarkets across the country.

However, niche competitors that sell directly to customers online bypass the distribution network, according to Nitin Gupta, an Emkay Global analyst.

“Even when HUL does launch a premium product, they have been late to the market,” Gupta went on to say. “Innovation has not kept pace with the consumer.”

The stock has fallen 15% since the beginning of the year, trailing the 4.5 percent loss in India’s broad consumer stock index. S&P BSE Sensex, the market benchmark, has advanced in 2024.

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