Unilever's Indian Jewel
Put Keki Dadiseth in a local market, and the questions never stop. At the Sindhi Provision Store along Colaba, Bombay's main drag, he wants to know the sell-by dates on packages of Lux soap and how briskly 65 cents bottles of Kissan fruit drink are selling. But Dadiseth is more than a fussy shopper. He's chairman of India's $2.9 billion Hindustan Lever Ltd., which makes both products. And such reconnaissance is part of his routine. "I just love markets," he says, beaming. "You learn a lot about your own products--and the competition's."
You learn a lot about winning, too, it seems. Seventy years after Unilever Group set up shop in India--at a small Bombay cooking-oil factory--it is the Indian jewel in the Anglo-Dutch giant's crown. Even after two years of recession, sales are growing at more than 20%. Net profit in 1998, at $192 million, doubled in two years. Taking full advantage of economic reforms that lifted limits on capacity expansion and product introductions, Lever will roll out more than 50 new products this year--after some 48 in 1998. Many analysts consider it the best-run company in India. The stock market seems to agree: Hindustan Lever's share price, at $52 on Apr. 6, is up almost 40% over the past year, making it the Bombay bourse's biggest gainer.
"REAL WORLD." Execs in Unilever's Rotterdam and London offices could hardly fail to notice. The Indian unit now contributes 7% of Unilever's $48 billion in revenue. Lever's market cap, at $12.4 billion, is equal to a fifth of the parent's. In February, Unilever made corporate history when it used Hindustan Lever to launch Aviance, a new line of cosmetics that could go global. Intended to compete with Avon and Sweden's Oriflame, which are gaining ground in India, Aviance sales approached six-month targets within a month. That helps explain why Unilever has Hindustan Lever executives overseeing other parts of its Asian operations.
Hindustan Lever's strengths range from constant cost-cutting to its tight control on inventories. But most important are its thorough grasp of local markets and its unparalleled reach into remote villages as well as cities. While most of its executives come from India's top schools, says Bharat Shah, chief investment officer at Birla Capital Asset Management in Bombay, they aren't "suited, booted, out-of-touch urban sophisticates." All Lever recruits spend at least six weeks in a rural area--where, while learning the market, they also participate in community projects. "It prepares us for the real world," says Hasit Joshipura, 40, who oversees soap and detergent sales.
For Lever managers, a big part of the real world is in villages, where 70% of the nation's 960 million people live--and where economic reform is slowly pushing up incomes. Most multinationals avoid this market because it has poor distribution channels, a largely illiterate population, and very few TVs to receive advertising. But Lever saw the potential decades ago and created unorthodox systems to realize it.
OFF-BOMBAY HIT. Not so long ago, salespeople traveled village to village by motorcycle, products strapped on back. It is now common to see Lever vans with TV sets and satellite dishes set up in village squares to provide evening entertainment, mostly songs from Hindi movies, along with ads for Lever products. Lever stalls are now fixtures at village fairs. This has helped establish Lever products in nearly a fifth of India's half million villages.
Lever is also aggressive when it comes to pricing and unit costs. The village beauty who cannot afford a $1 bottle of shampoo can spend 5 cents on a small sachet as a weekly treat. With 110 brands and nine price categories, Lever caters to all of India's income levels and allows consumers to shift up or down market, depending on economic conditions. "We catch 'em when they go up, and catch 'em when they go down," says Dadiseth, an accountant before joining Lever 25 years ago.
The payoff is in market dominance. In product lines such as facial and skin creams, soaps, detergents, and ice creams, Lever is market leader (table). In others, it has made big strides. Thirty years ago, when Colgate-Palmolive Co. sat on an 80% share of the toothpaste market, Lever introduced Close-Up, India's first colored gel, amid a blitz of advertising. It has been a long haul, but Colgate's share has dwindled to 54%, while Lever's is more than 34%.
But with almost every leading consumer-goods multinational active in India, rivalries are intense. In the 1980s, low-cost detergents almost overtook Lever's top-selling brands. Only in 1991, when it was allowed to expand its detergent plant, did the company introduce Wheel, a low-price alternative that is now a dominant brand. Six years later, when Procter & Gamble Inc. introduced its Ariel premium detergent, Lever relaunched its parent's Surf Excel brand locally within two weeks--and now has another market leader. "It was the combination of our global base and local roots," says marketing chief Arun Adhikari.
Reforms have also opened the door to takeovers. In 1996, Lever spent $27 million to buy Lakme Ltd., India's premier cosmetics company, from Tata Group. Dadiseth, who became managing director in 1995, has leveraged its acquisitions adeptly: A Lakme unit dedicated to export sales now manufactures its Aviance products locally.
In 1994, Lever bought ice cream maker Kwality, with 60% of the market. This was Lever's first foray into foods, a $30 billion industry in which Dadiseth sees Lever's best profit potential. Since then, acquisitions have also led the company into ketchup, jams, and fruit drinks. Dadiseth's newest idea: putting the Lever brand on rice, salt, and wheat, which make up an $18 billion market. "If we can get even 10% of that market, we're set," Dadiseth says. Next on his agenda: a ready-to-eat chappati, India's laboriously made daily bread.
Dadiseth's aggressive strategy has its skeptics. Gaurav Narain, an analyst at SG Securities in Bombay, wonders when Lever's investment in foods will break even and whether taking on multinationals in all consumer segments is wise. If top sellers take a hit, he argues, Lever could find itself overextended.
But Dadiseth shows no sign of letting up. He is riding a wave of opportunities created by India's liberalization. And as long as Lever's reach remains unmatched, it's a great chance to boost Lever's market share.