FOOD FOR THOUGHT HUL Blueprints Fresh Recipe for Foods Ramp-up

Integrates food services business with out-of-home arm to create retail formats

It's a paradox Unilever has been living with for many years now—if the Anglo-Dutch consumer products giant is able to squeeze out more than half of its revenues from foods, why does the foods portfolio of the Indian subsidiary account for less than a fifth of its top line? 

Hindustan Unilever Ltd (HUL) is taking another shot at correcting that anomaly by integrating its food services business, Unilever Food Solutions (UFS), with the Out of Home (OOH) arm. This, the company feels, will help drive the foods portfolio by creating new opportunities to push packaged food brands like Knorr and Kissan. 

"The integration will enable us scale up with speed and have an aligned portfolio and innovationdriven pipeline across the retail and institutional business," says an HUL spokesperson said. OOH will also be able to leverage UFS' expertise with category and channel strategies, talent and training capabilities and learnings across markets," he adds. The game plan is to extend OOH's reach beyond institutional vending into the food & beverage (F&B) consumer retail space-—think cafes and ice cream parlours -- and leverage the portfolio of HUL's F&B brands. 

The restructuring is the first revamp of the foods business since Geetu Verma, HUL's first external executive director (foods), came on board in September 2011 from PepsiCo. Company insiders say HUL is implementing Unilever CEO Paul Polman's suggestion made a year ago on an Indian visit of driving OOH growth to ramp up revenues of the foods business. Polman is keen to drive growth of foods in emerging markets – which today are more successful in home & personal care (HPC) – thereby reducing the over-dependence on the sluggish developed economies. 

HUL, whose foods sales grew in single digits in fiscal year 2012 – personal care was the primary driver with 17% growth – is still hunting for that magic recipe. Says Kannan Sitaram, operating partner at India Equity Partners, a private equity firm, who had spent more than two decades with Unilever: "HUL has yet to chalk out a clear foods strategy. It needs to replicate the incubation strategy it followed in personal care --with hand wash, body wash, conditioners and the like -- in foods, and scale up promising categories that are small now." 

In fiscal year 2012, the foods portfolio grew by 8% and contributed 18% to HUL's bottom line of Rs 21,154 crore. For Unilever, the global foods portfolio contributed 52% to turnover in 2011 although volume growth did dip a bit. 

Along with inadequate scale, profitability too is a concern for HUL. In the quarter ended March 2012, profit margins at the before interest and tax level in beverages fell by 124 basis points and in packaged foods by 253 basis points. 

"As of today HUL is only interested in growing the top line; it is not a big profit centre for the company yet," says Anand Shah, equity analyst tracking fast moving consumer goods at Elara Capital. "The company needs to get into new categories but the Unilever portfolio has its limitations in India," adds Shah. 

Indeed, some of the power brands in the Unilever foods portfolio – like Hellmann's (mayonnaise) and Blue Band (margarine) -- would have limited traction in the Indian mass market. So, other than relying on Unilever labels like Lipton and Knorr, HUL also has to count on home-grown brands like Annapurna (salt and atta) and local categories like idli-dosa mixes to push growth. 

OOH is clearly a high-growth space, but the fear is that HUL may be too late. The company has just a handful of Bru cafes, although it is the midst of an aggressive ramp-up of its Kwality Swirl's parlours. Says Damodar Mall, director, food strategy, Future Group: "HUL's foods business needs a complete re-think. It has missed the bus in the icecream parlours and Bru cafes space; the latter has been taken over by Cafe Coffee Day and Barista." He adds that HUL has got its act together in HPC, but not in foods. 

"The next two years will be critical; HUL needs to put an audacious food strategy in place." Mall also says that food retailers are "hungry for action from large players like HUL." 

The integration of UFS with OOH has its merits. UFS offers branded food products and services for hotels, restaurants, institutional caterers and flight kitchens. 

HUL made an entry in OOH in 2002 through institutional vending services; it has a presence in over 100 cities across India with Lipton and Bru beverage vending machines. Giving these brands a retail face is HUL's new challenge.