HUL Overhauls Beauty Business To Tap The Nykaa-Obsessed Generation

India's largest consumer goods maker is overhauling its beauty and personal care business worth Rs 22,000 crore under new boss Rohit Jawa in a bid to be "future-ready" as competition mounts.

Hindustan Unilever Ltd. has said that the segment will be carved out into two separate divisions—beauty and wellbeing, and personal care. New leaders were appointed to head these segments. The change, effective next April, is in sync with the global category structure of parent Unilever Plc.

HUL also appointed Arun Neelakantan, who will take charge as chief digital officer on Jan. 1, to drive the next phase of its transformation programme through the digital ecosystem. Currently, the vice president of digital transformation and growth, Neelakantan has played a vital role in accelerating HUL's journey towards becoming an intelligent enterprise, Jawa said.

Less than six months into his term as the chief executive officer, Jawa is laying out bigger and bolder transformation that has the potential to accelerate the conglomerate's growth. The shift signals just how much beauty consumption has changed since the company helped pioneer the industry.

"I am only thinking about HUL day and night for some time now," Jawa told in his first-ever investor meeting in October. "We fundamentally have (a) very, very robust business, we have our product quality being superior to competitive benchmarks, increasing assortment, our distributor strength is strong in holding and, on the whole, the portfolio is strong."

However, there are "of course, a few fixes to be done". The first area of focus would be to "shape it for the future", Jawa said, as he laid out a blueprint for how consumers might eventually shop in the much-hyped digital realm.

The company needs to transform its personal care business to cater to a younger audience, whether it is in urban markets or rural, he said. And for that, the company has "identified a certain set of market development bets we will stay multiyear committed to".

According to consumer sector experts, for a company born almost a century ago, it's about time to break from the past.

"As the Indian market is evolving, HUL needs to connect especially with the younger consumer under 30 years of age who will be the main engine for future consumption growth," Devangshu Dutta, head of retail consultancy Third Eyesight, said. "Unless the organisation is specifically oriented to the shifts, it would miss out the future growth opportunities as market share would continue to be bought up by aggressive new entrants."

Dutta said it makes sense for HUL to bucket the brands differently from the point of view of effective and segment-focused management. "Beauty/wellness brands and personal care brands need different handling," he said. The beauty and wellness market is seeing a premiumisation trend and also the entry of several digital-first brands."

HUL's move to push further into the high-margin BPC comes at the expense of the slower growing food segment, and there are no immediate triggers to turn the tide either. "We expect HUL to see weak earnings growth in the near-term as volume growth recovery is gradual, price growth comes off, margin recovery is capped by a ramp-up in advertising spends and higher competition," analysts at Jefferies said in a Dec. 7 note.

With the restructuring of the skincare-cosmetics division, Jawa looks to quell investor dissatisfaction over the company's performance, as reflected in the underperforming share price.

Growing Threat

HUL's beauty and personal care business has everything ranging from shampoos to serums under one roof.

The segment grew 4–11% in the last four quarters. While the industrywide inflation-led slowdown in consumption is part of the problem, the tepid growth is attributed to cut-throat competition.

Digital brands like Mamaearth and Nykaa as well as big-pocketed players like Reliance Retail Ltd., which recently entered the space with an aim to grab a pie of India's BPC market that is currently valued at $16.8 billion, pose a threat to HUL.

The BPC market is projected to expand at a compounded annual growth rate of 10% to reach $30 billion by 2027, making up about 5% of the global opportunity, according to a joint report by Redseer and Peak XV. India is expected to expand fastest globally among comparable countries in size like China or Indonesia.

Pure-play beauty brands are leading the disruption. Mamaearth, Nykaa and L'Oreal will control nearly 42% of the BPC market by 2027, gaining share from consumer goods makers that sell products across categories, the report suggests.

Lack of focus is among the primary reasons why digital brands have been outshining, according to analysts.

"From acne management to anti-ageing solutions, specialised use cases are where we're seeing a lot of the action," Sakshi Chopra, managing director of Peak XV, said. Focus is the most significant driver of the BPC companies' ability to adjust to rapid changes, she said.

The report revealed that the BPC market is growing twice as fast as FMCG-led brands, signalling the significance of specialised, BPC-focused players. As the Indian market matures, the report expects the emergence of multiple $100 million pure-play BPC brands.

(Source: Redseer-Peak XV joint report)

Nykaa has scaled fast and is a sizable rival now. The decade-old company had BPC revenue of Rs 4,482 crore as of March.

Honasa Consumer Ltd., the parent company of Mamaearth, reported a revenue of Rs 1,493 crore in the last financial year. In the first half of the current fiscal, the firm's revenue grew 33% when the median growth of the FMCG industry stood at 9%, the company said while disclosing its first quarterly result last month after being listed on the bourses.

However, both Nykaa and Honasa's offline expansion is still evolving and there is a learning curve, as is the case with traditional firms like HUL that are moving from offline to online.

Honasa has been a "notable outlier" among digital-first BPC brands, according to Jefferies Financial Group Inc. "We expect the company to deliver a sector-leading revenue growth over the coming years, coupled with improving profitability."

It is perhaps this fear of missing out on revenue, market share and even investors' tendency to drive up the prices of more focused companies to much higher levels that compelled HUL to divide its BPC business into two.

Jawa had acknowledged that the way brands are built is changing, citing higher income households "sort of doubling" every five years, digital infrastructure allowing consumers to access brands and how shoppers consume brand messages and buy the brands.

"And tapping all these opportunities, culturally as well, would be something that I'll be working on to take to the next level," he said. "We will ensure that our scale becomes an advantage, and we become big and fast."

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