HUL Pushing Larger Packs To Drive Volume-Led Growth

Concerns over subdued volume growth and the resultant drag in quarterly performance are pushing Hindustan Unilever Ltd. to redraw its strategies.

The country's largest consumer goods maker is aggressively pushing larger packs meant for modern retail chains in general trade to keep price-sensitive buyers happy and also ward off competition from regional peers.

The launch of modern trade stock-keeping units in general trade and app-based retail ordering has translated to 5–10% growth across segments in Q3 as against lower growth in the earlier quarters, according to three HUL distributors who spoke with NDTV Profit on the condition of anonymity.

HUL is pushing products such as 6 kg packs of detergent bars to liquids, a 2-litre pouch of Vim bar, 1-litre Sunsilk shampoo as "market development" packs since the last three months, the distributors quoted above said.

The company offers 0.15% in variable margin for MD pack sales, 0.25% on demand and capture, and 0.2% on delivery of such packs within 24 hours.

Larger packs—meant for family consumption—result in instant volume for brands as they increase the number of units purchased in one visit. Consumers, on the other hand, benefit from paying less per gram.

A focus on larger packs indicates HUL's quest for volume-led growth, which has been in the slow lane for most of fiscal 2024. Not only is the move aimed at garnering more value-seeking shoppers, but it's also seen as part of the Surf Excel-maker's strategy to keep off competition by making buyers procrastinate on trials with other brands in the current inflationary setting.

"The introduction of larger packs in general trade has seen them do well," said Ajay Thakur, research analyst at Anand Rathi, citing their recent virtual meeting with the distributors and dealers of HUL to unravel the festive pulse.

"HUL distributors talked of no major promotion or discounts by the company but said that the company has supported these larger packs and modern trade ranges with similar promotions as offered in modern retail chains, which has pushed their growth momentum," Thakur said.

While low-unit packs remain relevant for large players like HUL, to retain market share, they are increasingly focusing on the higher SKUs—mostly upwards of Rs 20—by incentivising consumers to shift with better value.

Consumer goods companies are also providing a thrust to direct distribution in urban retail, as they hope this strategy will help them tide over the challenges of slowing demand, especially in rural areas.

"The efforts to expand direct distribution in rural markets have been stepped up to aid recovery in consumption," said Abneesh Roy, executive director at Nuvama Institutional Equities. HUL currently serves 3 million retail outlets directly, which is about 33% of the total distribution reach.

The weakness in volume growth is further aggravated by the stressed wholesale trade channel due to the liquidity crunch, according to Roy.

HUL has recently revised its distributor margin as it looks to bolster volume and optimise costs to aid profitability. Distributors, however, are miffed at the company's move, stating that HUL is "creating a situation that pressures distributors for extra sales and stock dumping." They have threatened to boycott HUL products if the decision isn't reconsidered.

Despite the efforts, volume growth is likely to remain weak in Q3 and Q4 of FY24 in the backdrop of weaker-than-expected festive offtake, delayed winter, and rural stress, said analysts.

"Unless rural (segment) recovers, the FMCG sector is unlikely to see a material uptick in volume growth," said Nuvama's Roy. He expects companies to see a gradual recovery in FY25.