Hindustan Lever (HLL) is laying an emphasis on services with the franchising of launderettes. It also plans to import top of the line Unilever products and enter the mineral water segment as well.
HLLís topline growth had been under pressure with the company reporting only a 7% growth in 1999. Though it reported a 32% growth in the bottomline, for an FMCG company topline growth is critical since that is indicative of growth in market share.
Across all segments HLL has been faced with the problem of high penetration or fierce competition or both. In detergents, for instance, there is already a 90% penetration apart from tough competition both at the higher as well as the lower end of the market. In the mass market Nirma is the main competitor while at the premium end Henkel Spic has emerged as a credible competitor.
In packaged tea, Tata Tea with its ownership of tea plantations, its nationwide launch of ĎAgnií and its successful takeover of Tetley has emerged as a formidable competitor. In personal products such as toothpaste, shampoos and hair oil, HLL after capturing sizeable market shares over the last two years has run into roadblocks against Colgate, Procter and Gamble and Marico getting aggressive.
The new segment that HLL wants to enter viz. mineral water is also likely to witness the entry of multinationals such as Nestle (it owns the ĎPerrierí brand worldwide) and Britannia apart from competition from the local brands ĎBislerií and ĎBailleyí.
Hence, the likely entry into services such as launderettes. Obviously, the company would adopt a franchisee route for offering these services. This would lock up the sales of its detergents such as Rin and Surf to franchisees. Normally, the rates charged per shirt work out to Rs 10. Even after paying a 30% commission to the local franchisee, the company could still capture almost 70% of the revenues accruing to this segment. This would lead to a very decent growth in the topline over a period of two years.
However, HLL would run into competition from the unorganised sector, which offers the benefit of personalised services at relatively lower rates as compared to franchisee launderettes that HLL would put in place.
The plans to import a range of cosmetics and personal products is obviously aimed at the premium end where the market is not large enough for HLL to manufacture the product locally but the demand is being currently met through the grey channel (smuggling). The company would like to capture these revenues in its books too though these may not be as profitable considering the 35% to 45% tariffs which could eat into the retail margins.
The importance of topline growth cannot be underestimated and HLLís Project Millennium has laid due emphasis on it.
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