Covid-19 Has Disrupted Supply And Demand, HUL Says In Annual Report

India's largest consumer goods maker said the containment efforts following the Covid-19 outbreak has resulted in supply and demand disruptions, leading to sharper growth deceleration.

“The situation remains volatile with the trajectory of the virus undetermined, evolving hot-spot geographies, the success of containment measures uncertain, the severity and duration of resulting economic crisis and the extent of structural damage unknown,” Hindustan Unilever Ltd. said in its annual report that was released on Friday.

The maker of Lux soap, Knorr soups and Bru coffee also said the near-term outlook for the fast-moving consumer goods sector remains extremely uncertain even as it expressed confidence at medium- and long-term growth prospects.

The nationwide lockdown imposed to contain the pandemic froze all but essential economic activity, and decimated consumption in the first two months of the fiscal. While India has started reopening in phases and the government announced relief packages, the economy is expected to contract for first time in four decades.

Lockdown Effect
There was no production and shipping in the last seven days of March in India, HUL's parent Unilever Plc had said at a recent global conference call with investors, adding that it took the company four to five days to restart its factories in the country. The Indian facilities, the report said, have ramped up production to 80-90% compared to 70% in April.

Sanjiv Mehta, chairman and managing director of HUL, was quoted as saying in a statement to shareholders that the year saw a challenging business environment with lower GDP growth and slowing consumption that resulted in a weakening of consumer sentiment and lower demand for the categories in which the company operates.

“The FMCG market saw disparate trends across divisions. There was a significant shift in discretionary spends and this impacted the beauty & personal care division,” Mehta said in the statement. “Despite the challenges, categories such as skin, hair and oral care delivered good growth.”

Trade Channels

Mehta said HUL's e-commerce channel has continued its strong growth trajectory.

The report said its traditional trade partners are exploring opportunities as consumer and channel landscapes rapidly evolve. “They're focused on leveraging technology through opportunities of e-commerce and app-based ordering, in order to compete with the new channels,” it said. “On the other hand, our modern trade and e-commerce partners are looking to become more competitive by offering convenience, differentiated portfolio and value to consumers.”

The company said its mobile application Shikhar helps retailers order goods directly. The traditional trade channel continues to be relevant and important for the company, and it's focused on modernising trade through data and technology and in turn improving the profitability of retailers with better assortment and optimised capital, the report said.

HUL also said that it engages with its modern trade and e-commerce partners to discuss the appropriate portfolio of each channel. “We continue to focus on the key growth channels of modern trade, e-commerce and health & beauty,” the company said. “Our premiumisation journey is accelerated through the touch and feel benefits of modern trade.”