India A Silver Lining In A World Full Of Challenges, Says HUL Chairman Paranjpe

India's affluent middle class, rapid urbanisation and rising consumption are great growth opportunity for FMCG companies like HUL.

<div class="paragraphs"><p>A pedestrian walks past the Hindustan Unilever Ltd. headquarters in Mumbai. (Source: Reuters)</p></div>
A pedestrian walks past the Hindustan Unilever Ltd. headquarters in Mumbai. (Source: Reuters)

India's growing affluent middle-class population provides the country's $110-billion fast-moving consumer goods industry with a huge opportunity in an era marked by low growth and low investment, according to Hindustan Unilever Ltd.'s Chairman Nitin Paranjpe.

The five factors that will help India in its growth journey are a growing young workforce, rising consumption, an enviable digital infrastructure, a quest to become a preferred investment destination, and a steadily expanding start-up ecosystem, which is one of the biggest facilitators for innovation, said Paranjpe while addressing shareholders during the country's largest consumer goods maker's annual general meeting on Monday.

There are signs of growing affluence in the country that are driving demand, he said. "We already have over 46 million relatively affluent households. In fact, the share of the middle class with an annual income of Rs 5 lakh to Rs 30 lakh doubled to over 30% between 2004–05 and 2021–22 and is projected to double again to over 60% by 2047."

Adding to this, there is rapid urbanisation due to the migration of rural populations to cities in search of opportunities and a better standard of living, translating to higher consumption, he said. "In fact, by 2030, more than 100 cities are expected to have populations over one million. At the same time, we see tremendous growth in tier 2, 3, and 4 towns and in semi-urban India," Paranjpe said.

Rapidly growing nuclear family structure is also prompting higher spending.

Studies show that younger decision-makers in nuclear families spend 20% to 30% more per capita than older ones in joint families, leading to higher consumption, the chairman said. The company, he said, is well placed to tap these opportunities with its portfolio of 50-odd brands, including a suite of household brand names like Surf Excel, Dove, and Kwality Walls, and its exposure to in-demand categories such as premium cosmetics.

The country's low per capita consumption also provides a great opportunity, said Paranjpe.

"FMCG consumption is well below other countries. India's per capita consumption is less than $50, while Indonesia is twice that and China is thrice that ... so, HUL is very well placed to address this opportunity," he said.

Digitisation Wave

India also has both the infrastructure and the audience to ride the ongoing digitisation wave, according to Paranjpe. The country, with one of the world's largest populations of youth, is the world’s largest and fastest-growing market for digital consumers, with over 750 million internet users that are expected to increase to 900 million by 2025.

"While in several other, more developed nations, digitisation is a privilege, in India, digitisation has been democratised to reach even the grassroot levels with initiatives such as the Aadhar, Jan Dhan Yojana, and Unified Payment Interface," he said.

Currently, HUL generates 30% of its sales from digital channels. It has also been rolling out new products to fend off competition, with a greater focus on digital-first launches. Over the last two years, HUL has gained Rs 900 crore in incremental sales from new products outside its core offerings.

In the coming years, applications based on this digital infrastructure, such as ONDC for digital commerce, ULIP for logistics, and Ayushman Bharat for electronic health records, among others, will spur innovations and new growth, the chairman said.

"I am a big believer in the India story," said Sanjiv Mehta, HUL's managing director and chief executive officer. The company's returns surpassed the market and the FMCG index despite a challenging environment, he said.

After a 10-year stint, Mehta retired on June 26 after handing over the baton to Rohit Jawa.

Short Term Challenges

There, however, will be volatility and uncertainty in the near term as HUL begins transitioning from a period of high inflation that saw steep price hikes to now reversing some of those to boost demand, Paranjpe said.

In the coming months, the balance between volume growth and pricing will undergo a change as price charts of key commodities have turned south in recent days, according to Paranjpe. "We will see less pricing and much more volume growth coming in ... even as we are extremely conscious of this transition and ensure we remain competitive in the marketplace."

The company needs to stay vigilant about competition and changing consumer needs, the chairman said. His comments come at a time when the consumer goods giant has been facing intense competition from Patanjali, Reliance's retail business, as well as direct-to-consumer firms.

"As a company, we may be leaders, but we remain very vigilant because, in the consumer goods industry, we cannot afford to take our eye off the ball," he said. However, he said, the company "will continue to succeed as long as they are relentlessly focused on consumers".

Moreover, given the low per capita FMCG consumption, the market is large enough for several companies to co-exist, Paranjpe said.

End-Of-Season Sales Come Early. That's Good News For Shoppers, Not Retailers