HUL Q3 Takeaways: Move To Smaller Packs, Demand Slowdown And A Fall In Discretionary Spends

India's largest fast moving consumer goods company, Hindustan Unilever Ltd., announced its third quarter earnings, setting out the macro economic framework in play in the country. There has been a slowdown in FMCG volume growth for the last six months, the company said. HUL's topline grew, led by 4-5% gain in pricing, while bottom line was cushioned by the realisation of sale of water purifier business in the quarter.Demand is subdued with urban growth moderating and no immediate signs of ebbing, while rural recovery is holding up, Chief Executive Officer, Rohit Jawa, said in the post earnings investor call. This has led to significant shift in consumer preferences towards smaller packs across categories. This shift seems 'transitory' in nature, the company says, but consumer preference take a lot of time to return to normal as per past trends. The shift to smaller packs does not augur well for quick commerce players, where smaller SKUs seldom find shelf space and brings modern retail and traditional distribution channels back in play. This has been a trend seen recently in a number of retailers, like DMart and others.What is worrying is the continuous moderation in the urban consumption demand which is impacting premium volumes. HUL is pushing to increase the premium mix by 9% over the next few years, and moderation of urban demand delays this milestone. While the premiumisation is growing, depicting consumer preferences are upgrading, the consumption is titrated. Urban consumers are opting for premium products in smaller packs to manage overall spends..HUL Approves 1:1 Demerger Ratio, Paves Way For Kwality Wall's Listing.HUL also gives a look at the household expenses preferences — home care products have not seen much decline, as these are seen as essentials by consumers. But a volume decline in seen across personal care, which is a discretionary spend by nature. Interestingly, HUL says, "the more discretionary the category is the more titration to small packs one is observing."The behaviour of the consumer to titrate to smaller packs seems to be increasing as he/she keeps control on household spends.This also supports that discretionary spending has been hit in the last 12-months, with personal spending lower, as reflected in card spends and personal loans. .Zomato, Swiggy Get 'Add' As Incred Begins Coverage On India's E-Commerce Food Tech.Inflation is now seeping into the P&L of companies. Despite buying efficiencies and cost controls and savings, inflation has been positive last quarter—implying a net cost inflation for the business, HUL said in its commentary. It was able to push price hikes to offset raw material inflation.The company has seen volatility in crude palm oil, crude oil prices, and the rupee. The rupee weakness against the dollar meant it is looking at rising raw material costs pressure, due to import dependence on crude palm oil and crude derivatives. Commodity prices will keep pricing power muted and margins at the lower level of guidance of 23-24%.Overall, HUL is looking at premiumisation to protect margins and topline volume growth outlook remains muted in the next few quarters..HUL Q3 Review: Target Price Slashed As Tepid Demand Weighs Near-Term Growth Outlook

HUL Q3 Takeaways: Move To Smaller Packs, Demand Slowdown And A Fall In Discretionary Spends

HUL is pushing to increase the premium mix by 9% over the next few years, and moderation of urban demand delays this milestone.

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