Date:16/04/2004 URL: http://www.thehindubusinessline.com/2004/04/16/stories/2004041601930600.htm

Back Price war bruises HLL margins

Purvita Chatterjee

Mumbai , April 15

FMCG major Hindustan Lever Ltd, which announced a major business and organisational restructuring on Thursday, has been waging a price war for its market share in detergents and personal products.

And the price war has taken its toll on HLL's profit margins. The onslaught started by P&G in March 2004 when it suddenly decided to announce `its biggest ever consumer advantage' by slashing prices for Ariel and Tide between 20 per cent and 50 per cent. HLL was forced to react with similar cuts and thereby further bruised its already-shrinking margins.

Soon after, the second round of price war happened in shampoos when HLL surprised P&G with its `one plus one' free offer for its brands, Clinic Plus and Sunsilk. This time, however, P&G took almost two weeks to react with a price cut, for its premium brands Pantene and Head & Shoulders, after denying vehemently about joining the shampoo war.

Taking a hit on its costs, HLL did realise the implications of its shampoo offer and was willing to accept the consequences. Mr Mukul Deoras, the erstwhile Category Head for Haircare, had admitted that there was already a significant hit on the cost structure. "The answer is how do we neutralise this loss. We believe a recovery will happen through volume increase. The driver of profit growth is going to be volumes," he had said last month in an interview. Incidentally, soon after that Mr Deoras quit Levers to join its competitor Colgate on an international assignment.

While HLL reels under trying to get the necessary volumes, the flip side to the price war is that the consumer is finally getting a fair deal.

Analysts claim that the price levels have finally reached their realistic levels, and that most of these FMCG players were imposing higher margins compared with their Asian counterparts. HLL managers, however, are reluctant to admit this. Mr Sanjay Dube, Head-Market & Consumer Development, HLL, heading the soaps and detergent category for the company, said, "All I can say is that we have a very steep price spectrum compared with any other country. But now the price levels are coming down but I am not sure if these are the realistic levels or not."

More than sustaining market shares, now it's all about growth. Declining categories such as soaps and detergents is not helping the FMCG major in getting its necessary volumes. "Today we need to get higher growth than what we have been getting in all segments. The biggest challenge is how do we grow," says Mr Dube.