Why Unilever Is Betting on India
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Unilever (NYSE: UL) is having a makeover in India. Recently, the consumer packaged goods company had a transitional shift in the Asia-Pacific region with the majority of its brands. With rival Procter & Gamble (NYSE: PL) cutting costs by $10 million by the end of 2016, this is an opportunity for Unilever to scale up in categories destined for growth.
Investment in India
Investment in India is the key to Unilever's international expansion. Emerging markets account for the fastest growing markets when it comes to sales growth within categories. With the rise of the middle class in China and India, there is a market ripe for product innovation and consumption as disposable income rises.
Hindustan Unilever, the Indian division of Unilever, is not only reaching the middle class, but also the affluent and the aspiring middle class Indian as well. Unilever PLC increased its stake in Hindustan from 52.48% to 75%, the maximum that the state of India allows. With a vast makeover encompassing 95% of its brands, it redesigned brands for an initiative called Perfect Store, which launched in 2011.
The Perfect Store model efficiently transforms the retail store to maximize shelf space and showcase new products. With these store makeovers, more than 3,000 employees transformed 16,000 stores to maximize product visualization and availability. When store sales slumped in 2009 with rival brands maximizing investments in India, Unilever changed the in-store business model and had a massive brand makeover. This model ensures that consumers have access to products and are educated in the quality behind the Unilever brand. Unilever also overhauled supply chains to operate more efficiently for maximum store growth. This initiative has raised top line revenue for stores by over 4%.
From local to global
Taking on rival Procter & Gamble 's home line for India; Unilever is beefing up operations on all lines to compete with P&G's soaps, shampoos, and detergents. Procter & Gamble impressively grew market share in 2009, which hastened the change in upper level management for Hindustan Unilever. This change in management forced Unilever to rethink core business strategies for targeted sales growth.
Procter & Gamble also raised their stake in India as well. With revenue increasing by 29%, due to category growth and pricing, they launched a 1 billion dollar investment plan to increase investment across their 14 categories in which they sell goods. They also started production on a plant in China which will help supply chain demands and efficient selling practices. However, Procter & Gamble has a weak product mix when it comes to category growth within brands. Brand recognition has been weak within the oral care line, with Oral-B the only competing brand, solely in the toothbrush market.
Hindustan Unilever plans to transform the consumer experience in the coming months. With the perfect store model, the local grocery store shelf transforming the shelf from local to global, as more and more consumers want the American products. With the investment from Unilever, supply chain efficiency is insuring a successful store model.
Home care expansion
Competitor Colgate Palmolive (NYSE: CL) also sees the benefit of offering more international brands in the home care lines in India.
Colgate, which recently launched a 5th plant in India with an investment of 20 million dollars, wants to take advantage of the slow growth that P&G has recently seen with their toothpaste line. Colgate holds 46% of the market share in oral care, with Unilever holding 19% and local company Dabur India with 11%. With oral hygiene on the rise, the toothpaste market is destined to grow in India. Currently, only 55% of the Indian population uses toothpaste, while only 15% of the market brushes twice a day. With the increasing consumption of toothpaste, Colgate profits from the increase of oral hygiene in India.
Unilever also is poised to grow market share within the toothpaste category as well as all home care lines. As the number 2 leader in oral care, Unilever will use branding to grow trust as a household name in other key categories, increasing category growth across all brands.
The foolish bottom line
By raising its stake in Hindustan Unilever, Unilever is investing heavily in international expansion. With a repurchase of 22.5% of outstanding shares at a price of Rs 600 per share, Unilever sees the growth opportunity along with rapid consumer adoption as the brand reputation continues to grow.
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Kaitlyn Tokay has no position in any stocks mentioned. The Motley Fool recommends Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!