The Hindu Business Line : `We expect India to be to Unilever what China has been to other companies'

I expect HLL to be a net provider of talent and technology to Unilever. And also a thought leader for our new initiatives, new opportunities and new ideas. — MR PATRICK CESCAU, GROUP CHIEF EXECUTIVE, UNILEVER

Frenchman Patrick Cescau, the 58-year-old Group Chief Executive of Anglo-Dutch company Unilever, had come to India with a clear agenda of stoking the animal instincts of its affiliate Hindustan Lever.

On his second visit to India since taking over as CEO in April 2005, when the foods and personal products behemoth changed its management structure to one with a single non-executive chairman and single CEO from the dual portfolio it had earlier, Cescau voted with his feet for the India growth story. While he expects India to be to Unilever what China has been to several other companies, he exhorted HLL to deliver the goods to keep the India story intact.

Meeting the media for an hour in Mumbai early this week at Lever House, Cescau, flanked by the HLL Chairman, Harish Manwani, the Vice-Chairman, M. K. Sharma, and the CEO, Doug Baillie, spoke, in accented English, when at times nuances were lost, on a host of issues confronting the FMCG giant.

Excerpts from the media interaction:

On his role in Unilever.

Since 2005 my task has been to bring Unilever back to growth. And to do that we have articulated a very clear strategy to focus on the high growth space and on developing and emerging markets as well as on Unilever's strong leadership position across the world. Also, we have to bring the European business back to growth and be aggressive on the cost base of Unilever. We've had a five per cent growth in the third quarter and while we continue to invest in brands we are still to see improvement in our margins as we are facing a strong headwind in costs. However, I am confident that we are on the road to recovery.

On developing and emerging markets.

Performance in developing markets has been good and I feel Unilever is well on its recovery path. These markets are very important as they represent more than 40 per cent of Unilever's global turnover. That's bigger than Western Europe and we feel that we are well-placed because of our intimate history, our local knowledge and our strong position to take a big share of these markets as they grow and develop.

And it's not just about doing business; for Unilever, doing business and doing good are two sides of the same coin; we can enrich the lives of the community where we operate. It's an integral part of our strategy.

On Indian talent and HLL's position.

In India HLL is a strong company with an excellent group of leaders. In my top team too, two are from India: Vindi (M. S. Banga) and Harish (Manwani). Across the world we see the best of developing markets' leaders playing a global role in Unilever. In India, of the ten categories, we are leaders in eight. We are back to double-digit growth as well. We have strong plans and I see the benefits of all the efforts of the past years transforming the company.

I am excited about the change taking place in India; you feel the growth and excitement. I believe India can be an unbelievable success story; people talk about China, but I believe India's contribution will be beyond call centres and Bangalore. India is at a tipping point!

On the foods business in India, which has not tasted spectacular success.

The market, as far as processed foods is concerned, is not yet at a mature stage of development. But it is an opportunity and we need to capture it. We have outstanding brands like Knorr, Kissan and Annapurna. We have a Unilever programme which will bring together under one banner the strengths and the competencies in the Unilever structure and share them with the foods business here. We have competitive cost structures, brands and technologies; now these gentlemen have to deliver (nods in the direction of HLL CEO, Doug Baillie).

For the Indian market, the priority will be to grow global properties, like Knorr, which can cover a lot of territory, from basic seasoning to ready-to-eat, brands that can reach down and up and meet many of the needs. We won't take a brand from abroad and transplant it to the Indian market, because the missing ingredient is consumer understanding. I don't want brands that are not suitable for India, that is a recipe for disaster. Brands have to meet the needs of the Indian consumer, so it is critical that Indian managers express these needs rather than have expat managers directing them.

On how the focus on developing and emerging markets is changing Unilever as an organisation.

We have eight people in the executive team, with two Indians, and all of them have had experience in emerging markets. So, when you talk about developing markets, everybody is involved. About 30 per cent of the management comes from these markets. And more talent is coming in, because what we are committed to is diversity of style, gender and people.

On how Unilever and HLL have had to fight for market share.

Unilever lost some of its aggression and competitive spirit, and I believe over the past two years, we have put aggression back at the top of the agenda. When you go for a fight, you want to win, and the only indicator is market share. Now when I go in for a presentation the first point is about safety and the second is performance, and the first item on that agenda is market share.

On the Indian contribution.

Forty per cent of Unilever's turnover is from the developing markets, which contribute Euro 15-16 billion. India's share is Euro 2 billion, so it is our top in developing markets. The rate of growth currently in India is higher than the average in developing markets, which is around 8 per cent. What I expect is to bring HLL back to the top table.

It's fair to admit that for the past two or three years there was a bit of criticism of the company. I want this to change and want this company to be the most admired again. I have the team to do that, and expect the company to be outstanding in terms of growth and to drive gross margins.

I expect HLL to be a net provider of talent and technology to Unilever. And also a thought leader for our new initiatives, new opportunities and new ideas. And I expect India to be to Unilever what China has been to other companies.

On the agenda for the Indian market.

I expect this company to take full advantage of the potential the Indian market offers,to grow the profitability and maintain its strong market share. The other important contribution I expect is for it to complete the transformation of Lever and deliver a new generation of leaders for Unilever, apart from developing the foods business — that's a full agenda.

On acquisitions.

We said Asia was one of our priorities for acquisitions and that will apply to India. And if there are businesses that meet our strategic requirements, we will look at them with interest.

On past acquisitions, some of which didn't do well.

I expect the management to learn from mistakes and never make them again. HLL has a strong distribution network and there was a view that this was a source of competitive advantage. I believe that while we have this strong network, we need strong brands, strong understanding of the customer and in-depth crafting of the brand. We were in too many places, perhaps a little away from the core business, and that's why the portfolio has been refocused.

At this point Harish Manwani, HLL's Chairman, chips in: Let us not broad-brush the fact that acquisitions have not worked. Some have been successful. Take Lakme, where it has not only worked, but worked brilliantly. And Kissan, one of our leading brands in food. Brand Kissan is worth a lot more than we paid for because we invested and built the brand. Like in all these things, some work and some don't. We do make an evaluation but markets change. Our ice-cream business in the last three quarters is also working.

On big industries getting into retail and its impact on HLL.

Competition is a source of progress, and forces you to be your best. Retail trade and their possible involvement in agriculture will help transform the foods industry. Our strategy is one of being a manufacturer not a retailer.

We don't confuse the two. Our strategy is to partner the retailers and we have excellent relationships with the Carrefours, Tescos and Wal-Marts. They do their job, we do ours and together we grow the market. That's the core of our strategy.

On costs as a big concern and impact on profitability.

The costs headwind in 2005-06 has been higher than estimated. In the third quarter the cost headwind was highest for the past seven quarters. We saved about Euro 200 million in every quarter but we invest in brands, because being competitive means continuing to support brands and not cut investment. And, as a result, Unilever margins have not improved.

I am not concerned about big groups and their bargaining power. We have been, quarter by quarter, increasing prices and improving the efficiency of the money we spend in the trade. And this is the challenge.

If you compete with partners, then you lose, because then it is about sharing the cake. That's when bargaining power comes into play and our power is our brands, our consumer intimacy, our category captaincy, the quality of our innovation and execution. What we see is that every time we work with a retail partner to drive growth, both benefit. We are the No 2 supplier to Wal-Mart — we need to look in the same direction, that is, at the consumer. That's where the growth and the money are.

On Wal-Mart's impact on Unilever's margins and the likely impact on the India retailing scene with Wal-Mart's entry.

The growth we have had with Wal-Mart has been above average and profitability for both has been satisfactory. The growth of Wal-Mart has not had any negative effect on Unilever. In India we expect the same. It is going to be about addressing an opportunity together. It's early days, but it would be wrong to see the arrival of Wal-Mart and other developments in the retail trade as a threat and not an opportunity.

Harish Manwani: It is indeed an opportunity for two reasons: Obviously, both parties benefit from the advantages of scale when we deal with each other. We share these advantages with them. Second, as a national player in all environments where modern trade has come in, the national players tend to gain because modern trade likes dealing with such players as there are advantages in doing so. These ensure that it is a win-win for both.

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