Business Daily from THE HINDU group of publications
Friday, Mar 12, 2010
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Friday, Mar 12, 2010 ePaper | Mobile/PDA Version | Audio | Blogs |
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Markets
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Stocks Marketing - Strategy
Aarati Krishnan BL Research Bureau The Hindustan Unilever stock has been beaten down by 4 per cent on Thursday on concerns about a renewed price war emerging in the detergents category. The previous such turf war in 2004 had led to segmental profit margins for both detergent players (HUL's too) taking a substantial hit, though HUL did manage to hold on to market share by matching P&G's moves. The renewed concerns about a price war with HUL's arch rival P&G have been triggered by a series of events. Selling prices of detergents in the mass market category have been heading down for several months now, as the decline in raw material costs prompted both HUL and P&G to take price reductions or grammage increases on select brands. The battle for share entered a fresh chapter recently with aggressive television advertisements pitting HUL's Rin against P&G's Tide Naturals. Reports now suggest that P&G has fired a fresh salvo in this battle by pegging up the grammage (volumes) for its Tide Naturals by 25 per cent, without changing the price line. This translates into a 20 per cent reduction in effective prices for the brand. As HUL has already made downward adjustments in selling prices in January this year, it may not be under any compulsion to immediately respond to this move. HUL's much larger size, market share and large product portfolio certainly allows it greater leeway to persist with aggressive pricing strategies, than the smaller P&G. This suggests that the company may be able to eventually ward off this new threat to its market share as it did in 2004. However, for investors in the stock, this could mean loss of pricing power in one of HUL's key categories for some time to come. HUL's margins in its key soaps and detergents segment, which were at well over 20 per cent levels in 2003, moved significantly downwards in 2004 during its much publicised price war with P&G. Current margins in this segment hover at 14-15 per cent. With input costs beginning to chart an upward trajectory once again, and HUL fighting turf wars on a few other brands as well, this appears to be one additional worry that HUL can do without. Going against the Tide Galloping adspend trims HUL's profit growth More Stories on : Stocks | Strategy | Hindustan Unilever Ltd
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