Hindustan Lever Ltd, which undertook major supply chain and distribution restructuring for its foods business, is finding comfort in backing its revenue and profit earning segments like beverages.
In 2004, from a total company revenue of Rs 10,245 crore, HLL's beverages business had accounted for Rs 1,194.55 crore with Brooke Bond, its leading packaged tea brand, being the second biggest brand in its portfolio overall.
According to Mr S. Ravindranath, Managing Director - Foods, HLL, tea at present has a 6-8 per cent share of the average Indian household's food budget and Brooke Bond's re-launch last year was critical to growing HLL's foods business.
While betting on tea as a hot beverage, HLL is also driving the out-of-home consumption of tea through its Lipton iced tea. He saw the company's strategic alliance with Pepsi as an important component for this, bringing returnable iced tea bottles to the business. Iced tea sales with non-returnable bottles, is an expensive proposition.
The returnable bottle also caters to the potential fancy for tea by youth, given its additional stature as a health drink featuring anti-oxidants. The bottled format, Mr Ravindranath said, is more attractive to youth.
Referring to the larger supply chain restructuring done in the foods business, he said, "We have been able to achieve stock freshness and cost reduction with this. Freshness, which is the key objective of this restructuring not only creates consumer demand, but also results in better business.''
The restructuring, he said, would also help guard HLL against rising commodity prices felt in both the tea and coffee trades. Mr Ravindranath spoke to Business Line two days before HLL announced its decision to transfer its tea estates in the North and South - held through the Doom Dooma Division and Tea Estates Division - to wholly-owned subsidiaries.
Senior tea industry officials said in its aftermath, that such moves and the earlier one by Tata Tea, would not impact auction prices given greater outsourcing by packaged tea majors. Mr Ravindranath said that HLL's recent supply chain restructuring would adequately cushion price variance for tea in the open market. He held the same would hold good for coffee as well, which has been seeing an increase in global prices due to speculation by commodity traders.
HLL's avowed objective of not being present in businesses with low gross margins had prompted it to de-focus on Annapurna atta in unviable geographies. However, it does plan to come back with a value-added offering. "The atta business is back on the drawing board. We want to return with a value-added product,'' Mr Ravindranath said.
Atta-enriched bread was introduced some time ago at Modern Foods as a value-added item. But much more is required (new products like cakes were also introduced) to make the company's bread business profitable. HLL is currently looking at ways to reduce Modern Foods' loan liability. "I don't think in strategic terms, anything has changed,'' Mr Ravindranath said, when asked what the future would be for Modern Foods given the losses it made.
HLL's ice-cream business continues to be restricted to the six metros and would start growing to other geographies only after the business model is fully tested and capable of being scaled up.