When price wars become the order of the day to woo consumers, a company runs the risk of suffering in terms of quality or it suffers on the margins front. A company like Hindustan Lever Ltd (HLL) cannot afford to lose out on quality. As HLL finance controller Raju Thomas puts it: “For HLL, quality is of foremost importance and the new 10-point programme will take care of the act of balancing price cuts with quality.”
According to a research report by SSKI Securities, a striking feature of HLL’s March 2004 quarter results is that the margins have taken a beating in all segments in the first quarter itself. The performance has been lower than SSKI’s expectations. The report added that absence of growth engines has started to hurt HLL.
In a rare analysts meet called on the occasion of first quarter results, HLL chairman MS Banga announced the 10-point programme spanning various aspects of business. It is expected to address this triangular problem of price cuts, quality maintenance and stopping the squeeze in margins.
The programme will bank on aspects like global buying, technology-driven cost savings, tax efficient operations, optimisation of logistical chain and restructuring that is funded through exception income. The last point ensures that the operating income of the company remains untouched. This may sound significant in light of the recent restructuring exercise rolled out in HLL.
Moreover, the company also views advertising and promotion as a powerful tool in maintaining its brands. HLL director-finance & IT D Sundaram said, “In the March 2004 quarter, the ad spends have been flat in case of the home & personal care (HPC) division, while they have gone up for the foods division. In future the advertising expenditure will be a secular upward curve and not a linear one.”
Mr Sundaram also said that the ‘power in power’ concept announced at the time of December 2003 results is just an attempt to highlight the power brands over others. The power brands group remains unchanged after the recent restructuring exercise.