Innovative Retailing Strategy adopted by Hindustan Unilever Limited for creating foothold in the Hinterland

Piali Haldar Eco(Hons)JU,PGDRM(IRMA), M Phil(Bus. Admin)AU, Pursing Phd(BIT, Mesra) Asstt. Professor Asia Pacific Institute of Management, 3& 4, Institutional Area, Jasola, Opp. Sarita Vihar, New Delhi 110025. Mob: +919350203111 Email: piali@asiapacific.edu Abstract The issue of reaching the unreachable is gaining a new dimension and magnitude with the growing economy. Earlier the market research used to focus more on creating products for the urban market and distribute the same among the target segment. Today marketers are more focused, and they are adopting specific distribution system with suitable advertisement and sales promotion for targeting the rural markets. Project Shakti of HUL is one of them. This paper will discuss the innovative retailing strategy Project Shakti adopted by HUL for penetrating the rural market. This paper will also discuss how this project is successful in creating micro-enterprise in rural areas and integrating business interest & social interest. Introduction The issue of reaching the unreachable is gaining a new dimension and magnitude with the growing economy. Earlier the market research used to focus more on creating products for the urban and distribute the same among the target segment. Today marketers are more focused, and they are adopting specific distribution system with suitable advertisement and sales promotion for targeting the rural markets. To be successful in rural market the marketers need to understand the belief system of rural India, their value system and taboos, and changing social factors like literacy, income, occupation, mobility, sex-ratio, status of women, attitudes toward communication, the message and media. It has been proved again and again that pushing any product made for urban market pushed to rural market failed miserably in terms of touching the hearts and minds of the rural consumers. The rural consumers get motivated to purchase any product, when the message and product appeal them. Many companies have achieved their target by product innovation or by shrinking the pack size in rural areas. The rural customers are a combination of rural sensitivities and urban aspirations. They are willing to try any product which was earlier considered to be a prerogative of the urban consumer.

This paper will discuss the innovative retailing strategy Project Shakti adopted by HUL for penetrating the rural market. This rural retail initiative was taken by HUL with a purpose of integrating business interest & social interest. This project is successful in creating micro-enterprise in rural areas. Also, urban business models are not really successful in tapping the full potential of several small clusters of consumers across remote markets. About HUL HULs history could be traced back to year 1885, when the Lever Brothers set up William Hesketh Lever in England. In 1888, the company entered India by exporting Sunlight, its laundry soap. In 1895, Lifebuoy soap was launched in India followed by Pears in 1902, Lux flakes in 1905, and Vim powder was launched in 1913. In 1930, the company merged with Margarine Unie (a Netherlands-based company which exported vanaspati to India) to form Unilever. In 1931, Unilever set up it first Indian Subsidiary, the Hindustan Vanaspati Manufacturing Company for production of vanaspati. This was followed by the establishment of Lever Brothers India Ltd., in 1933 and United Traders Ltd., in 1935, for the distribution of personal products. In 1951, HUL purchased plants at Trichy, Shamnagar and Ghaziabad to expand its vanaspati production capacity. By November 1956, the three Indian subsidiaries merged to form Hindustan Lever Ltd (HLL). HUL also set up the Etah Dairy for manufacturing dairy products. Anik Ghee was launched in 1964. In the same year, HUL introduced its Sunsilk shampoo. In 1967 HUL set up the Hindustan Lever Research Centre. Rin detergent bar and Bru coffee was launched in 1969. Clinic shampoo was launched in 1971, followed by Liril bathing soap in 1974. The company entered the oral care segment with its Close-up toothpaste in 1975. Next they diversified by introducing industrial chemicals by setting up plants at Taloja in Maharastra (1974), Haldia in West Bengal(1976), Jammu(1977) for synthetic detergents. In 1978, the company launched Fair & Lovely cream. In 1983, HUL set up a unit in Chandwara district of Madhya Pradesh for manufacturing synthetic detergents. HUL diversified to agro-products, by setting up a unit in Hyderabad in 1986. They launched breeze soap in 1987 and set up a manufacturing plant at Pondicherry in 1988, for its personal care products. In 1989, HUL set up a detergent soap plant in Sumerpur, Uttar Pradesh and a toilet soap plant in Orai, Uttar Pradesh. In 1992, the Government of India recognized HUL as Star Trading House. The same year, HUL launched two more oral care products, Pepsodent and Mentadent-G. In April 1993, HUL merge with Tata Oil Mills Company (TOMCO), one of the biggest mergers in Indian industry till that time. The same year, HUL launched the Vim dish-wash bar. In 1994, HUL and US-based Kimberley-Clark Corporation formed a 50-50 joint venture, Kimberley-Clark Lever Ltd., to launched Huggies diapers and Kotex feminine care products. In 1995, HUL formed a 50-50 joint venture with another Tata company, Lakme Ltd, named Lakme Lever Ltd to market cosmetics. In 1996, Brooke Bond Lipton India

Ltd (BBLIL) merges with HUL to market tea. In January 1996, group merged with Ponds India Ltd. In 2000, HUL acquired a 74% stake in Modern Food Industries Ltd., the first public sector company to be disinvested by the Government of India. Step toward Retail Innovation for tapping Rural Market Prior to the late 1990s, HUL like any other company had traditional modes of reaching out to the rural consumer, i.e., through wholesalers and retailers. It used van campaigns to induce the village retailers to sell their products. Later HULs vans were replaced by vans belonging to redistribution Stockists, who served a selected group of markets. Only 25% of the villages could be tapped this way. Thus, HUL realized that a vast section of the rural market is still untapped. So, in 1998 they conceptualized Project Streamline to increase the presence in the rural market and reach out 100,000 retail outlets by 1999. The project aimed at covering 50% of the rural population by 2003. HUL appointed Rural Distributors (RD). These RDs were attached to 15-20 sub-stockists. These sub-stockists, who were located in the villages, were expected to drive distribution in the neighbouring villages through unconventional modes of transport like tractors, camel carts, bullock carts, etc. This project helped HUL in extending its rural reach to about 37% in 1998 from 25% in 1995. HUL realized that consumption of personal products among rural consumers was very low. For instance, out of every ten people, only three were using toothpaste or talcum powder or shampoo, while six out of 10 were using washing powders. Even in a category like soaps, they found that frequency of usage was once per five bathing occasions. To increase the usage of there product in rural market, in 1998 the Personal Products Division of HUL took an initiated Project Bharat - a massive rural hometo-home exercise to address these issues. Company vans visited villages across the country to educate the customers and distributed samples of low-unit price packs of shampoos, toothpastes, talcum powder or cream among the rural people. The retailing activities were supported by product demonstration or video shows about product benefit and usage. In the first phase of the project, HUL targeted the villages having population five thousand and above, while the second phase targeted the villages with population in the range of 2,000 to 5,000. This project enabled HUL to cover 13 million households by the end of 1999. The idea of providing micro-credit to villagers began with HULs Project Bharat. Groups of villagers (15 to 20) below the poverty line were offered micro credit of Rs.750 by banks. HUL trained them to use this credit to buy the companys products and sell them at a profit. Phases in Retail Innovation Phase I - Operation Streamline - Accessibility In 1998, HUL launched Operation Streamline to extend their distribution network throughout India. Operation Streamline is one of the major initiatives undertaken by HUL in recent times to penetrate the rural markets, i.e., to make their product accessible in rural market. In the case of Operation Streamline, the goods are distributed from the C&F Agents to the Re-distributors, who in turn pass the products

to the Star Sellers. Being a cross-functional initiative, the Star Seller sells everything starting from detergents to personal care products in rural areas. Operation Streamline opened up a new distribution channel beyond the territories that were covered by HULs earlier, they appointed 7,500 new odd distributors. In less than two years, the company doubled its reach in rural India. By implementing Operation Streamline HULs distribution network able to cover 60 per cent of the villages with population greater than 2,000 and the villages having roads. Sell of some of the product shot up in a very short span of time, one of the greatest achievements was the penetration levels for its Fair & Lovely cream raise nearly three times in just three months of launch of project. Interestingly, the sell of various products appears to crack open the rural markets. But 300,000 villages are still out of reach of HUL, so to reach them it created a new super stockist and sub-stockist structure. The super-stockist in the bigger towns serve these sub-stockist, who are paid 1-2 per cent more margins that the retailers. This is to cover the sub-stockists costs of servicing retailers in his area. Since the distributor cannot cover these retailers regularly in rural areas, these sub-stockists play a very crucial role as a stock points for the rural retailers. Then, once distributors create the necessary demand in rural market, the sub stockists carries this process forward. Phase II Project Bharat - Awareness HUL implemented a major direct consumer programme called Project Bharat, which covered 2.2 crore homes in rural areas. The primary objective of this project is to create awareness of HULs personal care products. Each home was given a combo pack, at a special price of Rs.15, comprising a low unit-price pack of hair-care (Clinic shampoo), dental (Pepsodent toothpaste), skin-care (Fair & Lovely) and body-care (Ponds Dream flower talc) products along with leaflets to make the customer educated on different products of HUL. Close to 160 vans and around thousand promoters (sales staff of the distributors and other private operators) were pressed into this Operation. The cost of this project came up to be roughly Rs.13 crore. For demonstrating the products each van was equipped with a TV and VCR, had six promoters. The project helped eliminate barriers to trial, and strengthened salience of both particular categories and brands. Supported by audio-visual demonstrations, film songs and mythological serials interspersed with ads of Lever product, this campaign helped the company in further penetration of the rural areas. Phase III - Project Shakti - Action HUL brought innovation in rural retailing through Project Shakti. To develop sustainable market of their product in rural area they involved the rural poor. Distribution acquired further impetus through HULs Project Shakti which was based on the successful Grameen Bank Model of Bangladesh. The project was started in 2001 in 50 villages involving women belonging to micro credit Self-Help Groups (SHGs) in the Naklgonda district of Andhra Pradesh (AP). Rural women organised themselves into thrift and credit groups and began saving one rupee per day. By 2003 corpus fund had increased to Rs.1500cr, of which Rs.800cr had been saved by 58 lakh women. This group continues its operation funded by the saving of the members, bank loans and government assistance. Members may borrow from this group corpus twice in a year, at the interest rates fixed by the group. Though such

loans can also be used to meet personal needs, the objective of the programme is to use the funds to generate more income. For Project Shakti, the SHGs were covered by three Mutually Aided Cooperative Thift Societies (MACTS). Each MACTS had 14 to 15 SHGs under them. HUL along with a social service organisation, Marketing And Research Team (MART), assisted women in getting microcredit to set up an enterprise to distribute HULs range of products. To start an enterprise initially Shakti entrepreneurs take loan from SHGs. They take training for three month then they start selling HUL products in six to ten villages having population from 1000 to 2000. They receive the stock at their doorstep from the company. They then sell the products to village retailers and customers. To start they began with four to five brands of HUL like Lifebuoy, Wheel, Pepsodent, Clinic Plus and Annapurna salt. Later they keep on adding other brands like Lux, Nihar etc. Shakti entrepreneur normally earn Rs.1000 on the sales of Rs.10,000. By 2005, HUL had reached 12,000 villages in 100 districts and was able to reach 1 crore customer through 2800 Shakti entreprepeurs. A woman from SHGs selected as a Shakti entrepreneur receives stocks at her doorstep from the HUL rural distributor and sells direct to consumers as well as to retailers in the village. Each Shakti entrepreneur services 6-10 villages in the population strata of 1,000-2,000 people. A Shakti entrepreneur sets off with 4-5 chief brands from the HUL portfolio - Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. These are the core brands that they layer it with whatever else is in demand like talcum powder or Vaseline during winters. The Shakti Model trains women from SHGs to distribute HUL products of daily consumption such as detergents, toilet soaps and shampoos - the latters penetration being only 30 per cent in rural areas. The women avail of micro-credit through banks. The established Shakti entrepreneurs are now selling Rs.10,000-Rs.15,000 worth of products a month and making a gross profit of Rs.700-Rs.1,000 a month. The company is creating demand for its products by having its Shakti entrepreneurs and educating consumers on aspects like health and hygiene. The Shakti brand endorsers are under-privileged rural women trained to manage businesses. Shakti project is a win-win initiative that creates livelihoods and a social initiative that improves the standard of life and catalyses affluence in rural India. What makes Shakti project uniquely scalable and sustainable and it contributes not only to HUL but also to the larger interests of the community. Phase IV - Product Innovation Acceptable and Affordable To tap more and more rural consumers they develop Non-Soap Detergent Powder which was launched in the rural market in name of Wheel detergent in year 1988 to counter Nirma detergent. Within a decade Nirma and Wheel targeting the rural consumer started sharing equal market share of 38%. To meet the challenge given by another company in early 1980s, i.e., CalvinKare whose early avatar is Chik Shampoo which created a revolution in shampoo market, HUL launched Clinic and Sunsilk shampoo in small sachets. The Low Unit Price (LUP) packs were successful in rural market to convert the consumer from soap to

shampoo. 95% of the total sales of shampoo in rural area were through sachets till late 90s. In early 2000s, to increase the penetration of HUL products in rural area they introduced Surf Excel, Ponds talcum powder, Fair and Lovely, Pepsodent, Rexona Deo-sticks in LUP packs. All these products are successful in winning the mind of the rural consumers. HULs effort and Shakti entrepreneurs initiative together played an important role in making all these products successful in rural market. In May 2000, HUL launched Aim toothpaste to compete with Dabur toothpaste and was priced at Rs.3 per 20gm, Rs8 per 50gm and Rs.16 for 100 gm for the rural consumers. They were launched in plastic flow wraps rather than traditional cartons, so that they could be hanged alongside of the store. But within five month of its launch they decided to withdraw the product from the market and decided to put its effort to increase the penetration of their other two products, Pepsodent and Closeup. To support the Shakti entrepreneur HUL engaged Ogilvy Outreach to enhance the awareness of their products in rural markets. HUL realized that 30 seconds advertisement in the Television may not able to create an impact in the mind of rural consumers, they have to be tapped by using unconventional media through colourful flyers, entertaining jingles, street plays, cinema vans etc. Phase V Replication The huge success of the Project Shakti has inspired the company to take it to the international level. Anglo-Dutch consumer goods major Unilever has begun replicating HULs rural micro-enterprise, led by women-entrepreneurs, Project Shakti in several international markets. The project has emerged as a successful low-cost business model and enhanced HULs direct rural reach in the so-called media-dark regions. Armed with micro-credit, rural women become direct-to-home distributors of Unilever brands in rural markets. The Fortune 500 transnational which sells foods and home and personal care brands in about 100 countries has stepped up focus on the project given that emerging markets now contribute around 44% to global revenues. The effort is expected to help Unilever tap fresh growth avenues in emerging markets in the face of recessionary trends in the US and Europe. Also, given the saturation of urban markets, companies try to re-engineer their business models to derive growth from rural consumers. The project is being customised and adapted in other Unilever markets such as Sri Lanka, Vietnam and Bangladesh. It is being considered for other Latin American and African markets. In Bangladesh and Sri Lanka, it is being promoted as Joyeeta and Saubaghya, respectively. There is a similar initiative in Vietnam as well. Conclusion By 2006, through Project Shakti HUL could reach 3400 districts across the country. This crucial project was able to contribute 15% of HUL rural sales. The rural micro-

enterprise has helped the Rs.13,717-crore Hindustan Unilever in pushing growth rates in several categories such as personal wash, fabric wash, shampoos, oral care and skin care. Brands like Annapurna, Lux, Lifebuoy, Breeze, Wheel, Fair & Lovely, Lakme, Ponds, Clinic Plus and Pepsodent have sold good numbers in smaller markets, company sources said. Overall, around 50% of Hindustan Levers revenues come from the rural markets in India. Presently the Project Shakti is operating in fifteen states namely Andhra Pradesh, Karnataka, Tamil Nadu, Gujarat, Madhya Pradesh, Chhattisgarh, Maharashtra, Uttar Pradesh, Punjab, Haryana, Rajasthan, West Bengal, Bihar, Jharkhand and Orissa. There are over 45,000 Shakti entrepreneurs covering over 1,35,000 villages across 15 states. The huge success of this project, both in terms of financial returns and social upliftment, has compelled as well as motivated the company to take this initiative at an international level. Several commentators argue that since business is a subsystem of the society, social good is imperative. However several others are of the opinion that financial returns are more important. The project Shakti is an interesting initiative which takes care of both social upliftment and financial returns. This project is appreciable because it has not only enabled the company to attain its objectives but also helped in empowering the downtrodden of the society and in germinating the seed of entrepreneurship. References Rustic Wisdom: Unilever to take Project Shakti Global, Economic Times, 19 January 2010. Project Bharat to push HLLs rural sales to 50% by 2004, www.expression.com, 9 August, 1999. Vinay Kamath, Where HLLs Shakti comes from, The Hindu Business LineCatalyst, 23 May 2003. Swati Bharadwaj, HLL target one crore rural consumers by 2005, www.economicstimes.com, 30 January 2004 Project Shakti going Global, 19, 2009 How HUL own www.hul.com