HUL CEO says the product inventory range will be smaller and simpler hereon⁠— analysts believe others may have the same plan

HUL CEO Sanjiv MehtaBCCL
  • By reducing the SKU’s, the manufacturers can bring efficiency to their supply chain by removing the items with the lowest household penetration, said FMCG analysts at Deloitte India.
  • According to Talreja, the decision of reducing SKUs will also help suppliers in reducing stock-outs and shrinkage as consumers will engage in less impulse purchases.
  • This may also make forecasting more challenging because there will lesser differentiation in product and consumer categories.
Sanjiv Mehta, the chief executive officer (CEO) of Hindustan Unilever, India’s largest consumer staples company revealed that the product inventory range has become smaller and simpler since the beginning of the lockdown. He may not be the only one.

Analysts at Deloitte India expect more fast-moving consumer goods (FMCG) companies to move towards a model where they offer more of the smaller packs, and less of the bigger ones, of the same product.

HUL share price till May 29 2020BI India

“Certainly, our business has become much more agile. We have simplified many things like I say I am now working with much fewer SKUs (stock keeping units) that doesn’t mean I will keep this number of SKUs only, but I won’t go back to the earlier number of SKUs so the organisation will become much more simpler,” he said.
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Anil Talreja, partner and leader, Consumer Industry, Deloitte India said, “By reducing the SKUs, the manufacturers can bring efficiency to their supply chain by removing the items with the lowest household penetration. We can also expect the companies to reduce the amount of line extensions which will enable greater ease in manufacturing as well as less load on the retail stores with respect to stocking and display of the same.”

Talreja thinks “this would enable the consumer to space out his monthly essentials purchases basis exact requirement.”

A grocery shop owner half down shutter to maintain distance with customers at Jadubabu's Bazar in Kolkata after Modi extends the India wide lockdown till 14th of April due to increase case of corona across the country. Photo: By: Sudipto Das.BCCL
Amid the spread of coronavirus in India, discretionary spending has taken a massive hit. According to the Deloitte consumer tracker survey “this is due to the fact that the Indian consumer is taking more informed decisions with respect to both essential and non-essential purchases.”
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The tracker reveals that around 55% consumers are willing to spend a lot more on less-discretionary items like groceries, 52% on everyday household goods, 31% on healthcare, 47% on medicines and 46% on home internet/mobile phone vis-à-vis discretionary items like Cable TV (31%) and Entertainment (29%).

According to Talreja, the decision of reducing SKUs will also help suppliers in reducing stock-outs and shrinkage as consumers will engage in less impulse purchases. HUL’s profit for the Jan-March 2020 quarter fell 3.43% to ₹1,520 crore as sale volumes fell a sharp 7% compared to the same time last year. The lockdown in this period was just a week long, the remaining seven weeks fell in the next quarter.

BI India

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HUL CEO also highlighted the issue of supply lines being choked due to nation-wide lockdown. He said “there are many behaviours which are muted today because the supply lines are choked. For instance, take beauty products. Right, today, not everyone has access to beauty products. Not because people don’t want to feel good. I think that is inherent in everyone. I will also call it the ‘lipstick effect’ when times are bad you want to do small indulgences so that you can feel good so these are categories where today may not be looking very buoyant, but I firmly believe it will bounce back as supply lines open up.”

“This will consequently make forecasting more challenging on account of lesser differentiation and a more precise sales incentive structure across fewer SKUs,” according to Talreja.

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