Inflation issues: Unilever India announces ‘calibrated price increases’ after being hit with major palm oil and tea cost hikes

05-Nov-2024 - Last updated on 05-Nov-2024 at 02:08 GMT

The tea business is expected to be hit the hardest by the price hikes, with the mid-market brands forecast to be the most-affected. © Getty Images

Hindustan Unilever India (HUL) has announced plans to implement ‘calibrated price increases’ in light of inflationary pressures leading to significant cost hikes in palm oil and tea.

HUL recently announced its Q3FY2024 financial results, reporting 2% underlying sales growth to reach INR153.2bn (US$1.8bn) in turnover but a 4% decline in profit after tax to INR26.1bn (US$310mn).

HUL CEO Rohit Jawa described the firm’s latest performance as a ‘competitive’ one given the current economic conditions, but warned that these conditions have finally hit the point where HUL will need to implement price increases as a significant strategy.

“Following a prolonged period of benign commodity prices in this quarter, crude palm oil and tea experienced inflation of 10% and 25% year-on-year respectively - Given our assessment that this price increase is here to stay, we are now taking calibrated price increases,” he told the floor at the financial results call.

“Crude oil remained benign during the quarter but there has been recent volatility in prices owing to geopolitical tensions [so] we remain vigilant and are watchful of any price fluctuations that seem to persist.

“In this dynamic environment, we continue to remain agile [and will take] actions to provide a competitive price-value equation to our consumers.”

HUL CFO Ritesh Tiwari added that this action has become necessary due to the current hikes in commodity prices, but promised that the firm would be strategic in its implementation.

“We are always very calibrated in the way we take price increases [and] of course we are not passing on the total amount of commodity inflation to consumers [as] we always drive savings very hard via other strategies, but the net inflation is what we will end up pricing going forward [and consumers will see],” he told the floor.

“We have only now gotten a deterministic signal that this season is an inflationary season, particularly in tea where it’s inflationary season because of the lower production.

“The scale of tea commodity inflation which has happened is 25% as mentioned, so going forward, we'll start taking the price increases in the December quarter (Q4FY2024).

“Our learning always has been when taking price increases take in smaller chunks, and when dropping prices drop in larger chunks, so that you don't end up getting saddled with trade pipe line inventory - That's exactly what we'll end up doing now as well.”

Within the tea business which is expected to be hit the hardest by the price hikes, the most-affected brands would be mid-market brands as opposed to premium ones.

“There are certain parts of our tea business such as Lipton, Taj and functional teas like Brooke Bond which are less price sensitive and are continuing to grow in volume in the current markets,” Tiwari added.

“The part that is more sensitive to price are brands that operate more in the middle of the market such as 3 Roses, Taaza, Red Label and so on, which makes up a larger part of the business and reacts to commodity costs.”

Other strategies

In addition to pricing hikes, HUL is also increasing its focus particularly into the diabetes and food product innovation categories in hopes of accelerating its growth here.

“Over the past few years, we've already been strengthening our adult nutrition drinks portfolio [and] within this segment, Diabetes Plus has been one of the fastest-growing [under] the Horlicks Plus brand,” Jawa said.

“Doubling down on this portfolio, we have recently introduced zero-added sugar, chocolate flavoured Diabetes Plus to complement the portfolio.

“We are also boosting our offerings in the condiments and mini-meals category with recent innovations such as the Knorr spicy Korean Kimchi soup; and we are also pushing international sauces such as Hellmann's Mayonnaise beyond urban and Tier 1 cities to recruit more users into this already fast-growing category.”

There are six major food and beverage categories set to become priorities for the firm moving forward.

“There are six demand spaces within the Foods and Refreshment space that we want to continue to ensure we're working on,” Tiwari said.

“These are: Tea, Coffee, Nutrition Drink, Mini-Meals and cooking aids, condiments and UFS (Unilever Food Solutions) for B2B - These are the demand spaces we will double down on within our portfolio.”