In the past couple of years Hindustan Unilever has made tectonic shifts in its business model to become more nimble and agile. It has also reinvented its distribution network. The FMCG major has not just put together a robust e-commerce strategy, it is also empowering the humble kirana store owners through data and artificial intelligence. In a conversation with Ajita Shashidhar, Srinandan Sundaram, Executive Director, Sales and Customer Development, HUL, talks about how the company has re-looked at its go-to-market strategies. Here are the excerpts.
Unilever is known for having the deepest distribution network in India. Can you tell us about your distribution strategy in the last couple of years?
I will first talk about general trade and then modern trade, e-commerce of course is different. There is a lot of technology we have brought into general trade. If you take a longer term read through Nielsen or any external database you will find that per dealer offtakes are going up in some parts of the country, which is also an indicator of the rising affluence and these are places where more stores are also coming up. The difficulty in adding more general trade stores is sustaining the stores in the long term. The big shift we have done in the last couple of years is not just add stores but also see that they are sustainable at least over the next 10-12 months and eventually over the next 2-3 years. Therefore, we have done a lot of checks and balances on what's the right number of stores we can add in a year. The right number of stores is often governed by the absolute number of distributor salesmen we can add so that you do justice to the store on how often does the salesman goes to take the order; how effectively we can reach the stock in a certain period of time. Therefore, the number of stores we add depends on how consistently we are billing the stores in a particular area. That's the true measure of realising high throughput from the store and incremental coverage will not cannibalise your current store.
So how was it earlier?
In the past we added a large number of stores at one shot. We have stopped that. We are not going for quantity, we are going for quality, and that is sustainable. We are also measuring the incremental turnover a store generates for the business. It is similar to how we will evaluate a brand like Ayush or any other brand. If I put so much money it should generate a turnover within a year or two. So, it's the same principle of marketing that we brought into coverage expansion. We are working with lot of partners to identify areas where we can have high throughput outlets.
When did you make this change?
We have been doing this from 2016. That's how we have shifted the target to sustainably covering and monthly measurement of whether we are covering the outlet or not.
What really was the trigger to that?
I think the trigger is first, the realisation from the outside that there are more stores coming up, particularly in tier-1 and tier-2 towns and it's important that we get coverage there because the Nielsen data does show that pattern. Second was to say, if I really have to realise business from it then it's just not important to go and leave the team to scout. There needs to be a technology to say where to scout and there needs to be a system to say how to deliver so that you get the incremental turnover. We are seeing good results so we are sticking to this particular philosophy. That's in general trade.
What has been your strategy in modern trade and e-commerce?
I think in for us in modern trade or even e-commerce we have worked on a very simple principle which is being a tad ahead of the curve. We have done two things, we have resourced ahead of time and ensured we have used the global Unilever set up to expose our talent to the best practices so that if somebody is setting up a new modern trade store we are able to truly partner their learning from the best outside. That's something that has really added value for us in modern trade. Before any company even recognised it, we had a full-fledged set up of modern trade. The teams were trained and when Walmart came to India a series of managers were trained at Walmart to understand the customer systems. Recently when ecommerce started seeing its first signs we did exactly that. We resourced the team ahead. We have trained our teams with wherever Amazon is present. There are some customers we have learnt along the way, like Nykaa. It is new to Unilever because it does not have a cosmetics play, but here we do have with Lakme. We evolved with the customer but engaged very very early. We recently went live on Amazon with an exclusive range from Brylcreem. Many of the features are first for India but are strongly guided by our account managers in the US. They are able to tell us how we can position it and get the best of what Amazon has to offer. In any of the emerging channels the amount of time that our young managers undergo training is disproportionate. But we know that's the kind of investment required to make sure your sales pattern is healthy. When we say healthy we measure ourselves on the fact that our ecommerce shares are higher than our modern trade shares and our modern trade shares are higher than general our trade shares. That also is coming partly from the category strategy and how we want to preimmunise. It also reflective of tomorrow, the channels of the future as they become bigger. Is it a tailwind on the strength of the company or headway? And, because you want the newer channels to be good in gross margins and market share, it is about investing in the best in the business.
How different is e-commerce distribution compared to general trade? What kind of skill sets does one need?
E-commerce is teaching us how we can do business in traditional trade. The whole consumer journey in design, following the consumer, being able to track the consumer during the journey is easier. People often browse on Amazon but don't buy it, they put it in the cart. But you know if it is in the cart the chances of converting is higher. Similarly, if you regularly buy your grocery on Big Basket, there is a smart basket created for you and you don't have to enter your regular purchases again and again. All these concepts are equally relevant to the general trade guys. So the way we navigate the shoppers on any of these platforms has profound impact on what kind of advertising and communication works well. We are also able to put the same products on our GT shelves, which leads to a much better call to action. I think through data in e-commerce we know exactly how we shop and you can bring back those principles, which is what we are trying to do.
Is this some kind of a reverse learning?
It is of course. In many ways in e-commerce, if you are not sharp and not able to explain on mobile in a short period and not able to tell the customer that this is Comfort Fabric conditioner at that price, then she will skip and move. Therefore, it is forcing us to be really precise in what we want to put out in front of the customer's screen. That 5mm screen dictates whether she is going to choose me or not. If we are getting better conversions over there certainly that same mind adapted for general trade should work . I think the bigger push is we are getting into a smaller world. It's all about a 140-word tweet. No longer it is valid to have long descriptions or formats. We need to be sharper about what you want to say because the time span given to you is getting crunched.
Do you expect your e-commerce sales to surpass general trade?
No, for us e-commerce is a channel. We as a company are of the firm belief that the traditional trade is here to stay and we don't believe that the neighbourhood grocer will die. Today in our homes if we need a loaf of bread on a rainy day then he is the one who is going to come and give it. So the level of convenience and service he is able to offer even a modern trade store will not be able to offer. He has changed his assortment, he is able to survive in this environment with better service and even today while a lot of talk happens in modern trade and ecomm as channels of future, general trade is going to stay and is a dominant part of HUL's strategy.
My e-commerce gross margin and market share should be higher than modern trade and that of modern trade should be higher than general trade. So, one of the conscious efforts to drive market share is to drive market development in e-commerce. It certainly is a channel for us which should give us higher margins and shares.
Is grocery retailing going to be the next holy grail for e-commerce companies?
So far in the developed world it is 2%. Grocery strategically for e-commerce players is more important because it is a footfall driver. It won't be the highest revenue contributor. You may buy a phone once in two years, but you will come back to buy your essentials. Every winter you come back to buy a bottle of Vaseline body lotion. It is smaller ticket size but very relevant for that season. From an e-commerce point of view, the focus on grocery will come from making sure that the shoppers are continuously engaged with that particular e-commerce company. To that extent there will be lot more initiatives like Pantry that Amazon has started.
So it will give them volume growth, may not give them value?
It will give them more than volume growth, if I come to your portal or page only then you have a chance of making the upgrade. If I just don't come then how will you update, and that's how grocery will play an important role.
So, you are saying the neighbourhood grocer will not get impacted?
Of course not. If you look at it, before modern trade came in, the general trade guy used to keep few SKUs with a lot of depth. The moment he saw hypermarkets, he understood there are people who seem to be asking for olive oil, so he kept two bottles of olive oil. Like this he started improving the range. The general trade guys are agile and in their own way able to figure out what is selling in bigger shops and keep it as a top up. In the last 8 years, our trips to neighbourhood stores have gone up not gone down. It's just that the value per trip seems to be coming down because they are using it as a top up. Each time you go he is dressing up his store in such a way that he can upsell one or two more items.
I read some time back about you using artificial intelligence in kirana stores. I would like to know more about it.
Very simply put, what we are trying to say is there is a salesman who is going to an outlet and booking an order, we have data of bill level purchase that this store has made from us over the last several years. If I look at the pattern of purchase I am able to make out what are the SKUs likely to sell. We have past data and now we are beginning to use external stimulus. Very simply put, if it is a high income locality, there Indulekha will certainly sell more. Therefore, in such outlets we recommend Indulekha. In a middle-income locality one may be the bigger 100 ml pack of Indulekha might not sell, the 50 ml pack would sell. So, it's a combination of bill level data which is analysed to throw out trends. That's the analytics we are using and that's the machine learning we are talking about.
So, how many stores you have rolled this out in?
All our general trade order booking across the stores that we do is based on this. Everything is based on a set of SKUs that are pushed through in this system as most likely SKUs that he is going to buy and our entire portfolio is split into SKUs that are easy to sell. Because these are the skus we know from the pattern you regularly buy and easy to earn for the salesman.
Can you tell us what Humara Shop is all about?
They are neighbourhood general trade stores and we help them go online. Let's say if you have a general trade store next to this office, 5-6 of us who want to buy something for our house we go to your store online, see the entire assortment and we buy. So in a sense you are becoming an e-commerce company. It is a pilot, we are in experiment stage, we have started it off in Delhi.