Editor’s note: This article is part of “A Year of Evolution: CFOs on 2021” series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
Most countries are expected to see their economies shrink in 2020 with dampened consumer spending. But the fast-moving consumer goods (FMCG) industry is seeing a steep growth in some segments this year as households are spending more on consumer packaged goods, health, hygiene, and nutritional products. Consumer preferences have also evolved. E-commerce is becoming a norm as people choose to stay at home more. Companies are revising their distribution strategies and product portfolios.
In India, similar market trends are evident. Hindustan Unilever Limited (HUL), a subsidiary of the global FMCG company Unilever and the maker of Dove soaps and Lipton tea, saw huge growth in online sales. Their retail partners, “kirana” (local grocery) stores, also played a crucial role in getting essential goods to neighbourhoods during the lockdown period and may continue to play vital roles in communities.
FM magazine spoke to Srinivas Phatak, the CFO and executive director of finance and IT at HUL, to discuss his COVID-19 lessons and priorities for 2021. He shared how his team “followed the money” during the earlier months of the pandemic crisis, and his plans to steer the company toward competitive growth.
How did you manage to maintain business continuity when the first wave of the pandemic hit?
Phatak: During this pandemic, we had five clear priorities — people safety, supply continuity, demand generation, caring for communities, and protecting our business model, ie, managing cash and cost.
You take care of the people, and people will take care of your business. The philosophy is quite simple there. So that happened at the head offices, at the factories, but it's not only about your own people; there were people who work in sales, many of who don’t work for us directly and like our distributors, suppliers. We took medical insurance covering more than 44,000 people to make sure they get protection for COVID-19 care. I think that's really paying good rewards because businesses bounced back. We've seen a lot of speed and agility. People feel safe and feel that the organisation cares. That's super important.
On supply continuity, when we started seeing disruptions around mid-March. So we worked at localised levels, at state levels, and at central levels to try and restore our supply. Our procurement folks did an extremely good job of trying to look at alternate supplies and onboarding them with speed. They moved sourcing from China to Europe and back to China as the pandemic spread [in Europe]. We added many suppliers of raw ingredients, packing materials, and finished goods.
We are fortunate to be in products of day-to-day consumption, relatively insular to adverse impacts that are impacting other industries. We realised consumers were willing to buy our well-known products in health, hygiene, and nutrition, but in the discretionary segments, consumption took a hit. We knew that we must review this challenge through a different consumer lens, a different portfolio lens, and a different market lens. So the last few months has really been about de-averaging (applying different prices according to location, consumer segment, channel) and working at the most granular levels.
An example of this is how we “followed the money”. The various steps taken by Indian government and central bank had put more money in the hands of people in rural regions, and there were consumers migrating from urban to rural areas during this pandemic. So our priority was to follow the consumers. We worked to deliver the right packet sizes of our brands to identified geographies. This differentiated approach is in contrast to what we usually do. We also extended credit to our general retail partners for longer periods because of the massive liquidity constraints in the market.
Lastly, with respect to communities, we committed INR 1 billion [$13.56 million] for the fight against the pandemic. This includes donating our products, supplying healthcare workers with sanitisers, and providing medical kits to hospitals.
How did you handle cash management during the pandemic?
Phatak: We followed a three-pronged approach to effectively manage and conserve cash: First and foremost, we tried to ensure that supplies of health, hygiene, and nutrition products (being growth drivers) are uninterrupted.
Secondly, we took various steps to make our costs variable. For instance, we relooked at our costs from a different lens and redeployed or reallocated our resources. We either deferred or optimised discretionary spends, including a freeze on recruitment, in the short term. We dialled up many productivity initiatives and also fast-tracked some of them to produce early savings. We decided not to spend anything that will not benefit the consumer.
Thirdly, we brought in more rigour to manage our inventories more effectively through stock keeping unit (SKU) rationalisation [making decisions on which inventory to hold and which to reduce or eliminate]. When you take some of the complexity out, you can get more output and start to reduce costs. We did shorten our planning cycles to make them more agile, more flexible, and more responsive.
What is your most important priority now?
Phatak: As the country is opening up and consumers are spending, making sure that we're driving volume-led competitive growth is going to be the number one priority for us.
What are consumers looking for? In a way, consumers have changed. They’re still spending more time at home. They’re thinking more about health, hygiene, and nutrition, and using a lot more e-commerce channels to shop. People are also living under a mask. So, what does that mean when it comes to taking care of ourselves? Thinking about consumers and consumers’ met and unmet needs is what our business needs to do now to grow.
That is going to be my fundamental picture because, when growth starts to happen, I know many things will start to fall in line. Product mix will improve. We will get benefits of scale, and margins will come through. So, we want the organisation to completely focus on growth.
A subset of that is focusing on data and digitisation because e-commerce as a channel is here to stay, and in our own case, we saw e-commerce businesses double. Pre-pandemic, e-commerce made up 3% of our business; today it’s 6%. Therefore, making sure that we have a portfolio with the right assortment, and that we are able to supply (the products), is going to be super important.
We're also working with some of our banking and finance partners to make sure our extended ecosystem — our network of distributors, suppliers, and retailers — have access to easy credit. We announced a partnership with the State Bank of India to try to inject about INR 50,000 [$678] in credit to each store for stocking HUL products. So my focus is also on supporting suppliers, distributors, and the end-of-the-chain players.
What are the biggest threats to business now, and how are you overcoming them?
Phatak: We are likely to encounter big challenges as we move forward. The external environment is still tough; the economy is under stress. Inflationary pressures have started to become visible, and prices have started to go up. We don’t know how long this pent-up demand is going to stay. We will also have to deal with unknowns, given the spread of pandemic and availability of vaccines. But in all of these, we should remember that there are also many opportunities to leverage; it is not all gloom and doom.
It’s important to do a scenario planning and start thinking about risk in a very different perspective and not against a point in time. We need to think very differently about what is short-term, what is medium-term, and what is long-term, and keep reassessing them.
We have been investing in data and digitisation over the last few years. We've dialled up e-commerce, modernised mom-and-pop stores, taken initiatives with data analytics. We need to leverage all of that. Sharpness of strategy is a priority, and doing everything with agility is going to help us.
What approach are you taking to budgeting and planning for 2021?
Phatak: 2021 is going to be better than 2020 unless the pandemic comes back in a very different manner. India’s economy is showing signs of recovery, and its GDP growth might return in the first half of 2021. We will keep a close eye on how the second half pans out.
For us, we have to be singularly focused on growth. We will take our supply chain flexibility and resilience, strong retail partnerships, and digital capabilities to the next level. We have to be a lot more nimble and agile. Gone are the days where you can think about an innovation in a timeframe of nine months. The new normal is nine weeks. And how well can we do it? These are the kind of things we'll have to get better at in 2021.
What role does financial planning and analysis play in this?
Phatak: Turbocharging financial planning and analysis is going to be an unchanged priority. We need clear understanding of the strategy and where we are investing; we can't invest with percentages or fixed budgets now. Not all fixed costs are fixed costs anymore. Scenario building, having Plan A, B, C, and D available at all times during such uncertain environments is necessary. Business partnering becomes super critical here. Finance needs to be a good business partner to functional heads, divisional CEOs, and group CEOs.
2021 is also going to be a good year if you can think sensibly on mergers and acquisitions. Crisis does open doors to opportunities, and we have the balance sheet strength to acquire the right target. I’d really want the finance teams to get ahead and start thinking about some of these structural opportunities.
What has been your biggest lesson from this pandemic?
Phatak: Things will only get better.
What one piece of technology is a must-have in your 2021 budget?
Phatak: Everything to support channel transformation because the whole domain of sales is changing rapidly and there’s not one but multiple things to compete and win.
Looking ahead, what is one skill you want to develop in your team?
Phatak: More data, more tech, more analytics. And the ability to lead people from behind the screen or a phone.
— Swati Sanyal Tarafdar is a freelance writer based in India. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.