Analysis of the GSK-UL Merger in India

Background : India was nutritionally deficient and Health Food drinks (HFD) like Horlicks provided much needed nutrients. That need established Horlicks into an iconic Brand.

In this paper we will consider

1) Unilever's short to medium term strategy and 2) Strategies for longtime profitability.

Post merger with Glaxo Smithkline the

Unilever’s Short to Medium Term Strategy (3 to 5 years)

UL has a competitive advantage in its distribution network.

Post-Merger, Unilever must (enhance value chain) by distributing Horlicks and HFD in India, Bangladesh, and Pakistan targeting healthy and malnourished children/people (numbers are mentioned in the table below).

Let us understand Malnourished people ( mn) in the countries mentioned below

India : 195.98 China : 119.94 Pakistan 39.61 Bangladesh 24.77

Challenges faced by Unilever in India are as follows

a.Change in Consumer Preference : The Relevance of Health Food drinks have decreased since Indians have many more sources to Nutrition UL has achieved Strategic Breadth by diversifying and merging with the Nutrition business of GSK for $3.8 billion

b Horlicks has seen successful Brand extensions – Womens, for 30+ Men, for children. The composition of classic Horlicks has been modified making it miscible in hot and cold milk. Consumers are preferring beverages with less or no sugar.

Horlicks Diabetes Plus has been introduced recently.7.5% of India’s population is diabetic ( which may have incraesed in 2024) there are 1 among 2 people who go undiagnosed.

Promotional costs must be incurred to create awareness and ensure that consumers have accessibility.

We are also looking at China because it stands second after India and has119.94 mn malnourished people

Challenges in China:?China accounts for 32% of malnourished people. GSK personnel were caught paying bribes to doctors and hospitals in 2014. GSK has reduced 40% of its sales representatives in China and cut off some units. Currently, GSK is profitable in China.

China, Vietnam, Indonesia are not part of the 20 Asian countries Agreement in the GSK – UL Merger. Unilever cannot distribute in Vietnam or Indonesia because GSK does not have manufacturing facilities there.

Having talked about the various challenges faced in India and China , now we consisder Integration of Innovations and emerging technologies lies in the DNA of the organization strategy:

Seers' Engineering based in Bengaluru – India uses an updated technology, the Two Twin Extrusion processes that help continuous production of homogeneous and finely structured process using synthetic raw materials. This new process to manufacture Horlicks requires only half the footprint of the traditional factory, using a fifth of water with a reduction in energy usage by 80%.?GSK strategic thinkers, apart from the tactical cloud focused on strategic length improving the manufacturing process of Horlicks with state of art technology, high quality extruders and dedicated personnel. The Intellectual Property rights of this process will stay with GSK & Seers Engineering as per court orders and has not been transferred to Unilever as of 2020. ( I am not aware of the current situation in 2024 )

Hence both companies have decided that Unilever will supply HFD while GSK will be responsible for manufacturing and marketing activities for HFD.

Before we consider challenges faced by UL - GSK ( merged entity ) in Bangladesh , let evaluate the

Unilever Business Model for Growth in Bangladesh : revolves around the philosophy of doing well by doing good. UL has launched two mass campaigns, Lifebuoy rural activation programme urging children to wash their hands regularly, reaching 30miliion Bangladeshi children Additionally, the Pepsodent school programme has been running for 15 years.

Challenges faced by UL post Merger in Bangladesh

Impact of Covid on?Inventory Management: Unilever consumer care managed raw material and finished goods inventory from March to September 2020 when the pandemic was at its peak.

·Sourcing Raw materials: Factory in India where they obtained their raw materials from was shut for some time.

·??????Fullfillment : Once operations resumed, they lacked in fulfillment of even 50% of UL consumer care’s demand.

·??????Customs Duty: ?Government in the fiscal year 2020 -21 increased the customs duty on its dry mix imports from India, from 15% to 25%

·??????Unilever Consumer Care’s Financial Performance in Bangladesh

Figures in crore: 404 crore Taka = Thirty-eight million nine hundred and sixty – four thousand US dollars.

The profit is flat in 2021 due to lower sales caused by raw material supply shortage.

Strategies for Long Term Business Profitability

·??????a) Opportunities lie for customers in the Bottom of the Pyramid (BOP) : Unilever has already penetrated the markets in Asia with its Health and Hygiene products – soap, toothpaste, water purifier .CK.Prahlad in his book explains that basic economies of the BOP markets in Asia are based on small unit packages, low margin per unit, high volume and high return on capital employed. (Prahlad CK 2004 p.24). In Bangladesh, ( and in India ) the consumers are moving to small pack sizes.

Hence UL will have to manufacture small pack sizes for these consumers and larger pack sizes for modern Trade and those who are shopping online. Large packs mean the cost per unit will be less.

·??????b) Stagflation: Consumers are willing to buy products at lower prices even if Quality is not the Best. This will continue in Asian countries in 2023

·??????c) Rural Penetration & empowering women to sell: ?GSK has already started penetrating the rural areas in India, Bangladesh with their Re5 ($ 0.061) Horlicks sachets since 2014 asking women opinion leaders to talk about the nutritional facts of Horlicks in their villages.

Unilever has a similiar strategy in Pakistan: As mentioned earliuer that Pakistan has almost 40 mn malnourished people In Pakistan 4.5million women (Guddi Bajis) in 5000 villages sell UL products and they will be able to sell HFD too.

In India, Project Shakti has enabled rural people to sell UL products and become entrepreneurs. HUL has built GPS and density mapping technology to design its rural supply chains and sales networks.

CONCLUSION:

After doing in-depth analysis in all 3 Assessments in Integrated Decision Making it can be said that analysts expect ?GSK merger with Unilever will generate 10% growth per annum. Consumer awareness of Unilever Brands is based on strong brand equity.

Both organisations have significant synergies through supply chain opportunities, operational efficiencies, go–to-market and distribution network optimisation. The physical distribution of Unilever is 4 to 5times the reach of GSK Brands in Asia.

Scale efficiencies in cost areas such as marketing and optimisation of overlapping infrastructure also exist.

?The Stock prices at the beginning of April 2020 for both GSK & HUL were at an all-time high with an increase of 5%.

Net Profit earned by Unilever in the last financial quarter of 2020 was 19% higher compared to the last quarter of 2019. The company’s strong global presence, scale and brand portfolio provide a solid competitive thrust in the FMCG industry.

Yesterday, (5th. November 2024) I was watching the, the consumption story in FMCG industry , a Kantar report on ET now.in (almost a year since I submitted this assignment at S.P.Jain Global institute of Management studies). Given below are the highlights.

Beverages are seeing stupendous growth this quarter since it is the festive season . However, Foods portion is leading in Foods and Beverages segment.

F&B maybe the best performer in an environnment which is again slowing down after the festive excitement . Hence the headline in the Kantar report read

''Festive sales uplifting or a damp squib ''

Household care as a category has not taken off since COVID.

Is there a slowdown in urban demand ?

It has been observed that there is no severe slowdown in the personal care segment .

The Soap and shampoos category is performing well. ( winter still to set in , in many parts of India)

To sum up here are the numbers : Consumption pattern in Volume Growth ( July - Sept 2024 )

Q3 CY 24 Q3CY23

Personal care 4.1 % 3.9%

Household care 2.9% 2.1%

Foods & Beverages 4.4 % 8.6%

FMCG 4.1% 7.2%