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On Hindustan Unilever’s e-commerce pilot

Hindustan Unilever Limited

Consumer goods behemoth Hindustan Unilever is conducting a pilot project in the e-commerce segment, reports The Times Of India.

The details on what HUL intends to do through this e-commerce pilot is sparse at the moment although the report cites industry sources to say that HUL is looking to use its retail distribution reach across the country to deliver products to consumers at their doorsteps with kirana stores playing a key role in the project. HUL claims to currently have a distribution reach of 3.2 million outlets across the country.

Besides its own products, HUL is also considering plans to sell certain non-competing products through this route. The initiative is apparently taking place only at a few outlets at the moment with an expanded rollout expected in the future.

A HUL company spokesperson declined to share any information on this pilot to the publication providing a boiler plate statement that e-commerce is as an important platform for HUL to reach out to consumers and shoppers and they pilot various initiatives from time to time. It’s worth noting that in an interview with Mint last year, HUL CEO Nitin Paranjpe had mentioned that they were building e-commerce capabilities.

Some thoughts on this:

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Bringing Kirana stores online: There is an opportunity here for HUL to aggregate fragmented mom-and-pop (kirana) stores and enable consumers to buy products from their neighbourhood stores. These retailers can then deliver these products to consumers to their doorsteps. This could turn out to be quite significant for FMCG retailers where the margin tends to be quite small and is therefore trickier sell online. It will also allow consumers to buy products with lower shelf life like groceries.

This reminds us of Aaramshop’s business model which ties up with kirana stores and allows consumers to buy grocery products from a retailer in their neighbourhood. In an interview with Medianama, Aaramshop founder Vijay Singh had mentioned that a typical e-commerce model doesn’t work for groceries since FMCG retails with a single digit margins. “For food products, it is 6-7%, cosmetics is 8%-9%, and perishables and temperature sensitive items like butter and liquids need warehousing.”

– Consumer data: Through this initiative, HUL will also have the opportunity to collect data on consumer purchases which otherwise would’ve been difficult to collect in the offline world, and make it available in real-time. Digitised data will help the company understand consumer demand better, allow it to look at data and decide on consumer or retailer surveys, to look for qualitative inputs. All of this will allow it to forecast better, address shortage in real-time, make distribution more efficient, and identify areas for pilots for new product launches. The possibilities are endless, given the fragmentation in retail, and the lack of data.

It could also help HUL launch targeted ad campaigns or fine tune their existing marketing campaigns based on the region.

– Will retailers bite? This is tricky. The kirana stores in India have poor billing practices, in order to avoid taxation, bills are typically kaccha (just written on a piece of paper), and taxes are avoided. It adds to the black money in the country, and we wonder how open kirana stores will be to maintaining legitimate accounts. Online sales will be a fraction of their sales, so initially, they probably won’t have an issue.

(with inputs from Nikhil Pahwa)

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