India’s biggest consumer products makers have been facing a triple whammy. Volume demand is getting affected, especially in the rural markets, due to a lack of job creation and higher product prices. High raw material inflation is eating into margins. And the entry of direct-to-consumer (D2C) labels, especially in urban areas, is intensifying competition.
Slow growth has, in turn, further repercussions as it shakes up the ability of companies to attract and retain talent. So, what has been the actual impact of the slowdown on hiring at fast-moving consumer goods (FMCG) companies?
To gauge this, we picked the top three FMCG companies by value— Hindustan Unilever, Nestle India and Dabur—and trace their recruitments over the last three to five years and the productivity generated by their human capital. We measured productivity via two metrics: revenue from operations and net profit.
To be sure, it’s not a direct reflection of how much exactly each employee is producing at any given point as companies like HUL have acquired other businesses and that changes the mix.
A related aspect is that some people would have been hired towards the end of the last financial year and are yet to contribute to the financial numbers.
That said, the trends indicate how the top FMCG majors have performed with respect to sweating their workforce. And we can also gauge how they compare to each other.
Please note: We skipped ITC as it is a diversified company with interests in businesses like hospitality and technology, among others, that are not directly comparable to its FMCG-only peers.
Talent Acquisition at FMCG Companies
For starters, let’s see how the top three FMCG companies have gone about adding to their workforce. The three companies have increased their total workforce by 18% in aggregate over the last five years. It had 46,350 employees as of March 31, 2022, including 21,534 permanent employees on the rolls.
In the five-year period, they have increased their headcount by around 7,000, almost equally split between permanent employees and those on contract.
Although all three have seen their team strength move up 17-20% on average in the last five years, there are some interesting differences within.
Of the three, HUL has seen a nearly 50% rise in its permanent employees while Nestle and Dabur saw those on full-time rolls rise in single digits. Nestle and Dabur, meanwhile, recorded 35-42% rise in their contractual workforce in the same period.
This could be partly due to the acquisition by HUL of GlaxoSmithKline Consumer Healthcare.
Revenue per employee
Things look interesting when it comes to what these employees are generating for their company. HUL has traditionally been generating more revenue per employee and continues to do so.
In fact, if we go by hard statistics, then all three companies have seen their average revenue per employee rise by around a fifth in the last five years. Although there have been periods of underperformance, they have increased over the medium term.
HUL has seen the biggest rise of around 24%, followed by Nestle at 21% and Dabur at 17%.
Notably, the average employee revenue generation in the FMCG industry is much higher than that of the technology sector. The factor is as high as around six times for the FMCG industry leader HUL compared to the average of the top three IT companies.
Another aspect is the difference within the FMCG sector. As against the IT sector, where the average revenue per employee was similar with an average of around Rs 35 lakh per employee per year, the average for the top FMCG companies varies wildly.
For instance, the average revenue per employee for HUL is almost two times that of Dabur. Nestle has still lower average revenue per worker.
Profit per employee
The broad picture is quite similar when it comes to profit per employee. To be sure, profit and profit per employee are dependent more on financial management, including treasury income and tax outgoes.
If we look at the numbers for 2017-18 and juxtapose it with the numbers thrown up last financial year, or 2021-22, we see an improvement across the board although Dabur was a laggard on this front.
Dabur, the largest homegrown FMCG company by market value, saw a single-digit uptick in profit per employee in the last five years while its two bigger peers sported a major rise.
Both HUL and Nestle have seen profit per employee shoot up 46-47% on average in the last five years.
That allowed Nestle to bridge some of the gaps compared to Dabur. While the Indian unit of the Swiss food company was generating less than half the profit per employee compared to Dabur five years ago, this has now increased to around 60%.
Notably, this is also an area where tech companies see more uniformity in performance compared to top FMCG firms.
As against the IT sector, where earnings per employee have been in the Rs 18-20 lakh range for all the top players, HUL is much higher placed compared to its other two FMCG peers.
The profit per employee for HUL, just like revenues, is twice that of Dabur and is almost twice that of the IT sector average.
Overall, we see top FMCG companies managing to pull in much more revenues and profit despite not going for a major increase in workforce. It is easily explained by the human capital intensive nature of the IT business as against FMCG where brands and pricing power rule.
The differences within the top FMCG players could be a function of the nature of businesses. Nestle, for instance, is essentially a food company while Dabur and HUL have large portfolios of personal care products.
Nonetheless, all three FMCG majors have been on a secular employee productivity gain trajectory as compared to tech giants that seem to be in a steady state barring some exceptions.