Mumbai: Fast-moving consumer goods major Hindustan Lever Ltd (HLL) recently announced the divestment of its edible oil business to American company Bunge Co. According to the deal, the Dalda brand along with related brands, Masterline, Gold Seal, Silver Seal, Marvo, Biskin and Lily and HLL's edible oil manufacturing facilities in Trichy, Tamil Nadu, are to be sold to the US-based farm-to-consumer major for Rs 90 crore.

Since Bunge Co does not have a presence in India, HLL will continue marketing the Dalda brand for a fee, which means that there will be no changes for the distributors and stockists of the brand.

While the divestment makes eminent business sense for HLL, which wants to exit out of the low margins commodities market and increase its presence in the highly profitable value-added foods business, the decision marks the exit of one of its oldest brands.

Dalda was launched by Lever Brothers in 1936 (the company was renamed Hindustan Lever in 1956) and overtime became synonymous with the company - shopkeepers in Mumbai till the sixties referred to HLL as the 'Dalda company.'

Even now it is among the most-recalled brands of the company and old timers even remember its original packaging - it came in a yellow coloured tin with a painted palm tree on it.

Dalda was among the first branded vanaspati oil launched in India and the company, in order to increase its appeal to the public, tried as far as possible to get its look close to ghee, the main cooking medium of the time, but still didn't get the fragrance right. Yet, Dalda has its own fragrance, which came to be accepted by consumers in due course.

While Dalda still retains the largest market share at 29 per cent even now, against 15 per cent of Marico's Sweekar, its marginal sales have been declining in the past three years due to an intense competition in the edible oils market, leading to high pressure on margins. Though the company has been trying to improve sales in the past three years it has had limited success.

Apart from the introduction of product variations, such as Dalda Classic, a cooking oil with butter aroma, refined groundnut oil and Dalda Activ, huge ad spends were spent on Dalda last year with free gifts, like diamonds and sundry gifts given away to winners.

The fall in sales of Dalda has much to do with the overall sluggish state of the edible oil market. The stated intention of the company to exit from low margins businesses and the continued de-growth in its oils and fats segment seem to have forced HLL to forgo sentiments and opt for plain sales growth.

Last year, the total market for vanaspati shrank by more than 20 per cent, as there was a discernible shift towards soyabean oil, a cheaper cooking medium.

Soyabean oil enjoys a lower rate of duty than other oils, which helped it to double its market share last year. To add to the woes of domestic manufacturers of edible oil including HLL, large volumes of refined palmoil offered a cheap substitute for vanaspati, besides competition from imported vanaspati of Nepalese origin.

According to industry sources, the branded oils market was hit on two accounts - the sharp increase in selling prices, which made consumers look for cheaper alternatives in regional and local products, and a change in the price equation of soyabean oil vis-à-vis sunflower oil. Branded players apart from grappling with a highly price sensitive market also have to deal with a substantial presence of unorganised oil sellers dealing in loose oil.

Last year not only did HLL's turnover take a hit; there was an impact on profitability as well. Gross margins of the edible oils and fats business of HLL declined 550 basis points in 2002, making it the only segment in the company's foods business to register a decline in gross margins.

The Rs 2,000-crore vanaspati market is largely dominated by the unorganised sector and analysts say vanaspati oil is largely a commodity market, and it is difficult to build and sustain a powerful brand.

The contribution of cooking oil brands to HLL's turnover is very small, and Dalda's contribution to HLL's profits is even smaller. As edible oils are no longer an important part of the company's product portfolio it makes sense to get out of the business, says an analyst. Last year Dalda contributed Rs 350 crore to HLL's entire turnover of Rs 9,954 crore.

The 7-lakh tonne branded oil market is dominated by Marico brands Sweekar and Saffola, with a combined market share of 15 per cent each, followed by Agro Tech's Sundrop at 13 per cent. Regional brands like Gemini have become popular in several markets.

Dalda remains a leader in the vanaspati cooking oil market in the organised sector with a market share of 29 per cent.