Public CompanyFMCG companies may raise prices or reduce product size
Pinched by rising raw material prices, fast moving consumer goods (FMCG) companies, especially manufacturers of packaged foods and soaps, may raise prices or reduce grammage per pack over the next one or two quarters.
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The rate of inflation in food articles has been in double digits for six consecutive months, primarily due to the decline in kharif output adding to supply concerns. The increase has been particularly severe in the case of products such as cereals (rice), pulses, vegetables (potatoes) and sugar.
“Prices of milk and sugar have been on the rise. So, companies like Nestle, Britannia or ITC may opt for a price hike, but only in the next one or two quarters,” opines Anand Shah, FMCG analyst with Angel Broking. “Another way of paring costs is reducing grammage per pack while maintaining the selling price. Most FMCG companies are likely to resort to this path when they look at a price hike next,” he adds.
Prices of non-edible oil, for instance, have risen by around 10 per cent in the last six months. This has put pressure on soap manufacturers, as it constitutes about half the input cost of making soaps. H K Press, vice-chairman, Godrej Consumer Products, told Business Standard: “Palm oil prices have moved up substantially. However, most companies have covered well forward. But, price increases may be necessitated in February-March.” Godrej Consumer had last increased soap prices in early 2009, by 5-6 per cent, while other products have been stable.
Analysts opine the rise in the price of essential commodities will also put pressure on the disposable income of consumers.
Dabur India CEO Sunil Duggal says price hikes would completely depend on the quantum of inflation. “Moderate inflation would probably mean we would keep our prices around the same levels as what we have now. But, if we witness inflation of a high magnitude, then we may look at some price increases.” He did not indicate what a ‘high’ magnitude would be.
Dabur had marginally hiked prices of Chyawanprash and honey earlier this financial year. The honey price hike came into effect in the first quarter following an increase in prices of raw honey, while the price of Chyawanprash was increased in the second quarter.
Marico, best known for its flagship hair oil brand, Parachute, and the edible oil one, Saffola, had reduced product prices by 5-15 per cent in the first half of the financial year, when input costs were softening. “We are seeing a marginal increase in the prices of inputs like copra and safflower from October. Going forward, a lot will depend on the cost pressures on the system. We will have to see how the raw material prices move,” says Harsh Mariwala, chairman and managing director.