FMCG cos to raise prices to offset input cost hike

Written by Lalitha Srinivasan | Mumbai | Updated: Feb 1 2011, 03:53am hrs
To offset the rising input costs in Q4 FY 2011, major FMCG companies in India are planning to revise their pricing strategy in the next two months. After raising prices of its flagship brand Parachute in Q3, Marico is planning to go for another round of price hike for Parachute in Q4 FY 2011. After taking a 3-5% price hike for its soap brand last month, Godrej Consumer Products Ltd(GCPL) is also looking at price hikes as palm oil prices are spiraling in the last few days.

Yet another FMCG major Wipro Consumer Care & Lighting (WCCL) is keenly watching the commodity prices and its competitors moves before taking a final call on its price hikes. After taking a price hike for its select soaps and detergents in Q3 FY 2011, Hindustan Unilever (HUL) is also mulling price hikes to tide over rising inputs cost in the fourth quarter of FY 2011.

In essence, the Rs 1.2 lakh crore Indian FMCG sector will witness a fresh round of price hikes in the next few days. Due to the steep rise in the cost of raw materials such as palm oil, vegetable oil, copra and LAB, the cost of goods sold have gone up from 80 to 500 basis points for different companies in the December quarter of FY 2011, according to industry analysts. To combat the rising input costs, many FMCG companies have taken price hikes in the last few months. For some companies such as Marico and GCPL, price hikes in Q3 have not impacted their net profits. With the high input cost inflation, HUL has, however posted a 2 % decline in its net profit in Q3 FY 2011, said an industry analyst based in Mumbai.

On GCPLs pricing strategy, Adi Godrej, chairman of the Godrej Group said, We have taken a price hike of 3 to 5 % for our soap brands last month. We are now monitoring palm oil prices. We will decide on further price hikes after seeing the rise in input costs.

According to Chaitanya Deshpande, head of Mergers & Acquisitions, Marico, the company has taken a 24% price hike in Q2 & Q3 of FY 2011( twice in August and October of 2010) for Parachute. A fresh round price hike for Parachute is underway, he added. Overcoming an input material cost-push of 520 basis points, Marico recorded an operating margin of 12.2 % down by 260 baisis point sY-0-Y.

On HULs pricing action in Q4, R Sridhar CFO of HUL said, We will take judicious pricing action in appropriate categories in Q4. Cost management continues to be our highest priority this quarter. For HUL, the cost of goods sold went up 220 basis points year-on-year due to the steep rise in the cost of raw material.

According to Vineet Agrawal, president of Wipro Consumer Care, the company is keenly monitoring the commodity prices before finalising its pricing plans for Q4. If required, we would increase the prices this quarter. We hiked prices of Santoor a few months ago. The solution to input cost rise is just not price increase. We have to buy more efficiently and improve efficiencies which we do through our Six Sigma, he explained.