With food inflation spiralling to almost 20%, FMCG companies like ITC and Britannia are set to increase prices to offset higher input costs. Chitranjan Dar, divisional chief executive, foods division, ITC, said, ?With unprecedented increase in costs, there is every possibility of a hike in prices. However, this time around, certain inflated commodity prices are here to stay on a medium term basis.?
?There is a very significant increase in input costs for Britannia and the biscuit industry. While we are taking strong steps to mitigate the effect of these increases, it would be imperative for us to hike prices, given the sharp increase in input costs. We are constantly monitoring these and will take a call later. As of now, however, we have not increased biscuit prices,? Neeraj Chandra VP and COO Britannia industries said.
However, neither of the two disclosed the quantum of price hike for specific products and by when they would be effected.
?We are staring at an 80%-100% increase in sugar, a 30% in wheat (maida) and a 10%-15% in oil. Diary products too have inflated beyond normal levels. Overall, the impact of costs is upwards of 15% to 20% in an industry where profit margin percentage is traditionally low,? Dar added.
While food major Nestle refused to comment, Dabur which is present in the juice segment with Real, said it has no plans of increasing prices in the near future. ?Sugar constitutes only 2%-3% of our input costs. So, the impact of its price rise is minimal,? a Dabur spokesperson said.
Experts, however, feel that companies may not go for price hikes right away. ?Considering that consumers are already burdened with high prices, FMCG companies will probably opt for quantity reduction rather than price rise,? Pinaki Ranjan Misra, partner and national leader, retail and consumer products, E&Y said.
Industry experts also believe FMCG companies will probably take stock of their December results and then go for price hike in the last quarter before their annual results. The hike in prices will be in accordance with their projected profits.
?With continued inflation, which is showing no signs of abating, FMCG companies will probably have no option but pass on the price rise to the consumers,? Reshmi Upadhya, managing consultant, PWC, said.
Upadhya also pointed out that these companies typically enter into a three to six month contracts with suppliers. The price hike will impact them once these contracts expire and new ones are negotiated.
Indian consumers ideally spend one-third or around 31% of their total money on the food basket. Analysts think that with rising food prices, the consumer may not go for higher spend on food but may juggle different items in such a way that their total spend on food remains constant.