To tide over the high cost of inputs, the fast moving consumer goods (FMCG) companies are designing new strategies. The firms have introduced new packs into the market which are costlier when compared to the actual quantity they contain.
For instance, global beverages major Coca Cola last month introduced most of its major brands, including Coca Cola, Diet Coke, Thumps Up and Mazaa, in new size of 350 ml. The company also introduced the new Xpress 350 ml pack for its Sprite brand. The company already has 500 ml bottles in the market priced at Rs 20. However, the recently introduced 350 ml pack, which cost Rs 15, is helping companies to widen their profit margin by Re 1 on each bottle.
Henkel India Ltd recently introduced a 400 gram pack Henko detergent. The company till a few months back was producing 500 gram Henko detergent packs priced at Rs 60. The new 400 gram pack which cost Rs 50, helping it to widen its profit margin by Rs 2 on each packet. According to Devashis Das, category manager, Henkel India Ltd, the company went for such measure to put a check on de-growth during the period when the crude prices were ruling record-high.
Besides increase in the profit margins, convenience is another reason why these companies are going for such packs. Meeting the requirement of the consumers who are looking at single consumption packs of 300 ml is not comparable with glass bottles which are not hygienic, an industry analyst said.
According to leading provider of knowledge services, Evalueserve, the current easing off of commodity prices will certainly give breathing space and there will be some improvement in margins, in the immediate future. The latest Unctad ?Trade and Development Report 2008? predicts volatility of commodity prices, which indicates that they will have to battle pressures on margins over the next few quarters.
The decision that most firms will have to make is how much of the increase in input costs can be passed on to the consumer. In any case competitive pressures will limit the amount that can be passed on directly, so companies will continue to adopt value-based measures in the current scenario.