Fast-moving consumer goods (FMCG) companies may use a combination of measures to pass on GST benefits, stating that different pack sizes may require different treatment. Most players are likely to increase the weight of small packs and cut prices of large packs, conversations with multiple firms reveal, as many see it as a practical solution to the issue at hand.
“The roadmap that most companies are likely to take is that low-units packs of up to Rs 20 may see grammage increase, while those above Rs 20 may see straight price cuts,” says Mohit Malhotra, chief executive officer, Dabur India, who is also part of the CII-FMCG committee which is making representations to the government on the same.
Vacating popular price points such as Rs 5, Rs 10, Rs 15 and Rs 20, Malhotra says, is not feasible since at least 40-50% of sales in most categories come from small packs. “Rounding off to the nearest rupee may create disputes between trade and consumers. And cross-subsidisation may hurt sales of low-unit packs, if we shift sharp price cuts to large packs. We have conveyed this to the relevant authorities,” he says.
The government is likely to come out with guidelines this week regarding pricing for small packs, industry sources said, after which the process of advertising the price changes to consumers is likely to intensify across companies.
Price cuts in larger packs
So far, firms such as Hindustan Unilever (HUL) and Procter & Gamble (P&G) have announced price changes to consumers, effective September 22, covering mostly larger packs across categories.
While HUL has cut prices in soaps, shampoos, toothpaste, face powder, jams, ketchups, nutrition, coffee and soups to the tune of 10-15%, P&G has revised its prices across shampoos, healthcare, baby care, oral care and male grooming by 5-15%. Both companies have indicated to trade that the new stock with the reduced MRP is in the process of reaching the market, while existing stock will show two prices, old & new, and that consumers will be entitled to lower MRP from September 22.
“We will be advertising the price changes this week. While larger packs may see direct cuts, we may land up giving extra in small packs since coinage is critical to our business,” Mayank Shah, vice-president, Parle Products, among the country’s leading biscuit makers, said.
Industry cautious on anti-profiteering
Categories such as snacks may take a grammage increase on impulse packs, while large packs will see price cuts, Rishabh Jain, chief financial officer of Bikaji Foods, said.
Companies also remain wary of anti-profiteering measures which could be triggered if the GST rate cuts are not passed on quickly to consumers, experts said.
Akshay Bector, MD of Cremica Food Industries, which makes ketchups, bakery products and mayonnaise, says that the company will work on adjusting weight, mainly in small packs.
“Grammage which had to be taken off in recent quarters due to inflationary concerns will come back in packs and this will be done very quickly, notably in low-unit packs,” Bector said.