Your Rs 10 snack pack may shrink: FMCG companies eye price hikes, ‘shrinkflation’ amid crude shock

The rise in prices has been primarily driven by a dramatic increase in input and logistical cost for the major players in India’s FMCG market. As per a PTI report, major FMCG players are looking to initiate price hikes to protect their margins from rising crude-linked inflation, higher packaging costs, and fuel expenses from geopolitical disruptions.

The executives of FMCG makers, which have already gone for recent price hikes of around 3 to 5 per cent, in their latest earnings calls have indicated either ongoing price increases or readiness to raise prices further.

FMCG majors are walking a tightrope between protecting margins and maintaining price elasticity. As per the report, a section of major FMCG players are leaning towards the concept of Shrinkflation to manage the crisis of rising input cost.

Shrinkflation refers to the process of reducing the grammage (weight/quantity) of a popular product while keeping the price point steady to maintain sales. The practice of shrinkflation has been commonly observed across the history of FMCG industry, where major brands have maintained a steady price point for popular products for close to a decade by reducing the quantity of content inside the packet over time.

By retaining the cost-friendly price points of ₹5, ₹10, and ₹15 for popular products, FMCG companies hope to maintain their sales volume particularly in rural areas even as the actual cost per gram climbs.

While FMCG companies are focusing on improving internal cost efficiencies by trimming discounts and promotions, tightening inventory management, and streamlining supply chains, consumers are still expected to bear part of the brunt through calibrated price hikes and reduced grammage.

What do C-suite execs at top brands say?

Commenting on the development, home-grown FMCG maker Dabur India Global CEO Mohit Malhotra told PTI that the company is already facing 10 per cent inflation this fiscal and has initiated price increases to cushion the impact.

“We have already implemented a 4 per cent price increase across different parts of the business to partly mitigate this impact. We are also undertaking cost rationalisation initiatives. Despite inflation picking up in the India business, we expect growth this year to be in double digits, which will be a mix of both value growth through price increases along with volume growth,” said Dabur India Global CEO Mohit Malhotra.

A market leader in bakery products and popular biscuits maker Britannia has also indicated imminent price hikes to offset a near 20% rise in fuel and packaging overheads.

MD & CEO Rakshit Hargave confirmed that the company, which manages brands like Good Day and Marie Gold, is evaluating both direct hikes and “shrinkflation” strategies.

“Yes, selectively, we will have to take price increases. And this includes both grammage adjustment and some of the packs which are above Rs 10, some kind of a price increase,” Hargave told PTI.

Besides rising fuel costs, higher prices of laminates used in packaging are also a major pain point. Moreover, the company relies on LPG and PNG, whose inflationary impact is directly visible in operating costs, Hargave added.

Hollowing Britannia Industries, Hindustan Unilever (HUL), the country’s largest FMCG player, has signaled a readiness for further intervention if commodity pressures persist.

HUL CFO Niranjan Gupta observed, “We have seen a cost inflation of around 8 to 10 per cent so far on our material cost base. Against that, we have already taken a price increase to the extent of 2 per cent to 5 per cent depending on portfolio to portfolio.” Gupta added that the company will continue to evaluate the cost environment and undertake further pricing interventions if necessary.

Furthermore, Pidilite Industries which owns popular brands such as Fevicol, Dr Fixit, FeviKwik and M-Seal has already executed two rounds of price hikes this year to deal with rising costs. As per the PTI report, the company is presently evaluating further increases to offset a weighted average surge of 40-50 per cent in input costs.

Managing Director Sudhanshu Vats confirmed the strategy to PTI as well. “We will continue to pass that on in a calibrated fashion to the market. We will continue to remain focused on growth while remaining in our guided EBITDA corridor of 20 to 24 per cent,” he said.

In the beverages segment, Varun Beverages Chairperson Ravi Jaipuria said companies selling packaged water and beverages have already started cutting discounts amid rising costs, while further action could follow if fuel prices climb.

Varun Beverages Chairperson Ravi Jaipuria noted, “We see the B-brands and the other players selling water, they have not increased the price, but they have reduced the discounts.” He warned that if gasoline prices continue to climb, the company will further reduce discounting levels.

Similarly, Marico MD & CEO Saugata Gupta highlighted that while softer copra prices offer some relief, the company has taken price hikes of 6% to 7% in its Value Added Hair Oils portfolio to manage broader cost management.