Fast-moving consumer goods (FMCG) companies are preparing for a prolonged squeeze on mass-market consumption as repeated fuel price hikes and a weak monsoon forecast stoke inflation, pressure household budgets and force companies to redraw growth strategies built around affordable pricing and rural demand.
With petrol and diesel prices rising four times in two weeks—and the IMD predicting that this year’s monsoon season could be the weakest in 11 years—consumer goods makers are shifting focus towards premium products, urban consumers, quick commerce, and essential categories. This comes even as companies step up cost management efforts to protect margins.
“Price increases are inevitable in an inflationary environment. While it will result in demand destruction, especially at the lower end of the market, what firms are looking at is pockets of price inelasticity,” Mohit Malhotra, global CEO, Dabur, said.
Strategic Sinks and Channel Shifts
This is showing up in a focus on healthcare, packaged foods and beverages, where consumer demand tends to remain more resilient despite inflation, industry executives said.
At the same time, the pressure is becoming acute in the home and personal care (HPC) products sector, where consumers are more likely to postpone purchases or shift to lower-priced alternatives.
“Food tends to be price-inelastic because it is essential to the grocery basket. That is one. Second, platforms such as quick commerce are allowing companies to be sharply focused on the top metros and cities, where demand may hold up despite the inflationary pressures,” Sanjay Sharma, managing director (MD) & CEO, Orkla India, best-known for the MTR, Eastern and Rasoi Magic brands, said. For instance, Orkla India has initiated Project Bolt to accelerate digital sales, which contribute around 8.7% to the company’s domestic revenue.
AWL Agri Business, best-known for the Fortune brand of edible oils, is prioritising alternate channels and premium categories (such as Fortune Premio) to hedge against commodity price volatility. “Alternate channels feature centralised operations and fewer logistics costs compared to general trade. They also provide better margins, especially in packaged foods,” Shrikant Kanhere, MD & CEO, AWL Agri Business, said.
Death of Five-Rupee Pack
But the inflation cycle is also forcing companies to rethink the economics of India’s low-unit-price FMCG model, long driven by Rs 5 and Rs 10 sachets and small packs aimed at rural and lower-income consumers, experts said.
Executives say these price points are becoming increasingly difficult to sustain because companies have limited room either to raise prices further or reduce grammage. “The maximum margin pressure happens on low-unit price points,” Malhotra said. “A little bit of a hands-off approach towards the bottom of the pyramid may be better at this time,” he added.
Food major Britannia, for instance, is taking a calibrated approach, going in for selective price hikes on large packs and cutting grammage on small packs. Britannia’s MD & CEO, Rakshit Hargave, says the mixed approach is required to protect margins as well as ensure volume growth is not significantly impacted. Almost 60-65% of biscuit volumes come from low-unit packs.
Experts say that most FMCG companies may have to walk this tightrope of balancing premiumisation and ensuring that consumers, especially at the lower end of the market, are not left out completely.
“A consumer under pressure will buy for the occasion rather than stock up. Companies may well have to keep this in mind as they navigate this energy crisis,” G Chokkalingam, founder of Mumbai-based firm Equinomics Research, said.
The divergence, he says, highlights the growing tension between manufacturer economics and consumer affordability in an inflationary environment.
For now, though, FMCG companies appear united around a new operating template: protect margins, prioritise premium consumers, focus on essentials and prepare for slower growth at the mass end of India’s consumption economy.