Major FMCG companies in India are considering yet another round of price hikes in the coming months, as businesses try to stand against the rising inflation. This rise will be anywhere ranging from a meagre 4 per cent to up to 20 per cent. Several FMCG firms in the likes of ITC, HUL, Dabur, Britannia, among others, hiked the prices of their products for around 2-3 times during the previous year.
HUL had, in January itself, announced a hike in prices of products like soaps, detergent and items from other categories, by up to 20 per cent. Some of its flagship products to undergo price increase include Rin soap, Surf Excel detergent, Lifebuoy and Pears. HUL had last raised the prices in November 2021.
Food product makers are also considering raising prices. “The price increase at Parle will hover anywhere around 3-5 per cent and these are happening currently as we speak in certain SKUs, while for others, it will come into effect in February and even March. We have a ready stock of SKUs with changes in MRPs and they are just about hitting the retail stores,” Krishnarao Buddha, Senior Category Head, Parle Products, told Financial Express Online.
“The input costs were not high during the first year of the pandemic and it started only in 2021. In the last two years, they have taken a nominal price hike for just once for most products and twice for few SKUs like salty snacks, rusks and such bakery products,” he added.
What’s causing the price hike?
Factors such as rise in cost of wheat, oil, sugar have raised the prices of food items; while prices of personal care products like soap, etc have increased due to rise in cost of key raw material. Further, factors like increase in cost of petrol, diesel and even CNG, labour cost, packaging cost, etc is further adding up to the already inflated prices.
“Raw material prices in India as well as globally have gone up big time across commodities. This is primarily due to supply-side constraints, while demand remains strong with excess liquidity in the markets globally. We expect to increase our pure olive oil and food product prices by about 15-20 per cent over the next couple of months. We will also hike the popcorn prices as corn prices are up by 60 per cent,” Akshay Modi, Managing Director, Modi Naturals Ltd, told Financial Express Online. The company has already taken two price hikes in its cooking oil range over the last 2-3 quarters in the range of 20-40 per cent. Even as the government has reduced the import duty on cooking oil, Akshay Modi maintained that the same has been nullified by a further increase in base prices.
Meanwhile, many FMCG players are trying to absorb the rising input prices, and thereby avoid frequent hikes in product prices. “To sustain volumes, we are not implementing any price hikes as of now. However, if the commodity prices continue to show an upward trend, we will be bound to partially offset the increase by implementing market price corrections,” said Manish Aggarwal, Director, Bikano, Bikanervala Foods Pvt Ltd.
BL Agro too has no plans to increase prices, at least during January and February. “FMCG sectors like food processing are consumption-dependent, which is why when demand ebbed, prices witnessed a hike. At BL Agro, we kept the increase judicious, except for products where the cost of processing is high. For example, the cost of mustard oil in 2019 was Rs 80/kg, and it reached Rs 186/kg in 2021, which is an increase of almost 132.5 per cent,” said Ashish Khandelwal, Managing Director, BL Agro. Price rise by food manufacturers and processors is the only feasible strategy right now to maintain operating margins and offset additional expenses, he added.
Other major companies are trying to rationalise costs elsewhere to avoid price hikes. “While prices of select items have been revised over the last few months, ITC’s focus is on effective cost management, premiumisation, favourable business mix and evaluating all avenues to mitigate costs and enhance efficiency, to ensure that we are fairly judicious in our approach and don’t have to pass on the entire burden to the consumer,” an ITC spokesperson said via mail.
Expectations from Union Budget
Even as the growing input cost has rattled the FMCG sector, businesses are testing multiple strategies to offset the impact. After negotiating on the raw material side, passing a certain share of it to the consumers, FMCG firms are now hoping for a solution in the upcoming Union Budget. Vikram Agarwal, Managing Director, Cornitos, said, “Past year has been a journey to revive the economy and we are optimistic that this year we would see increased demand for products. In order to meet the overgrowing demand, we are hoping the Union Budget helps us in getting the production cost lowered along with deduction in taxes charged on raw materials like crops, oil, and machinery.”
The consumer facing goods companies also hoped for a rationalised GST rate in order to give the industry relief from continuous increase in prices. “We are expecting rationalisation of GST. The GST rate in biscuits should go down to 12 per cent from the present 18 per cent. This is a large industry and there are lakhs of people dependent on it and this measure will really help the segment as also consumers, going forward,” said Krishnarao Buddha from Parle Products.
Similarly, Akshay Modi said, “GST on packaged/processed food should be reduced to 5 per cent as most of the ingredients are at 0 or 5 per cent. This will be more or less revenue-neutral, as due to the higher base effect of commodity prices, the GST collection is anyway soaring.”
Meanwhile, a report by Edelweiss Securities has maintained that FMCG companies could report ‘normalized margins’ in FY23 on the back of successive price hikes undertaken over the last few quarters as well as some moderation in raw materials inflation.
-First published on 21st January, 2022, at http://www.financialexpress.com.