Godrej Consumer may cut prices in festive season

Input prices cooling down, ays fmcg firm

Godrej Consumer may cut prices in festive season
“We will see gross margin recovery for sure because commodity prices are coming down and we will also pass on the benefit to consumers. We will see price drops across categories which would drive growth for us,” Sameer Shah, chief financial officer, GCPL, told FE.

By Kritika Arora

Godrej Consumer Products (GCPL) may start reducing product prices from the October-December quarter as input prices are coming down.

“We will see gross margin recovery for sure because commodity prices are coming down and we will also pass on the benefit to consumers. We will see price drops across categories which would drive growth for us,” Sameer Shah, chief financial officer, GCPL, told FE.

The statement assumes significance since the period also coincides with the festival season when consumer products see higher sales than rest of the year.

Fast moving consumer goods (FMCG) companies increased prices of their products by 20-30% in the last one year to pass on the input cost inflation, in palm, crude oil, packaging, transportation, to customers.

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However now, with palm and crude oil prices coming down since the last few weeks, Shah sees commodity basket on deflationary trend from here on.

“Our view is that they will not go up in the next 12-18 months. They may either stabilise or they will only come down,” he said.

While there may be price drops in products going ahead, Godrej Consumer also plans to shore up its advertisement spends to increase sales.

In the remaining quarters of the current fiscal, Shah said that advertisements spends would be higher than Q1, both in India and International market. “For our category development initiatives , we need mental reach which will come through ad spends,” he said.

In April-June, the company’s advertisement spend at `200 crore was up 8% sequentially. The ad spends, however, weighed on company’s margins during the quarter. However, Shah believes that compromising on ad spends is not the strategic way to achieve sustainable growth. “We will lose margins for couple of quarters, that’s fine, but long term, we need to sustain the growth momentum,” he said.

Shah said that with price drop and higher advertisement spends, the company would still be able see gross margin expansion on the back of commodity price drop and reduction in controllable cost.

On a full year basis, India business would see ad spends in high single digits to double digits as a percentage of sales, which in Q1 were around 7%, Shah said. Globally also, ad spends would move up around 150 bps points as a percentage of sales, Shah added.

On consumer demand, Shah said that it has started gradually improving and the rural demand is better than last three to six months and it should only accelerate further given stabilisation in inflation and good monsoons.

Improvement in demand, coupled with price drops planned and higher ad spends, should improve volumes for the company in the coming quarters. Volumes had fallen by 5% y-o-y during April-June quarter.

Godrej Consumer has also lined-up category development initiatives for its products. Shah said that the company is focusing on 3-4 drivers such as relevance, accessibility and sampling.

Overall, Godrej Consumer expects its volumes to be back in positive zone on a full year basis with concerted efforts on category development through various means and higher ad spends.

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