FMCG firms stuck between rock and a hard place

Companies selling daily essentials are caught in a bind due to a steep rise in cost of commodities, freight and packaging. They are forced to either increase retail prices or risk a hit on profitability in the next two quarters. The other choice is to reduce pack sizes — thereby selling less quantity at the same price points — and cutting down on packaging costs.Industry executives said passing on the increased input costs to consumers just as India is emerging from the second Covid-19 wave could hurt demand going forward. “While we increased prices by about 5%, further hikes will surely impact demand. So, we have to be cautious and may not be able to pass on the entire burden of raw material inflation to consumers,” said Krishnarao Buddha, senior category head at Parle Products.Executives said pricing calls have to be made in such a way that demand — which has picked up this month as Covid-induced curbs eased — is protected. 83903487Dabur chief executive Mohit Malhotra said there has been an unprecedented commodity inflation of about 5-6% across edible oils, herbs, spices and honey. “We have undertaken some calibrated price increases of around 3%, but these will not be enough to mitigate the impact of inflation,” he said.Retailers said prices of key commodities like sugar and oil have shot up by 20% to 60%, resulting in a drop in consumption for these basic essentials.They said that for commodities, it is not easy to absorb rising input costs as margins are wafer thin. “Companies are still in discussions whether to pass on the price increase at this stage when the spending power of customers has been affected. Any price hike in FMCG products may reflect only once the entire unlocking happens across states,” said Arvind Mediratta, managing director of wholesale retail chain Metro Cash & Carry.Retail tech company SnapBizz, which works with 35,000 corner stores, said prices of grocery products have risen by up to 40% in the past one year, including edible oils, essentials, personal care, and home care. SnapBizz chief executive Prem Kumar said: “Consumers’ monthly grocery bills have increased by about 5%. Stocking has been a concern as demand for less expensive alternatives has gone up.”Companies and analysts said pricing power would remain muted till recovery is sustained over a period. Marico managing director Saugata Gupta said price hikes in the edible oil segment is an aberration within the consumption basket, but other product prices cannot surge sharply.“Also, since we operate at the premium end, price hikes don't impact demand directly to an extent,” Gupta said.Margins of consumer goods companies are likely to remain under pressure due to sequential raw material inflation — palm prices increased more than 80% while crude oil has risen by 90% since last year. Copra and soda ash prices too have gone up by 30%.“We’ve been impacted significantly by inflation in commodities, freight, logistics, crude prices and packaging. All this requires a lot of rebalancing. There is a lot of pressure on margins as one can pass on only so much to consumers,” said Yogesh Bellani, chief of FieldFresh Foods which makes Del Monte juices, condiments and snacks.Retailers said some companies are balancing pricing and protecting margins by increasing prices of premium packs, even as they maintain the prices of mass products.

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