Daily essential products like soaps, biscuits and beverages are likely to witness upward revision in prices following the price hike in petrol and diesel by Rs 3 each last Friday. The fast-moving consumer goods (FMCG) are already grappling with high crude prices as blockade in the Strait of Hormuz impacting the supply chains. With the recent announcement, the industry is expected to see a price rise of at least 4-5% in the next two-three months.
Rishabh Jain, Director- International Business at Petros Stone LLP, said: “Consumer goods prices are likely to rise by 4–8% across several FMCG categories in the coming months, with further increases expected in household essentials, durables and logistics-linked products. Consumers may begin noticing higher prices particularly in packaged foods, personal care products and everyday household items over the next two to three months.”
Price rise in diesel would adversely impact freight movement, making daily products dearer. “Diesel drives nearly 70% of India’s freight movement, and even a moderate price increase can push transportation costs up by anywhere between 5% and 10%,” said Ravin Saluja, director at Sterling Agro Industries Ltd, which operates Nova Dairy.
The industry may also adopt short-term measures to tackle inflationary pressure so that the demand sentiments are not affected. Salloni Ghodawat, chief executive of Ghodawat Consumer Ltd, said that overall input costs may rise by 1.5-4% in the short term depending on the category and logistics dependency. “If fuel inflation continues for a longer period, there could be selective price revisions, grammage optimization, or promotional adjustments,” she said.
Cost absorption
FMCG industry players said companies are initially trying to absorb the increase through route optimisation, freight consolidation, strategic sourcing and vendor negotiations before passing costs on to consumers.
“At this point, we are not looking at passing the increased cost on to consumers immediately,” said Sanjana Desai, executive director at Desai Foods Pvt. Ltd, which owns Mother’s Recipe. “FMCG products are highly price sensitive and any pricing decision has to be taken carefully.” However, she added that if the increase sustains over a longer period, company may review pricing, pack sizes or other cost management measures.
Margin pressure
Companies are also warning of pressure on profitability and analysts expect the margins during the June quarter to remain under strain. “Q1 margins are expected to remain under considerable pressure, especially for companies operating in highly competitive categories or those with limited pricing power,” Jain said.
During the latest earnings interaction, Godrej Consumer Products Ltd chief executive Sudhir Sitapati said he expects inflation of 6-7% across categories due to the sharp rise in crude oil prices.
Marico, in its earnings call, highlighted that vegetable oils and other crude-linked inputs remain inflationary amid Middle East geopolitical tensions and companies will use calibrated pricing actions to offset rising input costs.