NEW DELHI: Household budgets have been thrown into disarray as prices of essential products have increased. This is a cause of worry for the middle-class, which is bearing the maximum brunt, as the consumer goods companies that have not taken price hikes yet are planning a raise now, and companies that have already taken hikes are looking at another hike.
Global geopolitical factors such as Russia-Ukraine war and continued rise in commodity prices - wheat, palm oil and packaging materials - have aggravated the inflationary pressures in the quarter ended March, 2022, which has led many FMCG companies to raise prices to keep their margins and profitability intact.
Prices of household goods have increased with FMCG giants like Hindustan Unilever, Britannia, Tata Consumer Products, Dabur increasing prices of their products - range from biscuits, sugar, salt and tea/coffee to soaps, shampoos and perfumes, among others. But the worst is not over yet! Varun Berry, managing director & CEO at Britannia Industries, at a post earnings analyst call earlier this week said,
“We have not been able to keep pace with this inflation as we never estimated the kind of inflation we have seen, but we continue to take judicious price increases.” Britannia, which has already taken a 10% hike in 2022, may go for another 10% raise over and above the revision taken if the spot prices continue for the next 12 months.
On low wheat production and palm oil concerns, Berry said, “This is a year where we really have to be on our toes and take calls on a month-to-month basis.”
“There’s no way that any other activity can help with the pain that inflation is gonna give us, it will have to be price correction. While we will try to ensure that price hikes don’t impact the consumer in a big way, we will have to take some tough calls,” he added.
Britannia manufactures household names in India like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold. Its product portfolio includes biscuits, bread, cakes, rusk, and dairy products - cheese, beverages, milk and yoghurt.
Another market leader Parle Products, which sells biscuits, snacks and cakes, among other products, and has already taken a price hike of nearly 8-10% during the past 12 months till March 2022, is planning to further increase prices by 7-8% for the current quarter, Krishnarao Buddha, senior category head at the company told The New Indian Express.
“We are looking at dealing with inflation by bringing in efficiencies in every possible area by cutting costs be it the product, packing or the manufacturing process and are trying hard to not increase prices as far as possible. Price hikes are being planned only if necessary,” Buddha said.
Amnish Aggarwal - director - research at Prabhudas Lilladher notes that calibrated and gradual price hikes by FMCG companies are expected, going forward.
“This could be in the form of grammage reduction in `2/5/10 packs and absolute increase in others. We also expect heightened focus on cost-cutting and internal efficiencies to protect margins. However, we expect margin pressure to sustain in the near term,” Aggarwal said.
Hindustan Unilever (HUL) increased prices by nearly 10% in Q4 and the CEO of the FMCG behemoth, Sanjeev Gupta, in a post-earnings call said, “As things stand today, there is going to be more price increase.”
This would impact the price of Clinic plus, Close up, Bru, Dove, Glow & Lovely, Horlicks, Kissan, Lakme, Lipton, Lifebuoy, Pears, Lux, Surf excel, Rin, pepsodent, Vaseline, which are some of over 50-plus HUL brands that make their way into Indian households.
Amarnath Halember, executive director and CEO, NextG Apex, which is into breakfast and cereals and has sub-brand Naturefest and Mamafeast, says while FMCG companies make all attempts to absorb most price differences, a sharp increase is the only logical possibility in these circumstances. “Long-term cost trends have to be shared with consumers, especially if raw material costs are going to stay at the new levels,” he said.
Similarly, nutritional supplements brand Supplement Sack is seeing margin costs being increased by 2-4% for a large portion of its portfolio.
“Mayonnaise is our main product that has suffered as a result of the protracted Ukraine-Russia war. It is because sunflower oil is the primary raw material in the product and Ukraine and Russia supply a significant amount of sunflower oil to India,” says Manish Yadav, CEO, Supplement Sack.
FMCG major Dabur, which took price hikes in the range of 5-6% in Q4FY22 to offset the impact of inflation, expects inflation to climb unabated for at least the second half of the year, according to its CEO Mohit Malhotra.
The FMCG industry has been impacted by inflation and margins are squeezed.
Till the time the situation persists, companies will continue to pass some share of the damage to customers through price correction. Consumers’ budgets will have to be revised continually for the time being.
Y-o-Y Wholesale Inflation rate (March 2022)
Britannia, which has already taken a 10% price hike in 2022, may go for another 10% increase over and above the revision already taken if the spot prices continue for the next 12 months.
Basic metals 25.97%
Oil seeds 22.49%
Vegetables 19.88%
Wheat 14.4%
Cereals 8.12%
Crude petroleum & Natural gas 69.20%
Chemical & chemical products 12.66%
Paper & paper products 12.24%