Consumer goods firms hold off on price hikes despite GST impact
Consumer goods firms cited reasons ranging from muted demand and waiting to see how bigger rivals react to GST rates for holding off price hikes
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Mumbai: Consumer packaged goods companies are unlikely to raise prices in the next three months for products such as personal care items, hair colours and shampoos even though tax rates have increased under the goods and services tax (GST), company executives say.
They cited reasons ranging from muted consumer demand and waiting to see how bigger rivals react to the new GST rates.
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The government’s anti-profiteering law and the need for manufacturers to advertise in at least two newspapers the old price and new price in case of price hikes in the post-GST regime are also deterring them, analysts and the executives said.
“Now, no one is increasing prices. How long can they hold on to their prices—two months, three months? We will wait and watch,” said C.K. Ranganathan, chairman and managing director, CavinKare Pvt. Ltd, which sells Nyle shampoo, Fairever fairness cream and Spinz talc and deodorant, products that attract 28% GST, the highest rate; earlier, tax rates varied across states.
Ranganathan expects margins to contract 5 percentage points in the September quarter because of higher costs.
Likewise, Kolkata-based Emami Ltd and Mumbai-based Godrej Consumer Products Ltd are only making price revisions in categories where tax rates have reduced following the GST implementation on 1 July.
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They are keeping prices unchanged for products that attract higher taxes under GST.
“Price actions will be based on market conditions and competitive activity,” said Harsh Agarwal, a director at Emami, the owner of Fair and Handsome fairness cream and Boroplus brands.
“The industry is committed to passing on the benefits of the lower rates to consumers as it will help drive demand. In categories where we have an increased cost, we will absorb those,” said Vivek Gambhir, managing director and chief executive of Godrej Consumer Products.
Emami, for instance, has announced a 6-8% price cut in its 7 Oils in One, a premium hair oil.
Hindustan Unilever Ltd, India’s largest consumer goods maker, has announced
a price reduction in its premium soap brands Pears and Dove.
ITC Ltd has taken price cuts in its soap portfolio of Fiama Di Wills and Vivel.
Colgate-Palmolive India Ltd has taken a price reduction of close to 8-9% on its portfolio of toothpastes and toothbrushes.
Interestingly, the price cuts are not across the board in some of these categories. “Manufacturers are looking at premiumization,” said Anand Mour, vice-president and consumer sector analyst at ICICI Securities Ltd.
Manufacturers are also ensuring that distributor margins are protected. For instance, Colgate has increased its distributor margins by 1 percentage point, says Mour.
At Marico Ltd, distributors are guaranteed a 5% margin or 24% return on investment, Pawan Agarwal, head of finance, said in an interview in June after the GST rates were announced.
To be sure, the market remains in a state of chaos and it will be a while before normalcy returns.
“Small retailers without GST numbers are confused. They have no clarity even now whether to get registered or not,” said a distributor for Hindustan Unilever in Maharashtra. Only 25% of his customers are registered and business has reduced by 50-60%.
The situation is the same in Masjid Bandar, India’s largest wholesale market.
“Retailers are not buying the stock because of compliance issues. At present, we are only billing 30% of our usual sales,” said a distributor of Dabur India Ltd.
Sneh Susmit and Arushi Kotecha contributed to this story.