GST cut: Some FMCG companies increase pack sizes, others reduce prices
Earlier this month, the government moved to rationalize the GST rates in the country.
Mumbai: India’s packaged goods companies are walking a fine line on price cuts for ‘price-point packs’—a common term in the industry for small packs—following a reduction on taxes across products. At the heart of the change lies the consumer’s comfort with round numbers for which coins are available.
Some, like Hindustan Unilever Ltd (HUL) and Bikaji Foods, are adding more volume to retain the magic ₹1, ₹5 and ₹10 price points. Others such as Parle, Coca-Cola and Reliance Consumer have opted for price reductions on their ₹5 and ₹10 packs, bringing them down to ₹4.5 and ₹9, respectively, for small packs of biscuits, confectionery and beverages.
On Tuesday, HUL, India’s largest packaged consumer goods company, said it is passing on goods and services tax (GST) reduction benefits by increasing weight or volume rather than cutting prices of small packs.
“For price-point packs, we’ve opted to increase weight or volume as applicable to avoid odd pricing and coinage-related challenges, which will ensure pricing simplicity," a company spokesperson said in response to a query from Mint. “This means consumers will now receive more product at the same price, effectively lowering the price per gram or millilitre."
HUL sells shampoo sachets and soaps priced at such popular price points.
Snack maker Bikaji Foods International Ltd, too, said price points under ₹15 will remain the same. “There are some categories (like cookies) where brands are changing ₹5 to ₹4.50 because they cannot make immediate changes to their pack sizes vis-a-vis volume due to how their packs are structured," said Rishabh Jain, chief financial officer, Bikaji Foods International Ltd.
“We can definitely add more grammage to our packs of bhujia, etc. We can easily do this instead of taking price cuts on those packs," Jain added.
However, Bikaji has cut prices to the tune of 6-8% on its packs priced above ₹20, depending on pack sizes. It sells large packs up to ₹300. Bikaji's portfolio of bhujia and namkeen earlier attracted a GST of 12%, which are now taxed at 5%.
On the other hand, in an interview with Mint on Monday, Paritosh Ladhani, joint managing director of SLMG Beverages—one of Coca-Cola’s largest bottlers in India—said the company has reduced prices on its bottled water and juice portfolio across various price points following the GST announcement.
For instance, its 125 ml Maaza tetra pack, earlier priced at ₹10, is now retailing at ₹9, while the 250 ml Kinley water bottle has been reduced from ₹8 to ₹7. Similarly, ₹20 packs have been brought down to ₹18 wherever applicable.
The background
Earlier this month, the government moved to rationalize the GST rates in the country. From 22 September, the old 12% and 28% rates were merged into 5% and 18%, with nil/exempt still in place. A new 40% slab has been added just for luxury and ‘sin’ goods such as tobacco, sweet aerated drinks and top-end cars.
The government’s decision to revamp GST will lead to lower tax rates across a range of daily-use items. Hair oil, shampoo, toothpaste, toilet soap bars, toothbrushes, and shaving cream will now attract 5% GST, down from 18% earlier. Similarly, the tax rate on butter, ghee, cheese, dairy spreads, pre-packaged namkeens, bhujia, and mixtures will fall from 12% to 5%.
While the move is expected to make products more affordable, it has also created pricing challenges for companies. Consumers who buy at price points of ₹1, ₹2, ₹5, and ₹10 typically prefer to pay the exact amount, as coins are readily available at these denominations. Retailers also typically offer candies instead of ₹1 or ₹2 coins to adjust for change.
However, Ladhani of SLMG Beverages said the popularity of UPI or digital payments is making it easier for companies to offer such price points. “Earlier we had a constraint but we can easily do it thanks to UPI, which is available widely," he said.
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