The strain on household budgets may lead to a slightly muted Diwali shopping
NEW DELHI :
Rising costs of daily goods are prompting middle-income households to seek out discounts and promotions and go for easy monthly instalments on expensive purchases, several companies and retailers said, adding the strain on household budgets may lead to a slightly muted Diwali shopping.
Large consumer-facing companies have been facing inflationary pressures over several months. There has been a significant price rise in palm oil, packaging materials, plastics, steel and aluminium, leading to higher prices of products across foods, edible oils, cookware and consumer durables.
Ravi Saxena, managing director and co-founder of Wonderchef Home Appliances Pvt. Ltd, said he doesn’t remember the last time companies took three price increases in one year. “We, too, have hiked prices thrice in one year, amounting to a 25% increase in product prices," he said. This was a consequence of an unprecedented 50% jump in steel price and a three-fold jump in ABS (specialty plastic) prices—the raw materials used in Wonderchef’s cookware and kitchen appliances.
“Appliances and consumer durables firms have increased prices, and consumers do not have that kind of disposable income today in the aftermath of the pandemic. The situation is very tough for the economy, the consumer and the companies," he said.
Diwali this year lacks last year’s energy, Saxena added, attributing it to not just inflation but also the second covid wave in April and May that shook consumer confidence. “There was a tremendous loss of life, affecting families, and jobs lost during covid are not back either," he said.
Rohit Mathur, president (electric fans, water heaters and pumps) at Usha International, agreed the steady rise in raw material costs was impacting the sector. The problem has been compounded by the shortage of components. “Due to this, when we cannot absorb escalating costs, we, unfortunately, need to pass on the burden to consumers in the form of price hikes. Having said that, people wishing to buy a product are buying," he said, adding consumers have moved from being price-conscious to value-conscious.
The company has announced “compelling combo offers as well as easy finance options to woo consumers" who aspire to buy and upgrade their homes, he said.
Shoppers are seeking discounts in the fast-moving consumer goods category, too. Researcher NielsenIQ said higher inflation and pandemic pressures of last year have changed in-store buyer behaviour. Its study showed 81% of Indian shoppers sought discounts and promotions in-store, up from 74% in 2020.
“To complement this shift in consumer trend, manufacturers have increased promotions in non-food categories such as liquid toilet soaps, toilet cleaners, shampoo and washing powders. Within foods, categories that have been given a push through promotion are glucose powders and biscuits," it said.
Researcher Kantar said households falling in middle and lower socio-economic classes (SEC) B, C, and D paid more per kg on groceries than their more upwardly mobile counterparts.
“We know the mid-SEC buyer is spending as much as the upper SEC buyer per kilogram of FMCG post the pandemic. This is a reflection of a lot of parameters, including consumers moving to bigger, better brands or to branded products from unbranded, addition of costlier categories like sanitizers and hand wash into their purchase basket, increase in inflation and manufacturers increasing costs," said Kantar that tracks household consumption of packaged products including staples, beverages and personal care products.
Kantar cautioned that a rise in the price of daily household goods could prompt mid-to-lower income households to drop categories or move to cheaper alternatives.
In a recent earnings call, Hindustan Unilever’s top management said prices for many commodities continue to be at multi-year highs. Palm oil prices remain at record levels, while crude and packaging feedstocks have also rallied significantly.
While FMCG firms have taken measured price hikes, “people who are at the bottom of the pyramid… they would obviously be looking at titrating the volume, not necessarily downtrading when it comes to a price increase," Sanjiv Mehta, Hindustan Unilever’s chairman and managing director, told analysts on a 19 October earnings call.
Ethnic wear retailer Biba said shoppers returned to stores to buy new clothing ahead of the festive season but sought better bargains. Siddhartha Bindra, the company’s managing director, said the company is witnessing pressures on raw materials, especially with rising cotton prices.
“The kind of raw material price increase we are seeing is decadal. It’s all happening in six months to nine months. Even the cost of processing has gone up. It’s extremely challenging; it is something that most brands will have to pass on to consumers," he said.
“As you start going into higher price points, people want a little more value for money. They aren’t seeking very large ticket sizes," Bindra said, adding this could have a short-term impact on volume.
Electronics retailer Vijay Sales said prices of electronics, in general, are up 15% compared to the year-ago period. “As a result, value growth was expected, but volume-wise, we are yet to touch pre-pandemic numbers," said Nilesh Gupta, director.
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