Some consumer goods cos still hurting from inflation
3 min read 22 Mar 2023, 11:39 PM ISTIndia’s wholesale inflation hit a 25-month low of 3.85% in February; however, executives at packaged goods companies said that prices of milk, glass bottles, wheat and packaging material are higher, precluding chances of any immediate price cut
PremiumManufacturers of packaged food, liquor, and cosmetics are still grappling with higher input costs than seen before the onset of the pandemic, even as the pace of wholesale price gains slows.
India’s wholesale inflation hit a 25-month low of 3.85% in February; however, executives at packaged goods companies said that prices of milk, glass bottles, wheat and packaging material are higher, precluding chances of any immediate price cut.
“Inflation is definitely not behind us," said Prashant Peres, managing director of Kellogg South Asia, which sells packaged foods such as breakfast cereals. “I think what people are referring to is the easing-off of the growth in prices, but prices have not fallen for most of our food commodities — cereals, wheat, corn, fruit, nuts and seeds—almost none of them have seen their prices drop. In some items, the pace of increase has slowed down, so people are breathing a sigh of relief."
Consumers, said Peres, have been switching to smaller packs, at least in more expensive categories such as cereals. “In the December quarter, our volumes did not decline, but our rate of growth definitely slowed a bit. I can see green shoots in categories such as muesli," he said. Future possibility of price hikes is “not something we are done with," he said.
To be sure, there are two themes at play here — makers of home and personal care items are seeing moderation and stability across key inputs; however, packaged food companies are still struggling with volatility in the prices of wheat and milk. “Home and personal care companies seem to be, in general, better-placed than packaged foods. This is mainly due to the correction in pet-chem and vegetable oil prices, while prices of wheat, milk and its derivatives etc. are higher on a year-on-year basis, a concern for packaged food firms," analysts at Jefferies said in a 21 March report on consumer staples. The report also pointed to uncertainty on demand due to forecasts of El Niño, which is also weighing on consumer stocks.
On Tuesday, chocolate maker Mondelez announced plans to invest ₹4,000 crore in its India business, expecting greater demand for its products. Chocolates and bakery, categories the company operates in, are doing “pretty fine"; however, prices of dairy and cocoa remain a concern, said a top executive at the maker of Oreo cookies.
“Our outlook is obviously cautiously optimistic—cautious because we’re still not behind some of the inflation headwinds, etc., which are continuing in dairy and cocoa. We are fairly confident that over a period of time, inflation should ease with all the efforts being made on the monetary policy front, etc. We are confident, and that’s why we’re calling for such a big investment," said Deepak Iyer, president, India, Mondelez International.
Mondelez is positive on medium-term demand outlook, Iyer said. “There are a lot of unknowns here. There are headwinds on certain commodities, and then there is an El Nino effect that is threatening. If that comes in, it will not be very useful for the crops, and hence, the farming fraternity actually takes a knock. At the same time, we have seen a lot of good policies by the government—like Skill India or MNREGA etc. Over the medium-term (six months to one year), we do feel positive," he said. Meanwhile, others spot an opportunity in a scorching summer to sell more cold drinks and foods. However, brewer Bira flagged “very high inflation" in glass bottles and barley.
“Key categories for us remain very, very high on inflation. I think some costs have stabilized to some extent, for example, aluminium cans, but I think barley, grains, glass bottles continue to be under a lot of stress," Ankur Jain, founder and chief executive of B9 Beverages, said in an interview earlier this month.
Jain said early and strong summers were already pushing up beer sales.
Liquor makers rely on states to increase prices. Jain said while some states have taken progressive steps to ensure incremental pricing, others are a little behind on pricing action. “What will end up happening this summer is that most suppliers will not be able to allocate products if price increases are not given by those excise departments and so on," he said. Umesh Modi, chairman of U.K. Modi Group, which sells Revlon and Street Wear cosmetics in the Indian subcontinent, expects raw material prices to remain volatile for another 12 months.
