FMCG firms explore ways to beat inflation, create demand

  • Companies said persistent price hikes could hurt volumes in an already weak market

Suneera Tandon
Updated29 Oct 2022
Most FMCG companies expect demand trends to start improving towards end of the December quarter. ht
Most FMCG companies expect demand trends to start improving towards end of the December quarter. ht

Fast-moving consumer goods companies, which are still struggling with the impact of high inflation, are exploring various options to protect margins and ensure demand remains intact.

Earlier this week, packaged goods maker Dabur India Ltd said it could opt for further price hikes despite inflation softening sequentially, but remaining above the comfort zone. Parle Products meanwhile is offering extra grammage and freebies to increase demand.

In fact, FMCG companies are struggling with the impact of high commodity price inflation and muted demand, especially in household consumption of middle-to-lower income families, and in rural India.

While a spate of price hikes has taken in the past quarters, recently companies such as Hindustan Unilever Ltd, Wipro Consumer Care and Lighting, and Godrej Consumer Products reduced the price of soaps, following a dip in palm oil prices.

HUL, for instance, will follow a price-sensitive approach—hiking and slashing product prices whenever required, the company’s top management said. It has already reduced prices of its popular soap brands Lifebuoy and Lux by 5% to 11% in western India as prices of palm oil cooled in the September quarter.

“If we do see commodities coming off we will decrease prices in big chunks, and where we do see commodity remaining firm we will take price increases as required, to protect the business,” Ritesh Tiwari, chief finance officer, HUL, said at the company’s post-earnings call last Friday.

Top executives at the Dove soap and Sunsilk shampoo maker said commodity inflation has to cool down for manufacturers to start passing on the benefits to consumers. Lower prices can in turn help spruce up FMCG volumes. In the September quarter, HUL reported a 4% rise in quarterly volumes.

Tiwari said prices of tea and skin cleansing products have dipped. “Earlier, it was for tea and the latest has been vegetable oil. When prices went up, we took price increases in small bites, and when we’ve seen meaningful commodity correction we have decreased prices as well,” he added.

Companies are concerned that persistent price increases could hurt volumes in an already weak market.

On Wednesday, Dabur India said it may take 4-5% price hikes during the December quarter due to the 6% commodity inflation it expects in the quarter. In the first half of the current financial year, the maker of Vatika hair oil and shampoos increased prices by 6%.

“One cannot estimate the amount of price increase we will take—we tried to take up prices whatever we could, and there will be follow through of those price increases as we liquidate inventory. I expect price increase to be 4-6% in the coming quarter, too,” Dabur’s chief executive Mohit Malhotra said in an interview.

Overall inflation will need to come down for consumer demand to come back, he added. For the three months ended 30 September, Dabur reported 1% growth in domestic volumes.

Most companies expect demand to start improving by the end of December quarter.

Commodity prices have remained volatile. After the price of palm oil fell in recent weeks, companies passed on the benefits of reduced prices to consumers. Commodities, such as skimmed milk powder, crude oil, and soda ash, continue to remain at elevated levels from the year ago.

A depreciating rupee is also impacting imports, said companies. In the September quarter, palm oil prices fell by 20% from the year earlier.

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