MUMBAI: Consumer goods makers are raising prices and bracing for weaker demand as commodity inflation spreads across fuel, packaging and food inputs.
Large listed fast-moving consumer goods (FMCG) companies, including Hindustan Unilever, Britannia Industries, and Dabur India, have started hiking prices across parts of their portfolios and warned in recent earnings calls that inflationary pressures are likely to persist.
The conflict in West Asia has pushed up crude-linked input and freight costs while also driving a rise in global edible oil prices, increasing pressure on FMCG companies that rely on imported commodities.
The cost pressures are now spreading beyond fuel and packaging into food commodities.
On Wednesday, milk cooperative brands, Amul and Mother Dairy, raised milk prices by ₹2 a litre. Smaller regional cooperatives, including Indore-based Sanchi Milk and Kerala-based Milma, have either raised prices or are planning hikes, according to media reports.
Industry executives said higher prices of milk, wheat and edible oils are squeezing margins, forcing FMCG companies to pass on costs through price hikes and lower grammage packs, a move that could weigh on demand recovery.
India’s wholesale price index rose 8.3% year-on-year in April, driven largely by higher prices of mineral oil, crude, natural gas and metals, according to government data. Retail food inflation also accelerated to 4.2% in April from 2.1% in January, partly due to rising edible oil and vegetable prices.
“Milk prices are behaving as they do…during this period,” Rakshit Hargave, chief executive officer (CEO) and managing director (MD), Britannia Industries, told analysts in an earnings call this month, adding that the company expects elevated temperatures and a possible El Niño impact to keep milk prices firm.
Hargave said Britannia may respond with price hikes and grammage cuts in lower-priced packs, including ₹10 products.
Besides milk, wheat prices have also come under pressure after unseasonal rains earlier this year raised output concerns. Sugar prices have remained stable, but the government has banned sugar exports until September to prevent a spike in domestic prices.
Domestic edible oil prices are also climbing alongside global markets. The Food and Agriculture Organization’s world food price index showed edible oil prices rose 5.9% month-on-month in April to their highest level since July 2022. India imports nearly 60% of its edible oil requirement.
Prime Minister Narendra Modi has urged citizens to reduce oil consumption by 10%, citing concerns around import dependence and public health.
“The edible oil complex went up in the month of March by close to 10%,” Shrikant Kanhere, CEO and MD of AWL Agri Business told analysts in an earnings call last month. “Every player has passed it [10% rise in prices] on to the consumer somewhere in mid…or end of March.”
Dabur India has also flagged inflationary pressure tied to the West Asia conflict. “We've already announced a 4% price increase across different parts of the business to mitigate the inflationary impact that we are seeing,” Mohit Malhotra, global CEO of Dabur International, told analysts in an earnings call this month, adding that the company could take a second round of price hikes depending on how the war evolves.
Demand risks
While crude-linked inputs such as plastics had already become more expensive, companies said food inflation is now adding to cost pressures sooner than expected.
“If you look at it, the [first] category is home care, then followed by personal care and followed in the end by food; in that order prices increase because that's the order of the inflation as well,” Niranjan Gupta, executive director, finance, and CFO, Hindustan Unilever, told reporters in a briefing late last month, adding that the company was taking 2-5% price hikes across its portfolio.
Lower prices of some inputs such as copra and cocoa are no longer providing enough relief.
“Last year, same time, the commodity cost on coffee and cocoa were at all-time highs,” Manish Tiwary, chairman and managing director, Nestle India, had told Mint in an interview last month, adding that while coffee and cocoa prices had softened, rising costs of milk, packaging material, petroleum and utilities were offsetting some of those gains.
Industry experts said the latest round of price increases could weigh on consumer demand just as consumption was beginning to recover after last September’s GST cuts, with renewed inflation threatening urban spending and rural demand.
“From Q2, you will start seeing demand falling as an effect of all these factors,” Anand Ramanathan, partner - consumer industry leader for Deloitte South Asia told Mint, adding that FMCG demand typically reacts with a lag to inflationary pressures and could remain under strain even if the war eases.
Ramanathan said consumers would increasingly look for value-for-money products, leading to some trading down, and warned that festive season demand from August-September could come under pressure.