A ₹10 pack of Maggi isn’t what it used to be. Neither is the sachet economy

The rollback appears to be in response to a sharp drop in volumes after it hiked the prices of its most affordable packs last year. The ₹5 pack went up to ₹7 while the larger pack’s price increased from ₹12 to ₹14. The hikes, which took effect in the December quarter of 2022, caused an immediate 1% drop in volumes, although net sales grew by over 14% in value thanks to the price hikes.

The so-called ‘low unit packs’ (LUPs) are critical for Nestle's volumes, with the smallest accounting for a fifth of its sales volumes. During an analyst call on the December quarter results, Nestle India’s chairman and managing director Suresh Narayanan admitted that sales growth fell from 13% to 5% in towns with less than one lakh people. “This is where the pricing action in LUPs, especially in the noodles category, has had an impact," he said. With competitors not following suit with price hikes, Maggi’s volumes saw further erosion, which presumably led to the rollback.

However, the ₹10 Maggi pack of today – limited to what Nestle calls ‘rurban’ (rural and semi-urban) markets – is not the ₹10 pack of old. The weight has dropped 60%, from 100 gm to 40 gm.

Nestle is not the only FMCG company practicing the fine art of “shrinkflation", in which the price increase is masked by keeping the cost of the product constant while reducing its quantity. So a 100 gm pack of Maggi is now 40 gms but costs the same. A ₹10 pack of Parle G biscuits, which weighed 250 gm when it was first launched at that price, is now down to 110 gm.

The reason marketers do this – even though most consumers are aware of inflation and put up with the regular increases in prices of everything from tomatoes to two-wheelers – is because it is critical to hang on to particular price points in the LUP – or sachetised -- space.

These so-called ‘magic price points’ – Re 1, 2, 5 and 10 – have transformed the fortunes of the FMCG sector in India, putting previously unaffordable packaged products within the reach of the poor consumer in the form of single-use packs.

Although the sachet was an innovation of the late Chinni Krishnan, a Tamil Nadu entrepreneur, it was his sons CK Raj Kumar and CK Ranganathan who effected arguably the biggest revolution in FMCG marketing history in India by selling their ‘Chik’ brand of shampoo in Re 1 sachets. Almost all FMCG players quickly followed suit as their market-shares eroded. Chik was at one point the largest-selling shampoo in India by volume. The sachet revolution was born.

Today, LUPs dominate the fates of FMCG players. By 2009, single-use shampoo sachets accounted for 95% of the volume and 65% of the value of shampoo sales in India. Even today, despite three decades of post-reform growth and rising incomes, LUPs account for between 25 and 75% of volumes in various categories. The ₹43,000 crore-plus pan masala market in India, for instance, depends almost entirely on LUPs.

This has in turn created a different headache for FMCG companies. With consumers and trade locked in at these prices, it is virtually impossible to hike them, as Maggi discovered. The response has been, in some cases, to cut quality – which can seriously damage a brand – or the quantity – which is what most brands have done.

But there is a limit to how much one can shrink a pack. A single-use shampoo sachet has to provide a complete hair wash. A single-serve packet of instant coffee or soup has to make one serving of the product. Beyond a point, shrinkflation starts paying negative dividends. If inflation – which has been running above the RBI’s upper band of 6% for most of the year – continues unabated, FMCG players may have to take a call on the future of these ‘magic price’ packs.

There is also another problem here – environmental pollution. An estimated one trillion sachets are sold every year, creating a rapidly growing mountain of non-recyclable plastic waste, particularly in rural areas that lack solid-waste management systems. This has led to a growing demand to ban such packaging. While FMCG players have so far managed to dodge an outright ban, it is certainly an issue that threatens the future of the sachet economy.