New Delhi|Mumbai: Inflation pressures will push household budgets higher, potentially worsening stressed urban demand.
Starting this month, fast-moving consumer goods (FMCG) companies such as Hindustan Unilever, Godrej Consumer, Dabur, Tata Consumer, Parle Products, Wipro Consumer, Marico, Nestle and Adani Wilmar are introducing price hikes to offset higher raw material costs and higher prices. customs duties, executives at companies and FMCG distributors said. The whole package – from tea and edible oil to soap and skin cream – will be 5 to 20% more expensive, marking the biggest price increase in 12 months.
Companies’ production costs have risen due to a 22% increase in import duties on edible oil in September, and up to 40% in calendar year 2024. Also in 2023, the cost of key raw materials such as sugar, wheat flour and coffee had soared.
“Right now, we are increasing prices for our brands,” said Mayank Shah, vice president at Parle Products, a company that makes Hide & Seek and Fab cookies. “Such a price increase will take place after just one year; we hope that this will not affect demand, which is already under pressure.” Parle plans to introduce packages that reflect revised prices across its portfolio.
According to the latest data from retail intelligence platform Bizom, India’s FMCG market grew 4.3% year-on-year in October, led by rural demand, but November sales deteriorated and fell 4.8%, with both sales in the cities and in the countryside fell compared to a year earlier.
Hoping for less impact on volumes
HUL has increased the prices of soap and tea. Dabur has also increased prices of healthcare and oral care products, while Nestlé has adjusted prices for its coffee brand Nescafe.
Ankush Jain, chief financial officer at Dabur, which makes toothpaste and honey, said the company has increased prices in certain categories to cushion the impact of higher commodity prices.
Company executives said they are hopeful that the price increases will not significantly hurt urban demand over the next two quarters and that consumers can absorb them.
“While these increases may impact volumes to some extent, the impact is generally less pronounced in consumer staples and essential categories. With rising commodity prices, price increases are necessary to partially offset margin pressure,” said Neeraj Khatri, CEO, Wipro Consumer Care . , which makes Santoor soap and Yardley fragrances. “Price adjustments remain essential to ensure long-term value growth and sustainability.”
However, analysts are cautious about the near-term growth prospects in the prevailing scenario of higher prices and tepid demand.
Antique Broking highlighted that commodity inflation could further slow the FMCG recovery. “A weak demand environment, coupled with rising inflation, continued to impact offtake growth. The weaker than expected winter season has an impact on the offtake growth of the winter portfolio. The increase in commodity prices (edible oil, agricultural raw materials, etc.) has resulted in an increase in product prices, which could further impact the recovery of volume growth momentum,” the brokerage said in a report.
Executives said the price increases will be spread across products to minimize any pressure on consumption.
“We have four vectors for managing commodity inflation efficiency, economies of scale, recipe efficiency and appropriate pricing. Pricing is always a last resort,” a Nestle India spokesperson said. The spokesperson added that the price of green coffee, the key ingredient in Nescafe, has increased three times in the past three years. Coffee makers, including Nestle, have increased prices by 20% in recent months.
FMCG distributors noted that the current price increases are being implemented uniformly across all pack sizes, and are not limited to larger packs as in previous cases.
