Inflation up, FMCG companies hike charges, minimize pack quantity and weight

As inflation soars, India’s consumption tendencies are witnessing a palpable impression. With uncooked materials costs rising, fast-moving client items (FMCG) firms are rising product costs — not simply by immediately elevating the retail charges but additionally by lowering the pack sizes, an business apply that is named “grammage reduction”. On the buyer aspect, patrons of things reminiscent of soaps, shampoos, toothpastes, biscuits and so forth are “downtrading” — that means they’re both choosing cheaper options or smaller pack sizes.

Even because the technique to shave small portions — few grams or millilitres — from biscuit packets and shampoo bottles is being deployed throughout the board by FMCG firms to take care of the enter price strain, beginning October 1, these firms must show the unit sale costs of pre-packaged gadgets, in accordance with a notification issued by the Ministry of Consumer Affairs in March. The firms must show costs per gram the place web weight is lower than one kilogram, and per kilogram the place web weight is multiple kilogram; per millilitre the place web quantity is lower than one litre and per litre the place web quantity is multiple litre, enabling customers to higher examine non-standard pack sizes.

A mail despatched to the ministry on the pattern of grammage discount by firms didn’t get any response.

According to data sourced from firms and FMCG sector analysts, the uncooked materials inflation has led to cost hikes throughout product classes — both by improve in MRPs or lowering portions of packages.

Some classes like soaps noticed worth hikes of 25%-50% over the past one yr (April 2021-April 2022), whereas others like detergents noticed worth hikes of 4%-18% within the three months from February to April this yr. During the identical three months, firms manufacturing toothpastes raised the costs of their merchandise by 2%-18%, whereas some shampoo manufacturers noticed a worth hike of almost 47%. In the meals and drinks section as effectively, whereas edible oils noticed a ten%-29% worth hike, noodles noticed a rise of 10%-17%.

On Tuesday, the Ministry of Commerce & Industry stated the speed based mostly on Wholesale Price Index (WPI) surged to a report excessive of 15.1% in April, whereas retail inflation, in accordance with knowledge launched final week, additionally surged to an eight-year excessive of seven.79%. Analysts have attributed the rise in costs of important commodities to geopolitical elements such because the Indonesia palm oil ban and the Russia-Ukraine warfare.

Grammage reductions have been particularly focussed on low-unit worth merchandise, in accordance with FMCG firms. For biscuit-maker Britannia, grammage reductions accounted for round 65% of the worth hikes it undertook throughout 2021-22. The firm’s MD, Varun Berry, stated at an analyst name this month that going forward “the grammage cut might end up being even higher than that”.

ome classes like soaps noticed worth hikes of 25%-50% over the past one yr (April 2021-April 2022), whereas others like detergents noticed worth hikes of 4%-18% within the three months from February to April this yr.

For FMCG firms, these grammage reductions largely occur throughout the low-price unit gadgets which are priced at Re 1, Rs 2, Rs 5, Rs 10, and so forth. “Almost 30% of our business comes from packs that operate at magic price points like Re 1, Rs 5 or Rs 10. In these packs, our preferred mode of price increase is by reducing grammage. As a result, even the same number of units sold leads to volume decline. This had a circa 2%-3% impact on our UVG (underlying volume growth),” Ritesh Tiwari, chief monetary officer of Hindustan Unilever, India’s largest FMCG firm,  stated.

For Britannia, the low-priced packs make up 50%-55% of the corporate’s gross sales combine.

Tiwari stated that due to the “unprecedented” inflation, FMCG market worth development has slowed down considerably and volumes had been declining in excessive single digit. “The impact is more pronounced in rural segment, where even value growth has started declining. Consumers are tightening volumes and essentials are being prioritised over discretionary categories,” he stated.

The rising costs are additionally resulting in customers, particularly within the rural section, downtrading to cheaper gadgets and smaller pack sizes.

“There is a pushback happening from rural as far as LUP (low-unit price packs) is concerned which sells more in rural India… And even in urban India, we find a little bit of downtrading happening on all portfolios. So, be it a shampoo portfolio, or hair oil, or oral care, our price points of Rs 20, Rs 10, Rs 5 or Re 1 are doing significantly better as compared to the larger packs, with the exception of e-commerce and modern trade,” Delhi-based Dabur India’s CEO Mohit Malhotra stated earlier this month throughout an analyst name.