New Delhi|Mumbai: Inflationary pressures are set to upend household budgets, 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 rolling out price hikes to offset higher commodity costs and increased customs duty, said executives at companies and FMCG distributors. The entire basket – from tea and edible oil to soap and skin cream-will be 5-20% more expensive, marking the biggest price hike in 12 months.
Companies’ production costs have swelled due to 22% increase in import duty on edible oil this September, and up to 40% in calendar year 2024. In 2023 too, the cost of key commodities such as sugar, wheat flour and coffee had surged.
“We are increasing prices across our brands as we speak,” said Mayank Shah, vice-president at Parle Products, which makes Hide & Seek and Fab biscuits. “Such a price increase is happening after one year; we are hopeful it won’t impact demand, which is already under pressure.” Parle is set to introduce packs reflecting the revised prices across its entire portfolio.
According to latest data by retail intelligence platform Bizom, India’s FMCG market grew 4.3% year-on-year in October led by rural demand, but November sales worsened, declining 4.8% -with both urban and rural sales falling from a year earlier.
Hoping for Less Impact on Volumes
HUL has raised prices of soaps and tea. Dabur too has increased healthcare and oral care product prices, while Nestle has adjusted prices for its Nescafe coffee brand.
Ankush Jain, chief financial officer at Dabur, which makes toothpaste and honey, said the company has raised prices in select categories to mitigate the impact of higher commodity prices.
Executives at companies said they are hopeful the price increases won’t significantly hurt urban demand in the next two quarters and that consumers would be able to absorb them.
“While these hikes might impact volumes to some extent, the effect is typically less pronounced in consumer staples and essential categories. With rising commodity prices, price increases are necessary to partially offset margin pressures,” said Neeraj Khatri, chief executive at Wipro Consumer Care, which makes Santoor soap and Yardley fragrances. “Pricing adjustments remain essential to ensure value growth and long-term sustainability.”
Analysts, though, are circumspect about near-term growth prospects in the prevailing scenario of higher prices and tepid demand.
Antique Broking highlighted that raw material inflation may further delay FMCG recovery. “A weak demand environment, coupled with the rise in inflation, continued to impact offtake growth. The weaker-than-expected winter season is impacting offtake growth of the winter portfolio. The rise in raw material prices (edible oil, agri commodities, etc) has resulted in an increase in product prices, which may further impact recovery in volume growth momentum,” the brokerage said in a report.
Executives said price increases are being scattered across products to minimise any pushback on consumption.
“We have four vectors for managing commodity inflation-buying efficiencies, economies of scale, recipe efficiencies and appropriate pricing. Pricing is always a last option,” said a spokesperson for Nestle India. The spokesperson added that the price of green coffee, the core ingredient in Nescafe, has increased three times in the past three years. Coffee makers, including Nestle, have pushed up prices by 20% in recent months.
FMCG distributors noted that the current round of price hikes are being implemented uniformly across all pack sizes, and not limited to larger packs as in previous instances.
