The FMCG Price Hike Aftermath
In the past six months, there has been a steady increase in the prices of the products across categories in the FMCG market. Hindustan Unilever (HUL), one of the largest FMCG companies, has increased the prices of its soap brands such as Lifebuoy and Lux by 6-7 percent, and its tea brands such as Brooke Bond and Lipton has also witnessed a price hike. Marico has raised the price of edible oil brand Saffola by as much as 50 percent in the last two quarters. Its other brand, Parachute, too, has seen a double-digit price hike over the previous two quarters. Besides HUL and Marico, Tata Consumer Products, Emami, Colgate-Palmolive, Wipro Consumer Care, and ITC had increased the prices of several products earlier in February this year.
Reasons for Price Hike:
1. Inflationary Pressure:
The primary reason for the increase in packaged consumer goods price is the increase in the cost of raw materials. For example, a key ingredient for most home and personal care products, palm oil has seen a 40-50 percent inflation. Similarly, tea prices have also gone up by 70-80 percent in the last few months. The rise in crude oil prices has not only increased the freight cost of FMCG firms but has also added to the input costs of detergent makers as several crude-linked commodities are used in manufacturing.
2. Increased Packaging Costs:
FMCG companies, on average, incur about 20-30 percent of input costs from packaging. The packaging costs have increased due to the scarcity of raw materials such as scrap and COVID 19 related restrictions. There has been a 30-40 percent increase in the total cost of packaging materials.
Aftermath
Fast-moving consumer goods (FMCG) sales growth was down 14.4 percent in November compared to October, primarily due to a drop in the number of active Kirana outlets and stock liquidation post-Diwali. However, on a year-on-year basis, sales of consumer goods were up 10.4 percent. FMCG sales in urban India fell 6.3 percent, while rural sales were up 17.9 percent in the same period compared to the previous year.
The major contribution of the sales decline was due to the increased prices and an early festive season. The easing of edible oil prices on account of import duty cuts could also play a key role in helping control price inflation of consumer products. The increase in people's mobility, higher travel services, return to work, etc., has led to higher consumption of ready-to-eat products.
However, consumers are uncertain with prices going up and the emergence of the new COVID variant "Omicron," dampening sentiments. The FMCG sector is expected to consolidate in a narrow range. A recovery in the FMCG sector is expected in the January-March quarter when the harvest money will come into the market and pre-summer purchases begin.