From soaps to biscuits, price hikes by FMCG firms may not dim the pain

As commodity prices have been on an upswing since the second half of financial year 2020-21 (H2FY21), companies in the fast-moving consumer goods (FMCG) space were left with no option but to increase prices on everything ranging from essentials like soaps to edible oils and biscuits.

According to data by Bizom, mid-single-digits to double-digit price rises are being seen in all essential foods because of the increase in input, logistics, and packaging costs. Bathing soaps seem to be impacted more from the direct increase in ingredient prices than detergents. Basmati rice, too, has seen a sharp rise over the last year. But since it is also a key export, firms have seen better realisations.

Most personal care products have struggled from lower out-of-home social interactions since the outbreak of Covid-19. However, as demand has picked up over the last one-two quarters, companies are cautiously looking at price hikes/grammage cuts as they want to ensure that they don’t lose out on market share.

Bizom also points out that hyperinflation has been witnessed in oils (both edible and non-edible) since 2020. And just as it started to cool down towards the beginning of 2022, the Russian invasion of Ukraine pushed it back up. “India is seeing very high inflation across essentials, transportation costs, and packaging driven earlier by the impact of Covid and more recently the Russia-Ukraine war. We do see that consumers are paying significantly high prices especially for cooking oils, spices and even basmati rice,” Akshay D’Souza, chief of growth and insights at Bizom, told Business Standard. 

D’Souza expects a further surge in palm oil prices after Indonesia’s decision to ban exports and with the supply of sunflower from Ukraine already being constrained. If palm oil prices shoot past those of other edible oils, that could trigger a shift in demand from consumer businesses.

According to Bizom Price Track, since March 2020, sunflower oil prices have jumped 93.8 per cent, Soybean oil by 23.9 per cent, groundnut oil by 20.2 per cent, mustard oil by 69.5 per cent, palm oil and vanaspati prices by 80.7 per cent and 92.7 per cent, respectively. As a result, companies have warned that they could cut grammage and hike prices.

Ritesh Tiwari, Hindustan Unilever’s chief financial officer, said in a post-results press conference: “We expect more inflation sequentially and will dynamically manage our business, we will continue to drive savings harder and take calibrated pricing actions while protecting and growing our consumer franchise. Our margins will decline in the short term as price versus cost gap increases.”

Britannia Industries told investors after its results that it will take higher grammage cuts instead of increasing prices. The biscuits major took a 10 per cent price hike in FY22 and resorted to reducing pack sizes as an indirect way of increasing prices.

For Britannia, in FY22, the ratio of grammage reduction was 65 per cent, which will be higher in FY23. The management said it would hike prices by 10 per cent if the current levels of raw material prices sustain.

Dabur India’s Chief Executive Officer Mohit Malhotra also told investors in an earnings call: “Pressure on the cost side due to steep inflation triggered by global environment remains a cause of concern, also inflation is leading to pressure on consumers’ wallet, which is seen in softening of demand in recent quarter. That said, strong summer season, good harvest and prediction of a normal monsoon augurs well for FY23.”

Malhotra told Business Standard that in Q4 alone, inflation was around 9 per cent and for the full year it stood at around 12.5 per cent.