FMCG firms offer discounts, price cuts as raw materials get cheaper

Food companies are still in wait and watch mode

After two years of constant price hikes, companies producing consumer goods have started cutting prices and offering discounts.

This comes in the wake of raw material prices beginning to reduce from the June quarter. However, some commodities are trading high.

Godrej Consumer Products this month cut the prices of some of its products. It has increased the grammage of its Godrej No.1 soaps from 41 gm to 50 gm and the soap is priced at Rs 10.

It has reduced the price of the bundle pack (100 gm * 5 soaps) of Godrej No.1 soap from Rs 140 to Rs 120, according to the company’s distributors.

The company is yet to respond to Business Standard’s query. In a recent interview with the paper, Sameer Shah, chief financial officer of Godrej Consumer Products, said the company would initiate price cuts from the October-December quarter in order to pass on lower commodity costs to the consumer.

Parle Products is giving discounts since August but it has not reduced the maximum retail price. The biscuit major is offering 10-15 per cent discounts on its bigger packs. This will last till the end of the festive season.

“We are closely watching raw material prices to see how they pan out before extending these discounts after the festive season. Edible oil prices have come off but sugar, milk and wheat prices are still up,” Mayank Shah, category head at Parle Products, told Business Standard.

ITC Foods is yet to take a call on discounts or bringing down prices.

“We have to wait and watch how raw material prices pan out before planning any changes in our marketing strategies,” said Hemant Malik, divisional chief executive, ITC Foods.

Wheat prices are higher on a year-on-year basis by almost 20 per cent.

Analysts say companies are likely to resort to price cuts in the coming quarter, especially in the soaps and palm oil-dependent categories. Palm oil prices are down 25 per cent compared to last year. 

“FMCG companies have been taking constant price increases to pass on higher raw material prices to the consumer. Now as palm oil prices have come off from their peak, companies will pass on the benefit of raw material costs to drive volumes in the coming quarters. Volume growth in the recent past was impacted due to a significant surge in product prices. The recent decline in palm oil prices will be seen as an opportunity to pass on price cuts to drive volume growth,” said Sachin Bobade, vice-president, Dolat Capital.

Naveen Trivedi, AVP, institutional research, HDFC Securities, said: “FMCG companies will increase consumer offers and price cuts especially in soaps because palm oil prices have corrected. It will help in reviving the volume growth for the industry.”

Edible oil companies have passed on the benefit of lower palm oil prices to the consumer by cutting prices in the range 30-40 per cent.