Russia-Ukraine war: FMCG firms prepare to take steep price hikes

The third of the five-part series looks at how FMCG companies are trying to offset the sharp rise in the cost of raw materials due to supply constraints

With supply chain disruptions since the beginning of the Covid-19 pandemic pushing up the cost of raw materials, fast-moving consumer goods (FMCG) companies have been forced to increase the prices of products ranging from biscuits to shampoos to detergents.
 

The ongoing Russia-Ukraine war has only made things worse, resulting in the costs of various commodities shooting up to record high levels. FMCG companies say that to cope with the rising cost of raw materials, they have no other option but to take another round of price hikes of their products.
 

The next bout of price increases could hit consumers as early as the end of this month, and some say that it could be to the tune of the cumulative price hikes taken in the past 6-12 months.
 

Biscuits major Parle Products says that it will increase prices by 10-15 per cent by the end of the month to deal with inflation in the cost of key raw materials such as wheat, edible oils and packaging materials.
 

This is very close to the cumulative price hikes that biscuit makers have taken on an average since the second half of FY21. So far this year (FY22), price hikes have been to the tune of 12-13 per cent.
 

“Though crude oil prices have partially cooled off, it continues to remain high, which has an impact on plastic prices. Palm oil prices have also gone up, and it was already inching higher even before the Russia-Ukraine crisis. The volatile prices of crude oil and palm oil are making it difficult for players to decide on the extent to which price hikes need to be taken,” Mayank Shah, category head at Parle Products, told Business Standard.
 

Shah said that every company has planned price hikes, as it is impossible not to increase the prices of goods, given the current high cost of raw materials.
 

But edible oil major, Adani Wilmar, is still in a wait-and-watch mode, as global prices of palm oil have corrected a bit. The company took its last price hike of about Rs 5-7 per litre in February.
 

“The speculative part of increasing edible oil prices is overdone. In the last seven days, the market has been correcting downwards and we will wait and watch to see how the prices pan out,” said Angshu Mallick, MD and CEO at Adani Wilmar.

However, Akshay D’Souza, chief insight and growth officer at Bizom, a retail intelligence platform which tracks the sales of consumer items at the retail level, expects the relief in palm oil prices to reverse, as the increase in global edible oil prices is on account of demand outstripping supply.
 

Among other FMCG companies, CavinKare also intends to raise its product prices to combat the higher cost of raw materials. However, the company is worried about demand taking a hit if prices rise further.
 

“While price hikes is one solution to tackling the rising raw material costs, my view is that beyond this point it is going to hit consumption,” said Venkatesh Vijayaraghavan, CEO at CavinKare.
 

He added, “While companies will attempt a price hike again in specific categories, I think this round will probably have to be played a little more carefully.”
 

Vijayaraghavan said that he expects price hikes to be in the range of 7-10 per cent as input costs have gone up by 8-10 per cent. He also said that volume growth has been tapering and while down-trading, consumers are also holding back their consumption, The contraction in rural spending also continues to plague FMCG companies.
 

Dabur India, chief financial officer, Ankush Jain, also said that inflation remains unabated and is a cause of concern for the second year in a row. "The inflationary pressures and resultant price increases have led to consumers tightening their purse-strings and relooking at discretionary purchases while also downtrading to smaller packs.
 

We are closely watching the situation and will undertake calibrated price increases besides implementing cost-saving measures, to mitigate the inflationary pressures."  
 

Nestle India said in its recent annual report that its price outlook for key categories like edible oils, coffee, and wheat remained firm to bullish, while the costs of packaging materials continued to increase amid supply constraints, and rising fuel and transportation costs.
 

“Input prices are expected to be on bullish trend both globally and to some extent locally. Fresh milk prices are expected to remain firm with continued increase in demand and rise in feed costs to farmers,” Nestle India said in its annual report to shareholders.