Pocket pinch: FMCG companies passing 3-7% of price rise to consumers

Edible oil companies pass on the entire hike to consumers

Fast-moving consumer goods (FMCG) companies are increasing prices but are not passing on the entire price hike to the consumer as rural markets have just about begun to witness revival while urban demand is stagnating.

 

While edible oil companies typically pass on the entire price increase/decrease to the consumer, with a lag of 5-15 days, depending on the inventory in the channel, packaged food companies are effecting mid-single-digit increases in order to not hurt demand.

 

“We’ve already initiated some price increases. We are looking at a 3-5 per cent price increase between the third and fourth quarters. Some of it has already come in December but a lot of it will come in the fourth quarter,” Rajneet Singh Kohli, chief executive officer (CEO) at Britannia Industries, told Business Standard on the sidelines of CII National FMCG Summit.

 

Kohli explained that the company will wait and watch if some reversal is seen in palm oil and it will then take a call. But he added that as the leader in the space, it will have to effect some sort of price increase.

 

“As an organisation, we are conscious, and, therefore, we don't want to pass on the entire price increase to the consumer. We are taking a lot of measures in terms of CEP (cost efficiency programmes), so that we lower our costs internally,” Kohli added.

 

Parle Products, the maker of ParleG biscuits, has also effected an average price increase of 5-7 per cent due to the rise in raw material prices. “Raw material inflation is already 18-20 per cent. Rural markets have just started to witness a revival and demand in urban markets is stagnant at the moment. We don’t want to hurt growth by sharply increasing prices,” Mayank Shah, vice president at Parle Products, said.

 

Godrej Consumer Products’ managing director (MD) and CEO Sudhir Sitapati said: "We are in the middle of a highly inflationary palm oil cycle. In our soap category, we use palm oil. If there is inflation in prices of palm oil, we don’t pass on everything to the consumer all at once. We absorb quite a lot. Also, when the palm oil prices reduce, we subsequently reduce the pricing too."

 

Edible oil major Adani Wilmar has increased prices to the extent of rise in edible oil prices. “We effect price increases/decreases in line with edible oil price movement... We pass on the prices to the consumer with a lag of 5-15 days, depending on the stock that is in the pipeline,” Angshu Mallick, MD and CEO at Adani Wilmar, said.

 

Post its July-September earnings, Hindustan Unilever (HUL) said that after a prolonged period of benign commodity prices in this quarter, crude palm oil and tea witnessed inflation of 10 per cent and 25 per cent year-on-year (Y-o-Y), respectively.

 

Ritesh Tiwari, chief financial officer (CFO) at HUL, had said that if commodity prices remain where they are, the company expects low single-digit price growth in the near-term. Tiwari also said that HUL will make calibrated price increases in skin cleansing and tea. “In the October-December quarter, you should expect overall value growth ahead of volume growth,” Tiwari said. 

POCKET PINCH

  > Britannia Industries is weighing 3-5% price rise 

> Parle Products, the maker of ParleG biscuits, has taken an average price hike of 5-7%

> Godrej Consumer Products also increased prices in its soaps business since palm oil prices are on the rise

> Adani Wilmar has effected price increase in line with edible oil price movement