FMCG firms line up more price hikes

Most fast-moving consumer goods (FMCG) companies are planning to hike prices shortly in the face of rising input costs.

In the past month, benzene prices have increased by 5-7 per cent. Linear alkyl benzene is a key input for detergents.

Even the prices of palm oil, a key ingredient in soaps, have increased by 17 per cent over the past year. The prices of wheat and milk powder (ingredients for biscuits) have also increased by 30-40 per cent.

Initial price hikes, however, have not been enough. According to D Sundaram, director, finance, Hindustan Lever, laundry margins continue to remain under pressure despite price increases across most of the detergent brands.

"The company will continue to manage the input cost escalation through judicious price increases and cost reduction measures," Sundaram said.

Godrej Consumer Products is also likely to toe the same line. Godrej Industries Chairman Adi Godrej said the company had already increased some prices and would be rolling out more hikes in the next month owing to increased input cost pressures.

Last month, Hindustan Lever raised prices of its Lux soap (100 gram) by 8 per cent, Surf Excel Blue (1.5 kg) by 3.5 per cent and Surf Excel Quick Wash (1 kg) by 3 per cent.

Even Procter & Gamble has been increasing the prices of detergent brands in a phased manner.

Rising crude oil prices were affecting soap manufacturers most, Abhijeet Kundu, analyst, Prabhudas Lilladher Securities, said. Despite a recent fall in crude oil prices, the effect is still to percolate to petro derivatives like linear alkyl benzene.

Analysts believe Procter & Gamble, too, is likely to re-examine its current pricing strategy and increase prices in the near future. Company executives, however, were not available for comment.

The concern is not just restricted to the home and personal care segment. Even among food categories, rising wheat and milk powder prices at 30 and 40 per cent, respectively, have increased the pressure on biscuit manufacturers.

However, the segment being highly price sensitive, no one has raised prices yet. Analysts feel it is only a matter of time before someone takes the first step.

Tea and coffee prices, too, have been heading northwards in the last two months and regional tea players like Girnar have already started hiking prices.

Amrita Shahra, business development head, Ruchi Soya, an edible oil and food company, said the edible oil category had been facing input cost pressures for some months.

"There has been a rise in input prices in the last six months, which, however, have started declining in the last two months. This has averaged out to a net increase of 10-15 per cent." While there were no immediate plans to increase prices, the company would evaluate this option after January, Shahra added.

Companies across the spectrum are clear that price hikes will now be used to shore up bottom lines. "Consumers no longer hesitate to spend a little more on their daily supplies, be it products like detergents, skin care or cosmetics," commented a Mumbai-based consumer analyst.

However, some companies have gone off the beaten track by using pricing power to battle the regional or commodity players. Tata Tea, for example, reduced prices of its mass market brand Agni in September by 15-20 per cent. The company claims this move has resulted in a 70 per cent increase in sales.

On the other hand, to protect the bottom line, the company has also launched premium products like Tetley Green Tea.