 "FMCG, kirana")
FMCG industry growth rate in rural markets, which had been on the rise over the past few quarters, has moderated while it is picking up in urban areas and the next few quarters need to be very closely monitored to understand the situation of the underlying demand in the economy, Hindustan Unilever Ltd Chairman and Managing Director Sanjiv Mehta said on Tuesday.
Faced with "unprecedented" inflation in certain commodities like palm oil, crude based derivatives and tea, and ocean freight, the FMCG major has hiked prices in the past three quarters and it is keeping a close watch on the input cost inflation for steps to be taken in the ongoing quarter.
Addressing a virtual earnings conference, Mehta said the rural demand for the last few quarters had been resilient due to various factors such as the government's direct transfer of money, food subsidy, MNREGA and the decent harvests, thereby putting the base for rural at a much higher level.
"The base for rural (market) is certainly much higher when it comes to growth rate as compared to urban, as urban was impacted because of lack of mobility. As mobility improves, the urban demand should be picking up, modern trade has opened up. So, we will definitely see more and more demand in the urban sector picking up and whereas rural is still growing but the growth rates have moderated," he added.
Stressing on the need to focus on the "base period impact" as it varies from urban to rural markets, he said, "And I think we will have to look at it very closely for the next few quarters to understand what is the situation of the underlying demand in the economy."
On the impact of rising commodity prices, Mehta said, "...what we have seen in certain commodities like palm oil, crude based derivatives, and related like ocean freight, etc, or even tea has been unprecedented. We haven't seen this kind of inflation for many years".
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Under normal circumstances, 60-70 per cent of the company's growth comes from volume growth the balance comes from pricing.
"But when you have unprecedented inflation, the equation changes a bit and what our endeavor has been to ensure that the consumers remain within our franchise so we play the whole portfolio," he said.
In order to overcome the challenge, he said HUL has reduced grammage for smaller packs while maintaining the same pricing.
"What happens is, if you look at, we have a lot of pack sizes which are on price points and on price point packs, you're not able to take a price increase but you titrate the volume. When you titrate the volume even if you sell the same number of pieces, the volume growth goes down," he said.
When asked about the price increases in the first half of the current fiscal, HUL Chief Financial Officer Ritesh Tiwari said,"Pricing, as you have seen in the last three quarters, we have sequentially increased."
The price hikes have been "absolutely in line with what has happened in terms of input cost inflation", he added.
On the pricing outlook, Tiwari said it will depend on "what happens with further input cost inflation and that we will know in time to come as market stabilizes, we see what kind of trading conditions exist".
Commenting on consumer sentiments, Mehta said, "When you look at the RBI statistics on consumer confidence, what they''re talking about albeit people are feeling that the future is going to be much brighter but when it comes to near term, it is still subdued. It has remained subdued, a bit uptick, but still remains."
Elaborating further, he said, "It is subdued, because still the fear of COVID remains, albeit it has reduced. The second is about the inflation and about the jobs etc. and all these things come together to create consumer sentiment or consumer confidence.
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