Topics FMCG stocks | FMCG sector | Commodity prices

Akash Podishetty & Sharleen D’Souza  |  New Delhi  Last Updated at July 22, 2022 07:00 IST

https://mybs.in/2ax94SQ

Fast-moving consumer goods (FMCG) companies effected a price hike of 10-15 per cent over the past few months. They also slashed the weight of biscuits, juices and several other packed items to make for the loss being incurred due to the rising input cost. .

Almost all the spices have seen their prices increase in double-digits over the last one year. Chilli Powder rose by 12.6%, while Garam Masala surged 15.6%, according to data from Bizom, a retail intelligence platform. Prices of turmeric, Jeera and Coriander increased 11.6%, 12.7% and 16.9% respectively during the last one year. .

In the essential food category, prices of milk have gone up by 5.4% over last year period, while that of Atta and bread have risen 8% and 12.3% respectively. Branded bathing soaps and detergents, which come under the essential non-foods segment, too have seen double-digit increase in prices in the past one year. .

Rising prices have also affected drop in consumption, especially in the rural areas. FMCG companies reported decline in volumes across categories in the last couple of quarters. According to a Nielsen report, volumes shrank 4% in the March quarter, led by a sharp drop in the non-food category. .

In the June quarter too, volumes remained under pressure. FMCG giant HUL's first quarter sales growth was largely driven by price hikes, while the underlying volume growth was muted at around 6%. .

Godrej Consumer Products Ltd (GCPL) and Marico too said they expect a volume decline "in mid-single digits" in the first quarter. Experts say FMCG volumes might have contracted around 5 to 8% in the June quarter. .

Mayank Shah, Senior Category Head, Parle Products says the sector already seeing signs of rural demand reviving in the current quarter. He expects overall demand revival by the end of the current quarter. Festive season could spur consumption on a large scale, he says. .

Palm oil-- one of the key commodities used in FMCG products—has come down to about $1,200/MT from the peak levels of $1,800-1,900/MT. So, is the worst behind for the industry and could there be any relief for consumers going forward? Akshay D'souza, Chief of Growth and Insights at Bizom, said a slight decline in commodity prices in some categories is likely. However, there is no pressure on companies to ease the price burden. .

FMCG companies might look to focus on effective rates by offering higher value to the consumers at the same price to boost volume growth. There could also be competitive pressure on the companies in terms of offers and schemes ahead of the festival season. .

Beating analysts’ estimates, Hindustan Unilever (HUL) on Tuesday said its standalone net profit for the quarter ended June 2022 was up 11%. HUL MD and CEO Sanjiv Mehta said while there are near term concerns around inflation, the recent softening of commodities, monetary and fiscal measures taken by the government augur well for the industry. India’s rural areas contribute 35% to overall FMCG sector sales. If the monsoon is good and steady over the next month, it could result in higher rural incomes and up rural consumption. .

Akshay D'Souza, Chief of Growth & Insights, Bizom says FMCG companies will look to hold on prices even if commodity prices ease. They might give higher value per gram or per rupee on the product. Consumer companies will focus on consumption driven offers and schemes ahead of the festival season. .

Amid inflationary pressures, the recent decision to impose GST on pre-packaged food items of up to 25kg like atta, paneer, and curd could add some pressure on volumes in the short term and also make items costlier for consumers. .

A recent report by ICICI Direct Research said that prices of commodities may fall in three to six months due to the rise in interest rates globally. FMCG companies are betting heavily on the festive season to boost overall volume growth and a demand revival on the back of good monsoon could augur well for the industry. .

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance. We, however, have a request. As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed. Support quality journalism and subscribe to Business Standard . Digital Editor

Copyrights © 2022 Business Standard Private Ltd. All rights reserved.

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

Welcome to the premium services of Business Standard brought to you courtesy FIS. Kindly visit the Manage my subscription page to discover the benefits of this programme. Enjoy Reading! Team Business Standard