Wednesday Post

With Covid 19  presence in the country, Companies selling daily essentials are caught in a bind due to a steep rise in the cost of commodities, freight, and packaging. They are either forced to either increase retail prices or risk a hit on profitability in the next two quarters. The other choice is to reduce the pack size-thereby selling less quantity at the same price points- and cutting down on packaging costs.

As per the industry people, the passing on the increased input costs to consumers just as the country is emerging from the second wave of Covid 19, could hurt the demand going forward. Even if the industry raises the prices by 5%, further hikes will surely hit the demand. So the manufacturer has to be cautious and may not be able to pass on the entire burden of raw material inflation to consumers. Pricing calls have to be made in such a way that demand-which is picking up because of Covid restriction being eased is protected.

There has been unprecedented commodity inflation of about 5-6% across edible oils, herbs, spices, and honey. So some of the companies in this sector have increased the price by 3%, but these will not be enough to mitigate the impact of inflation.

As per retailers prices of key commodities like sugar and oil gave shot by 20% to 60%, resulting in a drop in consumption for these basic essential items.

Companies are still in discussions about whether to pass on the price increase at this stage when the spending power of customers has been affected. Any price hike in Fast Moving Commercial Goods (FMCG) products may reflect only once the entire unlocking happens across states.

As per a big retail company, which works with about 35,000 corner stores, the prices of grocery products have risen by up to 40% in the past year, including edible oils, other essentials, personal care, and home care products. Consumers monthly grocery bill has increased by 10 to 15%. Stocking has been a concern as demand for less expensive alternatives has gone up.

Trade analysts say pricing power would remain muted till recovery is sustained over a period. Price hikes in the edible oil segment are an aberration within the consumption basket, but the other products’ prices can not surge sharply. For some companies which operate at the premium end, price hikes do not impact demand directly to an extent.

Margins of consumer goods companies are likely to remain under pressure due to sequential raw material inflation-palm prices increased more than 80% while crude oil has risen by 90% since last year. Copra’s price too has gone up by 30%.

Companies have been impacted significantly by inflation in commodities. freight. logistics, crude prices, and packaging. All these require a lot of rebalancing. There is a lot of pressure on margins as one can pass on only so much to consumers.

As per retailers some companies are balancing pricing and protecting margins by increasing prices of premium packs, even as they maintain the prices of mass products.

In the prevalent times, the prices of consumer goods have become an issue, as overall the cost of input is increasing rapidly but companies are reluctant to pass on the full burden to consumers fearing that it may impact the sales. So every company is trying to find the middle path so that the suffering of the consumer is less.

The only problem is that no company will reduce the prices when the situation becomes normal So in the end, it is the consumer only who suffers in any situation.

Waiting for your views and comments.

Anil Malik

Mumbai, India

30^th June 2021