inflation: FMCG firms to swallow input cost pain, hold on to entry-level size, price

Consumer goods makers plan to hold on to entry-level prices and not reduce sizes of small packs despite growing input costs, as they seek to ensure sales volumes are not badly hit due to inflation.

“There will be no price hike or grammage reduction for small packs since it will badly impact volumes, especially when there are early signs of consumers looking to downtrade,” said Mayank Shah, senior category head at biscuit maker Parle Products.

Entry-level and small packs account for up to 55% of fast-moving consumer goods (FMCG) sales, with the exact proportion varying across product categories. For the likes of

and Parle, small price packs such as ₹2, ₹5 and ₹10 account for 50-55% of sales. For personal care product makers such as , small packs make up 23-24% of sales.

vice-chairman Mohan Goenka recently told analysts that while there has been no significant growth in sales of low unit price packs due to inflation, the company will not increase prices or reduce grammage as there is not much scope left. This is despite Emami increasing prices of other packs by 7-8%.

V-Mart Retail’s managing director Lalit Agarwal, at a recent earnings call, said people earning less than ₹25,000 a month were facing the brunt of inflation, which has dealt them a blow of an additional ₹2,000-3,000 in monthly expenses.

Demand Recovery

“In towns where the GDP per capita income is lower, we are seeing a much higher impact,” said V-Mart Retail’s Agarwal.

While the small town-focused value fashion retail chain has passed on the full increase in raw material prices to consumers, along with no discount last quarter, it is doing a lot of promotions around lower price point products to retain customers, he said.

According to the latest data, India’s retail inflation based on the consumer price index (CPI) jumped to an eight-year high of 7.79% in April on the back of rising input costs, resulting in price hikes.

FMCG companies have been trying to increase the entry level price point, but paradoxically, inflation and the consequent hole in the consumer wallet, make it difficult to do so. While companies are now trying to popularise the ₹10 price point, inflation will prolong the exit from the ₹5 price point, executives said.

“…As the world evolves, as the consumer evolves, and as we get through all of this inflation, time will tell when is the time to really press the pedal on ₹10 and move on from ₹5. But I don’t think we are in any position to do that right now,” said Varun Berry, managing director of

, at a recent analyst call.