Electronic companies are also postponing price hikes for refrigerators and air-conditioners despite a 3-4% increase in commodity costs such as steel, aluminum and polypropylene in the last 2-3 months, while mobile phone manufacturers are going to launch 5G smartphones in the sub-Rs 10,000 segment, industry executives said.
“We continue to pass on the cost benefits to the consumer either through reduced pricing or through increased grammage. We believe that this will lead to an increase in volume demand. In lower price packs, grammages have been increased by 5 to 10%,” said Neeraj Khatri, chief executive, India and Saarc business, at Wipro Consumer Care.
All these pricing actions are part of an all-out effort by the companies to improve volume sales which is crucial for the industry to expand their sales. The industry is expecting volumes to grow significantly from March-April onwards with lower and stable pricing, increased government spending ahead of general elections, and higher farming income aiding the recovery process. For FMCG, it is also to fight the increased competition from regional brands.
Mayank Shah, senior category head at biscuit major Parle Products, said grammage has been increased for small packs by 12-15% which hitherto was only for large and mid-sized packs. “Volume growth has started to come in and needs to gather pace. Also, the pack size increase will help to fight the increased competition from regional players who are back with a vengeance after input costs came down,” he said.
As per a latest report by Nuvama Institutional Equities, Rs 5 pack comprises 32% of FMCG volumes, Rs 10 at 22% and Rs 20 at 10%. The report said large companies will eventually regain market share and remain competitive by offering more value at the mass end by cross subsidy from premium end whereby local competition will gradually fade out in two more quarters. Hindustan Unilever has recently cut prices of soaps and laundry products, the report said.For electronics, the industry is battling a recent increase in commodity costs but is going to absorb it. Godrej Appliances business head Kamal Nandi said while there is a case of 2-3% price hike, the industry is going to absorb it. “It’s the wrong time to increase prices since the main priority is to improve demand,” he said.Smartphone brands too are going to launch more 5G models in sub-Rs 10,000 segment to revive buoyancy in that segment. Market researcher Counterpoint’s research director Tarun Pathak said the market recently saw a couple of 5G devices in the sub and near Rs 10K price brand by brands like Itel and Lava.
“With a big potential market, brands like Lava, Nokia HMD, Xiaomi and its sub-brand Poco are collectively working to bridge the 5G gap in the lower segment. Fierce competition is driving prices down, and it’s anticipated that 5G smartphone prices can go down further and reach the Rs 9,000-9,500 range. This is despite the challenges of rising component cost,” said Pathak.
Volume has grown faster than value on the sales charts for several consumer goods categories in the last quarter of 2023, aided by a reduction in prices and what companies see as a sign of recovery in consumption. Companies like Adani Wilmar, Marico, Dabur and Godrej Consumer Products have recently said that there has been volume-led growth in their sales in the October-December period. But value growth came under pressure as companies cut prices from early 2023 to pass on the benefit of lower raw-material costs.
Last quarter, crude oil prices are down 20% versus recent peak whilst palm-oil prices are close to 16-17% off recent peak. A recent JM Financial report said it expects gross margin expansion of 326 basis points in the third quarter for the home, personal and food companies. “For a few companies like Britannia, GCPL that have hedged their input-costs well last year, margin-recovery was already well-underway during 3Q last year thus creating a somewhat tougher base,” the report added.
