Brands turn to localisation, product cuts to protect festive margins

Brands are stepping up localisation, switching to alternative materials where possible and removing non-essential features to keep production costs in check as they gear up for the festive season, as per report by Times of India.

CEOs expect to take measured price hikes amid continued commodity inflation, while absorbing some pressure on margins to drive volumes during the key selling period. Companies have not cut their festive sales targets and expect a longer festive season with Diwali falling in November this year versus October last year, along with premiumisation to support demand.

The biggest challenge for companies is that they cannot afford to pass on the full price increases to consumers at a time when the mass market is already under pressure. Some executives also said that rural demand is a bit uneven amid deficient monsoons. "The problem is that there is no end to this situation (volatility). We have to go for product innovation to improve margins. One way is to remove unnecessary features to bring down the input cost of products," said B Thiagarajan, MD at Blue Star.


Companies plan for the festive period well ahead of time but commodity cost volatility and intermittent disruption in supplies of items have thrown things into disarray this season. To top it all, crude is back above $105 a barrel, while copper has hit new all-time highs amid the flare-up in West Asia. "The conversation cannot stop at crude and copper. Sugar has moved up sharply, and dry fruits, which sit at the very heart of the sweets business, are at an all-time high. Prices are moving on sentiment as much as on fundamentals. A rate quoted this fortnight looks different the next," said Umesh Kumar Agarwal, director, Haldiram Marketing.

Wherever possible, brands are considering alternatives-for instance using aluminium instead of copper, said an executive with a consumer durables firm. "Our first focus will be on localisation, productivity, sourcing and operational efficiencies before passing the entire cost increase to consumers," said Sanjay Chitkara, director and co-CSMO at LG India. Kishan Jain, director at Goldmedal Electricals said that the company will look to absorb further increase in commodity costs rather than pass on to consumers.

Brands are trying to source products when prices are low but many times, product availability in itself is a challenge, said Kumar Rajagopalan, executive director & CEO at Retailers Association of India (RAI). "Getting (shipping) containers has often been an issue," said Rajagopalan. Input costs for retailers across segments have risen by about 20% since the start of the war; of that, only half has been passed on to consumers, hurting margins, Rajagopalan said.

Godrej Appliances is banking on premiumisation and consumer desire for product upgrades to support festive demand, targeting over 40% growth for the season. "Festivals continue to be an important purchase window for appliance categories," said Kamal Nandi, business head at appliances business, Godrej Enterprises Group, adding that pricing will be calibrated to protect consumers.

Although HyFun Foods is positive about the festive season, it expects the market to remain fairly value-conscious. "The entry-level consumer is naturally more sensitive to price movements, particularly after the cost increases seen across the ecosystem," said MD & group CEO Haresh Karamchandani.

(With inputs from TOI)