FMCG price hikes to halt as Dabur, Marico, Godrej won't increase prices this quarter

MUMBAI/NEW DELHI: Constant price increases of daily consumption items is set to halt during July-September after at least eight quarters, as marketers fear that further hikes would impact volume growth.

Officials of consumer goods companies such as Dabur, Marico, Jyothy Labs, Godrej Consumers and Emami say they do not plan any significant price increase this quarter.

"The macro-economic situation isn't pleasant and we feel that price hikes taken earlier could help maintain margins at a reasonable level. So we feel, the next round of price hikes will be to adhere to the new packaging norms in November this year," said Ulhas Kamath, joint MD at Jyothy Labs, which owns Ujala fabric whitener and Henkel detergent.

Companies are buoyed by softening raw material costs. Commodities such as palm oil, copra and soda ash have softened by anywhere between 4% and 38% over the last three months.

P Ganesh, chief financial officer, Godrej Consumer Products, however, said rupee depreciation will offset most of the gains incurred by drop in input costs.

But there are fears of possible down trading-or the tendency to opt for cheaper brands when prices increase-among consumers in a slowing economy. Monsoon rains too could fall below normal.
Analysts say the monsoon will be a key factor. "While there has been no slowdown in FMCG sector so far, we feel that most companies will see how monsoon pans out to take any pricing decision as they are cautious on the overall economic growth now," Anand Mour of Ambit Capital said.

He said the drop in raw material prices could also mean fresh challenge from regional players, which may make companies go for price cuts or promotions. Most companies grew their sales 14%-22% last financial year, with an equal mix of volume growth and price increases.

Dabur CEO Sunil Duggal said that price increases, which were in the region of 8%-10% last year across categories, are down to 1%-4% this year.

Dabur, maker of Vatika shampoo, Real juices and Hajmola candy, may marginally increase prices of certain products that have not been made costlier since last year.

Kolkata-based Emami too would go for selective price increases in few categories but do not plan major price hikes this quarter, its CEO (sales, supply chain and human capital) Krishna Mohan said. "Raw material prices are still volatile but they have not seen the same kind of inflationary trends as we have seen last year," he said.

Food product makers, meanwhile, are closely watching the monsoon as it will reflect directly on their input costs.

"Our pricing decisions would depend entirely on agro commodities like milk, sugar, wheat and barley; we monitor price movement of these commodities month on month so we can't predict future price hikes," said Zubair Ahmed, MD of GlaxoSmithKline Consumer, which makes Horlicks milk drink and Foodles noodles.

A recent report by Morgan Stanley said Indian consumer firms have 400-500 bps of gross margin flexibility in FY13, assuming moderation in input costs, steady volume growth and no increase in predatory pricing competition. "It is likely that companies will use this margin flexibility to improve competitive positioning and accelerate volume growth," the report said.