Inflation a pre-festivity red flag for FMCG companies

Some of India's biggest fast-moving consumer goods (FMCG) companies have flagged rising product prices due to high input, commodity and fuel costs as their biggest concern ahead of the upcoming festive season. This could dampen demand just when the economy is recovering from the devastating second wave of the pandemic.

"India still has 8-10% unemployment, a lot of jobs have been lost, and there have been many salary cuts; in that context, if commodity costs also play up, it is going to put pressure on the family budget," said Nestle chairman Suresh Narayanan, adding that high prices could dampen discretionary demand.

The consumer-facing companies see peak demand during the October-December festive period and the price pressure comes at a time when consumer companies have emerged from pandemic-induced supply chain and demand disruptions over the past four quarters.


India's retail inflation eased to 5.3% in August after hitting a high of 6.3% in May. However, wholesale inflation remained high in double digits at 11.4% last month, highlighting commodity and input cost pressures.

Industry leader Hindustan Unilever Ltd (HUL) has raised the price of detergents and soaps 3-4% over the past month across brands such as Wheel, Surf Excel, Rin and Lifebuoy. Others such as Nestle, Britannia, PepsiCo, Dabur, Bisleri, Parle and Marico have increased prices on select packs by 2-8% in recent weeks to maintain profitability. Many have reduced pack weights to maintain popular ₹5 and ₹10 price points.

"Given the macroeconomic situation and demand-supply factors, we expect inflationary pressures to continue in the near term," an HUL spokesperson told ET. "We will continue to take judicious and calibrated pricing actions as further needed by deploying science of pricing to drive net revenue management."

Britannia Industries chairman Nusli Wadia said at the company's recent annual general meeting that the company will mitigate the impact through calibrated price increases and cost-efficiency measures.

Prices of crude oil, palm oil, sugar, honey, coffee, copra, soda ash, freight and packaging material have risen 20-60% in the past three months as part of a global escalation. Supply-side disruptions due to Covid have exacerbated the situation.

Wholesale inflation in diesel was 51% in August, underlining transport cost pressures.

"We are witnessing unprecedented commodity inflation across key raw materials and have undertaken calibrated weighted average price increases of mid-single-digit on selected packs of hair oil and healthcare brands to mitigate part of this impact," said Dabur chief executive Mohit Malhotra.

Dabur has raised the prices of its hair oils and chyawanprash 3-4%.

PepsiCo India has raised the prices of some of its snacks.

"Given the significant increase in input costs, particularly palm oil, freight costs and paper, PepsiCo India is also selectively revisiting the price-value equation across its various snacks brands," a company spokesperson said. "The entire FMCG industry has been facing strong headwinds over the last many months due to inflation on commodity prices."

The beverages industry is facing the heat too.

Following last Friday's Goods and Services Tax (GST) Council meeting, which raised the levy on aerated fruit drinks from 12% to 40% (including 12% cess), many beverages may see a price rise.

Parle Agro's Appy Fizz, which leads the category, may be impacted as could PepsiCo's Nimbooz and Mountain Dew Ice, along with variants of Coca-Cola's Minute Maid, company executives said.

With regard to increased GST on carbonated fruit juices, the PepsiCo spokesperson said, "We are in the process of studying all cost elements which impact end consumer pricing; it includes higher GST levied on carbonated fruit beverages. It is therefore premature to comment on pricing at this stage."