Representative Image (REUTERS/Akhtar Soomro)
The FMCG market continues to see price hikes in categories such as soaps, edible oils, tea and detergents due to sustained inflation in key raw materials such as palm oil, raw tea and copra. Increased packaging costs and crude oil prices, too, have added to the pressure.
Hindustan Unilever has increased the prices of its soap brands such as Lifebuoy and Lux by 6-7 percent, while its tea brands such as Brooke Bond and Lipton have witnessed price hikes for the second quarter now.
Marico has raised the price of edible oil brand Saffola by as much as 50 percent in the last two quarters. Its other brand, Parachute, too, has seen a double-digit price hike over the last two quarters.
“Within the quarter, the company witnessed sequential hardening of input prices in March, which has necessitated further pricing action in Q1FY22 in select core brands,” Marico said in a press note announcing its results for the fourth quarter ended March (Q4).
Britannia, too, indicated a hike in prices to offset input costs.
“We have started taking some price hikes towards the end of the quarter, confident of fully passing on the 3 percent material inflation over FY22,” Varun Berry, MD, Britannia Industries, told investors after reporting its Q4 results.
Besides HUL and Marico, Tata Consumer Products, Emami, Colgate-Palmolive, Wipro Consumer Care and ITC had increased the prices of several products earlier in February this year.
Inflationary pressure piles up
The price hikes by packaged consumer goods companies has been necessitated by the rising cost of raw materials. The price of palm oil, for instance, a key ingredient for most home and personal care products including soaps, has seen a 40-50 percent inflation, said Himanshu Nayyar, Lead Analyst - Institutional Equities, Yes Securities.
Similarly, tea prices have also gone up and have risen 70-80 percent in the last few months, added Nayyar.
The rise in crude oil prices has not only increased the freight cost of FMCG firms but has also added to input costs of detergent makers as several crude-linked commodities that are used in manufacturing.
Marico, in a press note, informed that the price of rice bran oil was up 39 percent year-on-year (YoY) in Q4, crude derivatives such as Liquid Paraffin (LLP) and HDPE were also up 29 percent and 31 percent YoY in Q4, respectively.
“In Q4, market prices of copra were higher by 25 percent YoY, mainly due to leaner supplies and lower coconut to copra conversions,” it added.
Furthermore, the packaging costs have gone up due to COVID-related restrictions. According to Gaurav Jalan, founder of packaging company Packman Packaging, due to the scarcity of raw materials such as scrap, there has been a 30-40 percent increase in the cost of packaging materials.
FMCG companies, on average, incur about 20-30 percent of input costs from packaging. The cost is even higher for higher lower unit packs.
Further price hikes ahead?
Analysts are of the view that given the robust demand for packaged goods, companies can pass on the costs to consumers. However, the situation could become tricky, going forward.
“The problem is if demand takes a turn for the worse, companies will be in trouble,” said Nayyar. They will have to absorb inflation in such a scenario, he adds.
Industry watchers anticipate that several other product categories, especially, in the food segment are slated to see a price hike.
“Sugar has seen a 6-7 percent inflation in April over March, and, if this continues, categories like beverages, fruit juices, biscuit manufacturers can be impacted,” informed an analyst.
The price of dairy milk powder has also risen sequentially, though it is still below last year’s record levels. Experts say inflation in the segment is projected to continue and this would mean a price increase in several packaged food products.