FMCG firms effect steep price rises in December

Last Updated: Tue, Jan 15, 2013 05:42 hrs

In December, the prices of products such as shampoos, soaps, detergents, toothpastes, etc, rose 5-15 per cent, as fast-moving consumer goods (FMCG) companies tried to boost value growth to tackle the slow growth in volumes.

Companies such as Hindustan Unilever (HUL), India's largest FMCG company, raised prices of soap brands Lux and Rexona 11 and 16 per cent, respectively. According to an Edelweiss report, for the Lux brand, the weight of a strawberry variant pack was reduced from 100 gm to 90 gm. Kolkata-based Emami raised the price of its Boroplus antiseptic cream 7.1 per cent, while Colgate increased the prices of its toothpaste brands Max Fresh and Active Salt five and 13 per cent, respectively.

Procter & Gamble increased the price of its Ariel 2 in 1 detergent about five per cent. The company's Head & Shoulders shampoo recorded a price rise of 5.1 per cent in December, said Edelweiss.

The rise in prices, however, comes at a time when commodity prices have been softening. In the last few months, the prices of key inputs palm oil and copra fell 30 and 20 per cent, respectively. In the coming quarters, while companies are likely to benefit from lower commodity prices, many are worried over the lack of good demand from consumers.

In the quarters ended September and December, FMCG companies saw consumers cut spends, owing to high inflation. In the quarter ended September, HUL saw volume growth fall to seven per cent from 9-10 per cent, while Marico saw volumes for the Saffola brand fall from 13-14 per cent to about six per cent.

Traditionally, FMCG companies record good sales in the third quarter, primarily due to the festive period. However, analysts estimate sales in the third quarter of the current financial year were low. They add companies such as HUL could continue recording a drop in volumes due to pressure in discretionary categories such as personal products. "As far as the consumer sector goes, I continue to be bearish," says Nitin Mathur, FMCG analyst at Mumbai-based Espirito Santo Securities. "This is due to slowing GDP (gross domestic product) growth, as well as no real growth in wages. In my opinion, the pricing action seen in December is a means to maintain profit growth," he adds. The price differential between branded FMCG products and unbranded (or regional) products is 30-50 per cent, owing to the price increases by companies in the last few months, Mathur says.

Analysts, however, say low commodity prices make no case for any immediate price rise.

While announcing the company's results for the second quarter, Nitin Paranjpe, managing director and chief executive of HUL, had said, "There are challenges in the short term. Over the last few months, we have begun to see some slowdown in discretionary categories, in which there is an opportunity for the consumer to defer the choice between today and tomorrow."

Chaitanya Deshpande, executive vice-president and head (investor relations and mergers and acquisitions), Marico, had said, "The next two quarters (those ending December 2012 and March 2013) could be challenging, as the slowdown in discretionary items persists. Typically, FMCG tends to be impacted with a lag. This is now visible."

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