Shoppers gear up for a shock as goods makers likely to up rates

Shoppers should gear up for more sticker shock as industry watchers expect consumer goods makers to increase prices yet again this quarter to cope with higher commodity costs.

That is not good news for Asia’s third-largest economy, where some have already started putting off discretionary purchases or cutting back on essential items, to make household budgets work amid inflationary pressures.

“It’s a very high inflation scenario across the board, prices have been passed on and if input prices remain inflationary, you will see price hikes going forward,” said Anand Shah, executive director of the consumer sector at Axis Capital.

Others agreed.

“Companies have been taking up prices but still playing catch up with inflation,” said V S Kannan Sitaram, venture partner at Fireside Ventures. “As inflation continues to be strong, we must expect more price increases.”

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Consumer goods makers have been grappling with rising costs of everything from crude oil to sugar, forcing them to raise prices of their products or reduce grammage per pack while maintaining prices.

The trend has forced changes in customer behaviour too.

Vijaylakshmi T, a middle-aged homemaker from Indiranagar is now buying smaller packets of biscuits despite the larger savings tied to the bigger packs.

“Prices of all items are high, what to do? We have to buy something to eat, right? My salary has not gone up the way commodity prices have,” Vijaylakshmi complained.

She is not alone.

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“High inflation has impacted my wallet and I’m being forced to cut down purchases. Why don’t they do something about it?’’ asked Alekhya Pasala, who lives near Lalbagh.

Some others such as Salim of Vijayapura (Bengaluru Rural) have gone a step further.

“Essentials have become expensive, I have stopped all discretionary items,” he said.

Earlier this week, Marico Ltd, home of brands such as Saffola and Parachute, warned that continued high inflation and the global supply chain disruptions were two definitive risk factors to watch out for.

The consumer goods maker said its latest quarter, which ended on December 30, 2021, was characterised by slowing consumption patterns that affected the sector as a whole, especially in rural India, and highlighted how continuing inflation was taking a toll on overall disposable incomes.

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Data from consumer intelligence firm Nielsen IQ also highlighted how the Indian Fast-Moving Consumer Goods (FMCG) industry has witnessed a significant rise in prices but a drop in volumes in recent months. For instance, volumes rose 7.7% in the calendar year until November 30, 2021, while prices rose at 9.9%. Data for the second quarter of the current financial year showed volume growth was a meagre 1.2% while prices rose 11.3%.

“In this environment, our priority is to provide value to consumers, invest behind our brands and protect our financial business model,” A Hindustan Unilever spokesperson told DH, highlighting the unprecedented volatility in commodity prices.

In fact, inflation is a major worry not just for the sector but for the economy as a whole. The Reserve Bank of India’s December consumer confidence survey revealed that “price level” was the only variable for which sentiment was negative compared to the other four variables, namely economic situation, employment, income and spending.

Some consumer goods makers have talked about having no choice but to raise prices because of the inflationary pressures that squeeze their profit margins.

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“There is no substitute for a price increase. So, we have gone ahead and implemented pricing. One-third of our pricing is through MRP changes, and two-third is through grammage reduction,” Britannia managing director Varun Berry said in its latest conference call.

Other FMCG majors such as Dabur and Godrej have also talked about potential price hikes to combat inflationary pressures.

Commodity prices have not cooled down, with crude oil prices hovering around $80 a barrel, its highest since November 2021.

With the country in the grip of yet another wave of the Covid-19 pandemic, middle and lower-income shoppers might continue to be wary of spending on non-essentials.

“The pandemic has witnessed re-calibration of the consumer wallets amid economic disruptions. It brought a shift in consumption patterns among consumers as necessary purchases are taking precedence over luxury spending,” a Nestlé India spokesperson said.

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