Weighed down by higher input costs and food inflation, fast-moving consumer goods (FMCG) companies are reviewing their entry price points of Rs 5 and Rs 10. Those who don’t want to vacate the low-priced packs segment are considering a grammage reduction due to rise in prices of commodity inputs such as palm oil, coffee and cocoa by up to 50-60% in the last one year.
“Rs 20 is becoming the new Rs 10,” said Krishnarao Buddha, senior category head, Parle Products, a leading biscuit maker. “Rs 20 price point contributes about 12-14% to food companies right now. This will go up to about 25% in the next 3-4 years as companies look to grow this price point,” he said. However, he said that Rs 5 and Rs 10 price points are “sacrosanct”. “We may reduce grammage, but will not vacate these price points,” he said.
According to data by Kantar Worldpanel, sourced from the industry, Rs 5 price point currently delivers volumes of around 32% to FMCG companies. Packs of Rs 10 deliver volumes of around 23% and that of Rs 20 account for around 12-14% respectively.
Q2FY25 Review: IT sector saw moderate deal wins, weak second half outlook, says JM Financial
Quant funds may gain significant market share in India says Prabhudas Lilladher
Upstox targets to make retail trade more profitable: CEO
Zomato delivers in Q2: Brokerage firms bet big on Blinkit, say building war-chest to deter competitors, fund further expansion
Industry executives say that the share of Rs 5 is reducing in the FMCG basket. It was 35% two years ago, and will go down further in the future. They suggest that the Rs 10 price point is slated to grow and will touch 25% in terms of FMCG volumes, but will remain stagnant thereafter as the attention shifts to the Rs 20 price point.
Last month, Suresh Narayanan, chairman and managing director at Nestle India, said they “never wanted” to vacate the Rs 5 segment. “But the water went above my nose,” he said. “I would have had to sustain it at such huge losses that it would have meant eroding the margins for the company, permanently.”
Narayanan said the company moved from Rs 5 to Rs 7 and then to Rs 10, which now accounts for 16-20% of their business.
Others are considering price hikes. “We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs,” said Godrej Consumer Products managing director and CEO Sudhir Sitapati in a Q2 earning statement. Others have also expressed concerns over squeezing urban consumption, which accounts for 65-68% of total FMCG sales.
A partner at a top consultancy said companies are unlikely to leave these price points and may take steps like shrinking the size to sustain the margins. “I think these price points are here to stay. But input costs is very high right now,” he said, asking not to be named.
From: financialexpress
Financial News
