FMCG firms go for volume growth through higher grammage, price cuts

Fast Moving Consumer Goods (FMCG) companies are seeking volume growth as raw material prices come off their peak. They are now heading for price cuts and higher wages.

This comes on the back of a slight uptick (3.1% growth) in rural demand in the January-March period, after remaining in negative territory in the previous six quarters, according to NIQ data.

Parle’s flagship FMCG products have gone for price cuts on their larger packages and increased grams for lower price packages. “We increased the gram weight on smaller packages last month, and on larger packages, we’ve reduced prices in the range of 10-15 percent,” said Mayank Shah, Senior Category President, Parle Products.

Over the past two years, these companies have had to increase prices and decrease gram as raw material costs have skyrocketed.

Ritesh Tiwari, chief financial officer at Hindustan Unilever, recently told analysts after announcing its results that the company expects price-to-volume growth to rebalance.

“Price growth will continue to taper… due to lower prices in categories. We expect volumes to recover gradually due to higher levels of cumulative inflation and the fact that consumption habits will usually recover with a lag,” Tiwari said.

He further said that, given the current circumstances, HUL will continue to run its business with “agility to grow consumer franchise while keeping profit margins in a healthy range.”

“Our focus is on ensuring the right price-to-value equation for competitive volume growth, rebuilding gross margins, and creating A&P (advertising and promotion) investments,” he said.

The Great Biscuit Industry in Britannia also began to raise prices. Faron Perry, vice president and managing director, told analysts during a conference call after Britannia’s results were announced that it doesn’t want to just chase margins. “We don’t want to become margin hungry and not continue our trajectory of revenue growth, volume growth and market share growth. It has to be a balanced play and that’s what we’re trying to do,” Perry said.

“We will take appropriate pricing actions to stay competitive and drive market share growth,” he told analysts, adding that the company has begun to initiate some price cuts and added that the company may take further pricing actions going forward as well.

Dabur India CEO Mohit Malhotra also told analysts that the key is to drive growth and tonnage volume, and increase penetration in the country.