Balancing margins & growth will be key agenda for FMCG majors in 2022
Cost inflation to keep packaged goods makers at the edge; consumers will have to loosen their purse strings.
- Dec 31, 2021,
- Updated Dec 31, 2021 12:48 PM IST
The year 2021 had arrived with much hope and cheer for the fast moving consumer goods (FMCG) majors as rural volume growth was at an upswing and overall demand for packaged goods was at years’ high. By the end of it, though, much of that excitement has vanished. With inflation across key sectors taking input costs at a decadal high and faltering demand at hinterlands, stakeholders of the fourth largest FMCG market in the world are now staring at an uncertain year ahead.
Over the last 12 months, cost of agri-commodities like crude edible oil, pulses, condiments, preserved vegetables, milk and milk derivates, among others, have gone up by mid to high double digit rates year-on-year. Steep rise in cost of ocean freight - by up to 400 per cent - and prices of fossil fuel have shot up cost of logistics and packaging materials significantly. Resultantly, all leading players like Hindustan Unilever (HUL), ITC, Nestle, Adani Wilmar, Dabur, Marico, Emami, among others, had to pass on the additional burden to consumers - in multiple tranches over the last 12 months.
With cost of most commodities, logistics and packaging materials, continuing to range near the peak, companies are now embracing the reality that in 2022, they would have to keep hiking prices of household items. From personal care essentials like soaps, detergents and toothpastes to staple packaged food items like savoury snacks, breads and dairy products - all key products are expected to get dearer.
According to Suresh Narayanan, chairman and managing director at the country’s largest pure-play packaged foods company - Nestle India - further price hikes are imminent. “2022 clearly seems to be a difficult year. While there is an uptick in milk prices, opening up of the economy will lead to higher economic activities and surge in demand - leading to escalation (in prices). Globally, coffee prices are going up significantly, supply-side disruptions in cocoa, the oil complex, and packaging materials have led to cost escalation of 4-5 per cent. There is going to be a spectre of food inflation that will haunt us,” Narayanan said in a recent interaction.
Sanjiv Mehta, CMD of HUL - the largest non-cigarettes FMCG company in the country, terms the current inflation scenario to be “unprecedented”. The company has already hiked prices of its products at least three times in last 10 months and has not ruled out further hikes in coming months.
“While we expect the overall inflationary trends to continue, the discretionary spends have picked up in the last few quarters. In the last six-eight months, we have seen a good uptick in categories like snacks, juices, premium biscuits, deodorants, and premium soaps. We see this trend continuing in the upcoming year as well,” a spokesperson from the Kolkata-based diversified conglomerate ITC said.
Others like Britannia, Marico and Dabur are on the same page.
After a year of continued price hikes and cost escalations, what is making consumer goods majors jittery is the risk of foregoing volume growth or their margins. Data shows, steady rise in products prices have already begun to dent consumer sentiment as inflation across all categories is stressing household budgets. Numbers from data analytics firm Nielsen shows, overall demand in the rural market have come down to 3.5 per cent in the August-September period, compared to 12 per cent during the first half of the year. As result, overall demand growth fell to 8 per cent from 13 per cent.
Taking cue from the growth trend, all FMCG majors are now reading their blue print for 2022. While some are planning to keep hiking prices to the extent that they do not have to sacrifice margins, others have already decided to revise margin targets to maintain volume growth.
Take Dabur India, for instance. The Ghaziabad-based ayurveda major is planning to hike prices of products in categories that are growing.
On the other hand, Marico is ready to sacrifice margins, to an extent, to keep volume growth intact, managing director Saugata Gupta told Business Today.
Others like Nestle, HUL, ITC and Emami are trying to master the art of balancing margins and volume growth. As most leading companies continue to increase their penetration in the rural markets, they expect to mitigate some of the cost cutting measures of the existing households by bringing new consumers under their fold.
Some are also hopeful that by mid-2022, inflation would begin to cool off. Angshu Malik, CMD at Adani Wilmar told Business Today that prices of crude edible oil has already began softening and will come down further - at least by 10-15 per cent in coming months.
HUL’s Mehta said, inflation may begin to taper off by mid next year. While, Kolkata-based Emami said it intends to maintain decent margins in FY22 on the back of stringent cost control and volume led growth.
Also Read: GST returns filing deadline extended till Feb 28
Also Read: GST Council meeting tomorrow: Agenda, what to expect from FM Nirmala Sitharaman
The year 2021 had arrived with much hope and cheer for the fast moving consumer goods (FMCG) majors as rural volume growth was at an upswing and overall demand for packaged goods was at years’ high. By the end of it, though, much of that excitement has vanished. With inflation across key sectors taking input costs at a decadal high and faltering demand at hinterlands, stakeholders of the fourth largest FMCG market in the world are now staring at an uncertain year ahead.
Over the last 12 months, cost of agri-commodities like crude edible oil, pulses, condiments, preserved vegetables, milk and milk derivates, among others, have gone up by mid to high double digit rates year-on-year. Steep rise in cost of ocean freight - by up to 400 per cent - and prices of fossil fuel have shot up cost of logistics and packaging materials significantly. Resultantly, all leading players like Hindustan Unilever (HUL), ITC, Nestle, Adani Wilmar, Dabur, Marico, Emami, among others, had to pass on the additional burden to consumers - in multiple tranches over the last 12 months.
With cost of most commodities, logistics and packaging materials, continuing to range near the peak, companies are now embracing the reality that in 2022, they would have to keep hiking prices of household items. From personal care essentials like soaps, detergents and toothpastes to staple packaged food items like savoury snacks, breads and dairy products - all key products are expected to get dearer.
According to Suresh Narayanan, chairman and managing director at the country’s largest pure-play packaged foods company - Nestle India - further price hikes are imminent. “2022 clearly seems to be a difficult year. While there is an uptick in milk prices, opening up of the economy will lead to higher economic activities and surge in demand - leading to escalation (in prices). Globally, coffee prices are going up significantly, supply-side disruptions in cocoa, the oil complex, and packaging materials have led to cost escalation of 4-5 per cent. There is going to be a spectre of food inflation that will haunt us,” Narayanan said in a recent interaction.
Sanjiv Mehta, CMD of HUL - the largest non-cigarettes FMCG company in the country, terms the current inflation scenario to be “unprecedented”. The company has already hiked prices of its products at least three times in last 10 months and has not ruled out further hikes in coming months.
“While we expect the overall inflationary trends to continue, the discretionary spends have picked up in the last few quarters. In the last six-eight months, we have seen a good uptick in categories like snacks, juices, premium biscuits, deodorants, and premium soaps. We see this trend continuing in the upcoming year as well,” a spokesperson from the Kolkata-based diversified conglomerate ITC said.
Others like Britannia, Marico and Dabur are on the same page.
After a year of continued price hikes and cost escalations, what is making consumer goods majors jittery is the risk of foregoing volume growth or their margins. Data shows, steady rise in products prices have already begun to dent consumer sentiment as inflation across all categories is stressing household budgets. Numbers from data analytics firm Nielsen shows, overall demand in the rural market have come down to 3.5 per cent in the August-September period, compared to 12 per cent during the first half of the year. As result, overall demand growth fell to 8 per cent from 13 per cent.
Taking cue from the growth trend, all FMCG majors are now reading their blue print for 2022. While some are planning to keep hiking prices to the extent that they do not have to sacrifice margins, others have already decided to revise margin targets to maintain volume growth.
Take Dabur India, for instance. The Ghaziabad-based ayurveda major is planning to hike prices of products in categories that are growing.
On the other hand, Marico is ready to sacrifice margins, to an extent, to keep volume growth intact, managing director Saugata Gupta told Business Today.
Others like Nestle, HUL, ITC and Emami are trying to master the art of balancing margins and volume growth. As most leading companies continue to increase their penetration in the rural markets, they expect to mitigate some of the cost cutting measures of the existing households by bringing new consumers under their fold.
Some are also hopeful that by mid-2022, inflation would begin to cool off. Angshu Malik, CMD at Adani Wilmar told Business Today that prices of crude edible oil has already began softening and will come down further - at least by 10-15 per cent in coming months.
HUL’s Mehta said, inflation may begin to taper off by mid next year. While, Kolkata-based Emami said it intends to maintain decent margins in FY22 on the back of stringent cost control and volume led growth.
Also Read: GST returns filing deadline extended till Feb 28
Also Read: GST Council meeting tomorrow: Agenda, what to expect from FM Nirmala Sitharaman