Fast moving consumer goods (FMCG) companies, such as Hindustan Unilever Ltd (HUL), ITC and Godrej Consumer Products Ltd, are mulling over another hike in the prices of their products to combat increasing input costs.
"We have increased prices of some products recently, but if the commodity prices continue the way they are, then I suspect there could be a further price rise," Nitin Paranjpe, chief executive officer (CEO) and managing director (MD), HUL, said.
With their margins coming under pressures the FMCG companies said they cannot hold out against price hike any longer.
Most of the companies are likely to increase the prices of soaps, shampoos and hair care products on account of increase in vegetable oil prices, which has gone up considerably in the past few months.
HUL, which has recently revised the price of its popular soap brand Lux, said that their cost of manufacturing has gone up due to the rise in cost of vegetable oil.
"The company is containing increase in input cost where it can but if it continues at the same pace they cannot contain it anymore," Paranjpe said.
However, he did not specify the amount of price hike that could be expected.
Other companies have also taken similar measures . Godrej Consumer Products Ltd has raised prices of its hair colour product and is mulling over hiking prices of its soaps and hair care products by about five per cent. Even Marico Industries is planning to hike its product prices by 7 to 8 percent.
For FMCG companies, the expenditure on consumption of raw materials as a percentage of sales has risen in the December 2010 quarter by about 25-30 per cent. While some companies have reduced the impact by cost-cutting measures, profits of even large companies, like HUL, declined even though overall sales witnessed a double-digit growth.
Another product category in which companies will hike prices is packaged food, which have to bear the burden of rising costs of vegetables and fruits and increased packaging cost.
"We will hike prices of packaged food products in the near future because ingredient prices have gone up by 30-35 per cent in the last two years. Pressure on the margins would be around 14-15 per cent," Chittaranjan Dar, CEO, ITC Foods, said last week.
According to Dar, the company is planning to increase prices of packaged food items by 7-8 per cent.
Apart from the increase in commodity prices, companies are also citing high cost of packaging as one of the reason for price hike, which accounts for 20 per cent of the cost of some packaged foods.
"The cost of packaging has gone up considerably and it is one of the key ingredients of our input cost. For some of the companies the packaging cost has gone up by 36-39 per cent during this period. This is forcing us to go for another price hike," a senior executive at ITC told MAIL TODAY . Companies are also looking at other measures to contain prices.
"Rather than hiking price we are looking at reducing volume and looking at other cost effective measures as price hike has immediate impact on volumes.
We will wait till the Budget before going for price hike," the official said.
Courtesy: Mail Today