With the implementation of the new packaging norms fast-moving consumer goods
(FMCG) companies have indicated that they may go for a fresh round of price hikes.
"Most of the companies are already resorting to various packaging and other cost-effective measures. If the new packaging norms are implemented, companies have to increase their prices," a senior executive from Hindustan Unilever Ltd (HUL) told Mail Today
. "The cost of raw materials has increased considerably and margins are under stress. In this scenario no company can contain price beyond a certain point. There may be another price hike, in two to three months," the HUL official added. Another FMCG company, Britannia, too, hinted at a price hike in the coming months.
"We are looking at various options to cut costs. But it is to be seen how long we can hold the prices. If required we will go for a price hike in some categories," a Britannia executive said. However, the executive refused to give the timeline for the hike. In the last one year the cost of consumer items have increased many times over. In order to contain the prices and make up for the reducing operating margins, FMCG firms resorted to tinkering with pack sizes.
Recently, the ministry of consumer affairs, food and public distribution issued a notification which categorised 19 consumer goods which have to be to be sold
only in standardised pack sizes from July 1 next year.
If this regulation is implemented, FMCG companies will have to stick to standard pack sizes. Also, some firms may have to introduce new pack sizes in a few product categories. "If this regulation is implemented, FMCG companies may have to do away with popular price points as taking price hikes by reducing the grammage at these price points will no more be possible," the Associated Chambers of Commerce and Industry of India (Assocham) said.
Companies claim that there has been an increase of at least 20 per cent in raw material costs due to rising interest rates and inflation. If this new packaging rule is implemented, it will adversely affect their profit margins which are already under pressure. FMCG companies will not be able to tweak the volume in packaging, which they used to do earlier to in order to maintain the prices.
According to Assocham, FMCG companies normally did not tinker with price points but made changes in the pack sizes in order to protect the fall in margins due to high raw material prices.
Courtesy: Mail Today