As inflation rises, sales of low-unit packs skyrocket; Go for FMCG companies
FMCG makers have resorted to single-digit price increases for some large packs to offset the impact of product price increases, and while launching ‘bridge packs’, low-end consumers have opted to reduce product weights rather than price targeting items. And unprecedented inflation.
In addition, they have reduced the cost of economic packaging, recyclable products, and advertising and marketing in response to the Russia-Ukraine war, as well as the sudden stimulus to costs due to geopolitical crises such as the ban on palm oil exports from Indonesia.
Rising commodity prices and unprecedented inflation have hit new highs, forcing consumers to opt for low-unit price (LUP) packs to tighten their purse strings and maintain their family budget.
Domestic FMCG maker Dabur India has responded to the challenge with a mix of pricing measures and cost control measures, said its CEO Mohit Malhotra.
“In urban markets, where per capita income is higher and consumers have the ability to spend, we have taken the price in big packs. In rural markets, on the other hand, where LUP packs are sold, we have seen a decline in the grammaze to protect sacred price points such as Rs 1, Rs 5 and Rs 10, ”he said.
With no signs of inflation easing in the coming quarters, FMCG companies are struggling with single-digit price increases for gram table cuts, launch bridge packs and some larger packs.
Recently several companies have reduced the grammar of their products available at popular price points from soap to noodles, chips to potato bhujia and biscuits to chocolate.
“We have noticed that some consumers have moved to affordable packs or LUPs to manage their monthly grocery budgets. We have also increased the supply of our original brand LUP to meet the demand of consumers, ”said Malhotra.
Although Mayank Shah, senior category head at Parle Products, said there were “some early signs” of downtrading, consumers were turning to value packs as sales of low-unit packs were on the rise.
“In terms of small packs, there’s been some traction in terms of the situation,” he said.
Downtrading refers to the practice of switching from expensive products to cheaper alternatives by consumers to save cash.
According to retail intelligence platform Bizom, there is a “definite increase” in product use across lower price points in both urban and rural centers in the January-March quarter compared to the July-September quarter.
This is mainly due to the high price inflation from edible oil which is a key component of the Indian food plate, it says.
“There are signs of significant decline in FMCG products across both urban and rural India. The key drivers of this change across the inflation segment, especially where oil, wheat and other inflationary products have remained a key input factor, “said Akshay D’Souza, Bizom’s Chief of Growth and Insights.
Abneesh Roy, executive vice president of Edelweiss Financial Services, said consumers are trying to save money by buying smaller packs and this is happening in all FMCG departments.
“Most FMCG departments have unit packs of less than Rs 1 to Rs 10 which is 25 to 35 per cent of their sales. Even when downtrading happens, the consumer stays with the brands, ”he said.
There is also huge inflation for FMCG companies, they can raise the price of big packs, but the real challenge is to cut the gram table at lower unit points, as it cannot go beyond a threshold level. This has forced FMCG companies to go for bridge packs
“It offers more grammages for customers and a win-win for both … Companies are trying to improve the customer by paying more, paying more grams per rupee,” says Roy, in a time of current hyperinflation Areas for all major FMCG companies.
HUL, a leading FMCG maker, said in a recent earnings call that the company would adopt a “bridge-pack strategy” as it expects to see more sequential inflation.
HUL, which has approximately 30 percent of its business in the price-point pack, will take steps to determine the calibration.
Kolkata-based FMCG chief Emami said LUP was the core of its business, contributing about 24 per cent to sales. “However, it is the mid-pack that has grown rapidly in the January-March quarter,” said a spokesman for Emami.
Bakery Foods Company Britannia Industries has about 50 to 55 per cent of the total mix of LUPs of Rs 5 and Rs 10 and that business needs to be nurtured, its managing director Varun Berry said in his recent earnings call.
However, regarding inflation, he said: “… there is no other way to meet the pain that inflation is going to give us. This would be a price correction. However, we will try to be conscientious about it and make sure that it does not have a huge impact on consumers. We have to take some tough calls. “
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