FMCG manufacturers have opted to reduce product weight rather than target low-end consumer commodity prices, while adopting single-digit price hikes for some large packages and introducing “bridge packs” to overcome the impact of commodity price increases and unprecedented inflation.
In addition, they have used economical packaging, recycled products, and cut advertising and marketing spending in response to sudden cost spikes stemming from geopolitical crises such as the Russia-Ukraine war and the Indonesian palm oil export ban.
Rising commodity prices and unprecedented inflation hitting new highs are forcing consumers to tighten their wallets and opt for low unit price (LUP) packages to maintain household budgets.
Its chief executive Mohit Malhotra said homegrown FMCG maker Dabur India has tackled the challenge with pricing action and cost control measures.
“In urban markets where per capita income is higher and consumers have purchasing power, we use bulk pack prices. On the other hand, in rural markets, where LUP packs are sold, we see grammage reduction protections like Re 1, Rs 5 and Rs 10 such a divine price point,” he said.
With inflation showing no sign of falling in the coming quarters, FMCG companies are fighting back by cutting grammage, rolling out transitional packaging and single-digit price hikes for some larger packs.
Recently, several companies have reduced the grammage of their products at popular price points, from soap to noodles, chips to Aloo Bhujia, and cookies to chocolate.
“We have observed that some consumers have turned to affordable packaging or LUPs to manage their monthly grocery budget. We have also increased LUP supply across major brands across categories to meet this consumer demand,” Malhotra Say.
While Mayank Shah, head of advanced categories at Parle Products, said there were “some early signs” of consumers switching to value-packed packaging due to a slight uptick in sales of lower-priced packs.
“In terms of smaller packages, given the situation, there is some appeal,” he said.
Markdown deals are the practice of customers switching from expensive products to cheaper alternatives in order to save cash.
According to retail intelligence platform Bizom, there was a “significant increase” in consumption of lower-priced products in urban and rural centres in the January-March quarter compared to the July-September quarter.
It said this was mainly due to hyper-price inflation for edible oils, a key ingredient in the Indian food sector.
“FMCG products in urban and rural areas of India show signs of significant decline. Price inflation remains the main driver of this cross-category shift, especially in products where oil, wheat and other inflationary commodities remain key input ingredients,” Bizom CEO Says Growth & Insight Akshay D’Souza.
Consumers are trying to save money by buying smaller packages, which is happening across all FMCG categories, said Abneesh Roy, executive vice president of Edelweiss Financial Services.
“Most FMCG categories are packaged at Rs 1 to Rs 10 per unit and account for 25 to 35 per cent of their sales. Even with markdown deals, consumers will still choose brands,” he said.
There is also huge cost inflation for FMCG companies, they can increase the price of large packages, but the real challenge is to reduce the gram weight per point, as it cannot exceed a threshold level. This has forced FMCG companies to opt for transitional packaging.
“It gives customers more gram weight and it’s a win-win for both parties…Companies are trying to upgrade customers by offering more value, getting more grams for every rupee spent Heavy,” Roy added, adding that it has become a focus area for all major FMCG companies in the current period of hyperinflation.
Leading FMCG maker HUL said in its most recent earnings call that it would pursue a “bridging strategy” as it expects more sequential inflation.
About 30% of HUL’s business is in the price point package, and it will take calibrated pricing action.
Kolkata-based FMCG giant Emami said LUPs have been the backbone of its business, contributing about 24% of sales. “However, it was mid-size backpacks that grew faster in the January-March quarter,” an Emami spokesperson said.
Bakery Foods Company Britannia Industries, with LUPs of Rs 5 and 10, about 50 to 55 percent of its total portfolio, has to nurture the business, its managing director Varun Berry said in a recent earnings call.
On inflation, however, he said: “…no other activity can address the pain that inflation has caused us. It has to be a price adjustment. While we will try to be careful about it and make sure it doesn’t There’s too much impact on consumers…we’re going to have to make some tough decisions.”