No respite; FMCG products will cost more and more

Sure, prices of some commodities have started to decline, giving consumer companies some respite, but there are no signs consumer goods will turn cheaper anytime soon.
In fact, they may cost more than ever as other input costs continue to hurt companies.

“Yes, there has been moderation in some key commodities like sugar and wheat, but fuel prices continue to remain high. Prices of other commodities like oils and fats, and dairy have gone up,” Vinita Bali, managing director, Britannia Industries said.
Ergo, expect companies to pass on the rising costs — like they did the whole of last fiscal.

Commodities such as tea, coffee, copra, LAB (linear alkyl benzene, a key ingredient to make soap powder) continue to surge or remain high.

Tea prices rose 13.4% in May over April, while copra and coffee inched up 7.5% and 3.3%, respectively.

On the other hand, prices of palm oil, barley, safflower and sunflower oil have seen a correction of 3-15% this month, spelling relief for companies such as Godrej Consumer Products Ltd (GCPL), Britannia Industries and GlaxoSmithKline Consumer.
For Hindustan Unilever Ltd (HUL), Marico and Asian Paints, times continue to be tough.  Analysts don’t see FMCG product prices stabilising anytime soon.

“Pricing actions are now visible across categories this month which was not the case in earlier months,” Religare Capital Markets analysts Varun Lohchab, Gaurang Kakkad and Bandish Mehta said in a note last week.

Britannia, which has been hiking prices through the last two years, did so once again this month on select brands such as Good-Day and Bourbon to the extent of 20%. Bali said a good monsoon should result in moderation of raw material costs.
Personal care major Emami, which has been affected by surging prices of menthol, light liquid paraffin and high density polyethylene, is considering raising the tab, too.

Asian Paints and Kansai Nerolac Paints too have been forced to take price increases multiple times in the last fiscal.
Analysts said Asian Paints implemented a 4% price hike in May and is looking for another 2% increase in June.

Ditto Kansai Nerolac. “Yes, there could be changes in prices again,” Sukhpreet Singh, general manager - marketing, Kansai Nerolac Paints, said.

HUL hiked detergent prices by over 11% on brand Wheel and 2.6% on Surf. The company also increased prices of its toilet soaps Lux, Lifebuoy and Pears by 3-6%.

GCPL also hiked prices of toilet soap Cinthol by 4%. This is the third price hike in soaps in the last six-eight month period.
Interestingly, shampoo is one category that is witnessing a trend reversal owing to intense competition. HUL, Procter & Gamble and L’Oreal have all been cutting prices and offering additional free grammage.

“The FMCG segment is facing intense competition along with high raw material inflation resulting in slowing down of growth in the segment to 17% in the fourth quarter of last fisdcal compared with 26% in the third,” analyst Himani Singh of Elara Capital wrote in a note last week.

Recently, while announcing HUL’s results for the full year, chief executive Nitin Paranjpe said that going forward volume growth could slow down and price growth could lead to value growth, especially in detergent and soap business.