Strong demand makes FMCGs hike-happy

Get ready to pay more for daily items like washing powder, soap and milk products.

After hiking prices in the last one month, fast moving consumer goods (FMCG) companies are looking to raise them again.

While rising raw material prices due to deficient monsoon are spurring the move, experts said no letdown in demand despite recent price hikes is emboldening companies to take another shot at raising prices. 

“Companies increase prices only when they see a robust business environment and they expect that this will get absorbed by the consumers,” said Nikhil Vora, managing director of IDFC Securities.

The thrust is also on protecting margins along with growing volumes.

Recently, Hindustan Unilever increased prices of Active Wheel, Surf Excel and Rin by 1-5% and Pears soap by 7%, while competitor P&G raised prices of Tide Plus and Tide Naturals by 4-5%.

GSK has taken a 6% price hike on Sensodyne toothpaste and 4-6% on Boost and Horlicks, while P&G raised Vicks and Olay Total Effects prices 7-10%.

After remaining subdued for some time, FMCG input prices are marching upwards.

Prices of crude-linked raw materials are also shooting up following a 12% rise in crude oil prices since June.

“Crude oil prices have been extremely volatile and rising steadily. In the detergent category, a key ingredient is linear alkyl benzene, a crude-linked raw material. So it’s no surprise that detergent prices have increased,” said Ennette Fernandes, analyst at MF Global.

The below-average monsoon has started pushing up prices of agricultural products.

Domestic wheat and sugar prices are up 16% and 13% month on month due to less rainfall, a JP Morgan report said.

Abneesh Roy, analyst at Edelweiss Securities, said prices of a key agri ingredient in soaps is on the rise. “The cost of agricultural inputs has been rising and with monsoon below normal, these are going to soar further, “he said.

Though palm oil prices have declined 14% month on month, consumer goods companies have not been able to reap any benefit as a falling rupee has eroded all the gains as the commodity is mainly imported. “Looking at the raw material cost, we expect to see more price hike in soap, detergent, toothpaste and skincare category,” said Fernandes of MF Global.

This is not all.

Experts said yet another round of price hikes will follow when new standard packaging norms kick in on November 1.

The new rules mandates companies to follow standard grammage in 19 categories — biscuits, baby food, weaning food, bread, butter, cereals and pulses, coffee, tea and other beverages, edible oils, salt, powdered rice, flour, detergent soaps, water, cement and paints.

“The companies will have to incur cost on changing their packaging model. Apart from this, earlier the companies were able to withhold price hikes by tweaking weight but soon they will be unable to do this. So the only option left will be to increase prices,” said Fernandes of MF Global.

Nestle seems to be readying for the new regime as it has reduced grammage on a Cerelac variant from 350 gram to 300 gram, which, in effect, translates into a price hike of 12-14%.