Inflation impact: FMCG firms go for grammage cut, bridge packs

With no sign of inflation coming down in the coming quarters, FMCG companies are fighting back through various ways

AgenciesUpdated: Sunday, May 15, 2022, 05:47 PM IST
article-image
The growing commodity prices and unprecedented inflation touching a new high have forced the consumers to tighten their purse strings and opt for the low-unit price (LUP) packs / Representational image | Photo credit: Unsplash

FMCG manufacturers are opting to reduce product weight rather than the price of items targeted at lower-end consumers while resorting to single-digit price increases on some large packs and launching 'bridge packs', as they seek to overcome the impact of commodity price rise and unprecedented inflation.

Besides, they are also using economical packaging, recycled products, and cutting spending on advertising and marketing to counter sudden spur in costs due to geopolitical crises such as the Russia-Ukraine War as well as the export ban of Palm oil from Indonesia.

The growing commodity prices and unprecedented inflation touching a new high have forced the consumers to tighten their purse strings and opt for the low-unit price (LUP) packs to maintain their household budgets.

Homegrown FMCG maker Dabur India has responded to this challenge with a mix of pricing actions and cost control measures, said its CEO, Mohit Malhotra.

''In the urban markets, where the per capita income is higher and consumers have the spending power, we have taken up prices in larger packs. In the rural markets, on the other hand, where LUP packs are sold, we have seen grammage reduction to protect sacred price points like Re 1, Rs 5, and Rs 10,'' he said.

With no sign of inflation coming down in the coming quarters, FMCG companies are fighting back through grammage cuts, launching bridge packs, and a single-digit price increase on some large packs.

Consumers show preference for value packs

Recently several companies have reduced the grammage of their products available at popular price points, ranging from soaps to noodles, chips to Aloo Bhujia, and biscuits to chocolates.

''We have observed that some consumers have shifted to affordable packs or LUPs to manage their monthly grocery budget. We have also increased supplies of LUPs of our key brands across categories to meet this consumer need,'' Malhotra said.

While Parle Products Senior Category Head Mayank Shah said there are ''some early signs'' of downtrading, consumers turning to value packs, as the sale of low unit price packs is slightly going up.

''In terms of smaller packs, there is a bit of traction happening given the situation,'' he said.

Downtrading refers to the practice of switching from expensive products to cheaper alternatives by customers in a bid to conserve cash.

According to retail intelligence platform Bizom, there is a ''definite increase'' in the consumption of products across lower price points in both urban and rural centers in the January-March quarter in comparison to the July-September quarter.

This is mainly on account of Hyper Price inflation from edible oils which is a key ingredient in the Indian food plate, it said.

''There are signs of significant downtrading among FMCG products across both urban and rural India. Price inflation remains the key driver of this shift across categories especially among those where oil, wheat, and other inflationary commodities remain a key input ingredient,'' said Bizom Chief of Growth & Insights Akshay D'Souza.

Edelweiss Financial Services Executive Vice President Abneesh Roy said the consumer is trying to save money by buying smaller packs and this is happening across all FMCG categories.

''Most FMCG categories have lower unit packs of Re 1 to Rs 10 accounting for 25 to 35 percent of their sales. Even when downtrading happens, the consumer remains with the brands,'' he said.

Cost inflation for FMG firms

There is huge cost inflation for FMCG companies also, they can increase the prices of big packs, but the real challenge is grammage cut in lower unit points, as it cannot go beyond a threshold level. This has forced the FMCG companies to go for bridge packs.

''It offers more grammage to the customers and is a win-win for both... Companies are trying to upgrade the customer by offering more value, more grammage per rupee spent,'' said Roy adding in the current hyperinflationary times, it has become a focus area for all key FMCG companies.

Leading FMCG maker HUL, in its recent earnings call had said the company will adopt a ''bridge-pack strategy'' as it expects to see more sequential inflation.

HUL whose approximately 30 percent of business is in the price-point packs, will take calibrated pricing actions.

Kolkata-based FMCG major Emami said LUP has been the mainstay of its business contributing roughly 24 percent of sales. ''However, it is the mid packs that have grown faster in the January-March quarter,'' said an Emami Spokesperson.

Bakery Foods Company Britannia Industries' LUP of Rs 5 and 10 are approximately 50 to 55 percent of its total mix and will have to nurture that business, said its Managing Director Varun Berry in its recent earnings call.

However, on inflation, he said: ''... There is no way that any other activity can fulfill the pain that inflation is going to give us. It will have to be a price correction. While we will try to be judicious about it and make sure that it doesn't impact the consumer in a big way... we will have to make some tough calls.''

(With PTI inputs)

(To receive our E-paper on whatsapp daily, please click here. To receive it on Telegram, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

RECENT STORIES

West Bengal: Mithun Chakraborty should apologize to Mamata Banerjee, says TMC leader Kunal Ghosh

West Bengal: Mithun Chakraborty should apologize to Mamata Banerjee, says TMC leader Kunal Ghosh

Mumbai live updates: City faces water-logging, traffic woes amid downpour; CM Shinde takes stock of...

Mumbai live updates: City faces water-logging, traffic woes amid downpour; CM Shinde takes stock of...

Mumbai: Shiv Sena MP Sanjay Raut hits back at Gulabrao Patil for his 'Four persons around Uddhav...

Mumbai: Shiv Sena MP Sanjay Raut hits back at Gulabrao Patil for his 'Four persons around Uddhav...

Manchester United unsure about Cristiano Ronaldo's participation in pre-season tour

Manchester United unsure about Cristiano Ronaldo's participation in pre-season tour

'Opponents will fear us now': Joe Root on England's new attacking approach in Test cricket

'Opponents will fear us now': Joe Root on England's new attacking approach in Test cricket