Inflation in other FMCG items now

The next time you head out to the corner store after reading the morning papers about spiralling inflation, you could take some solace or cold comfort, if you will, from the fact that prices of tea, coffee, soft drinks and certain food items such as confectionery have remained pretty much stable.

But for everything else, be prepared to fork out a lot more than what you did last year. .

It isn’t just fruits and vegetables or pulses and rice which you’re paying more for as sharp increases in input costs across several categories of items of daily consumption (fast moving consumer goods/FMCGs) have seen manufacturers hike prices sharply over the past year.

You could be shelling out far more for that jar of Horlicks or Bournvita, or your detergents, toilet soaps and biscuits, not to mention the oil for your pans and the atta for the phulkas.

With petroleum prices going through the roof, it was inevitable that prices of products such as detergents that use petro-derivatives as inputs would go up.

The prices of palm oil (used in toilet soaps), wheat and milk — key inputs for malted beverages and biscuits — have risen.

And, what’s more, packaging costs have gone up too as prices for LDPE and HDPE plastic, again petro-derivatives, have also shot up, fuelling the price hikes.
Sharp rise

After holding prices for over three years between 2005 and 2007, FMCG makers have, over the past year, pegged up prices sharply.

Ask Mr D. Sundaram, Vice-Chairman and CFO, Hindustan Unilever, the country’s largest FMCG maker, whether higher prices of consumer goods are merely keeping pace with the higher inflation, and he says that prices for HUL brands need not necessarily match the underlying inflation in the relevant commodities. “For instance, vegetable oil prices have gone up by over 50 per cent in recent times while the increase in soap prices has been significantly lower; this is true across many categories,” explains Mr Sundaram.

Nor has the reduction in peak import duties over the past two years helped offset the steep increases in input costs of palm oil and petroleum-related raw material.

As Mr Sundaram points out, prices of industrial vegetable oil (which go into soaps) have gone up by over 50 per cent while the duty reduction has been about 5 per cent.

For three years till 2007, a combination of several factors, such as fierce competition among existing players, entry of new players and depressed demand, ensured prices of most consumer goods largely stayed static.

But, a cursory glance of current MRPs of a sampling of FMCGs spread across various categories ranging from beverages to biscuits and detergents to soaps shows that prices have risen in a band of Rs 2-Rs 10.

A 500-gram jar of Horlicks now retails for Rs 128 against Rs 118 last year and Bournvita for Rs 123 against Rs 116 last year.

Or, take detergents. A 1.5-kg pack of Surf Excel Blue retails for Rs 135 today while it sold for Rs 120 in February 2007 (See table on Page 3).

While most brands have seen an outright increase in prices (malted beverages by at least Rs 10), in some categories such as biscuits, manufacturers have chosen to reduce the weight of the packet, tantamount to a price increase.
Less grammage

According to Mr Praveen Kulkarni, Marketing Manager, Parle Ltd, “We reduced our grammage by almost 10 per cent across the brands this January and will continue to do so till the time every other biscuit player does the same thing. There have been input cost increases by 30 per cent for ingredients such as wheat, flour, sugar and vegetable fats. The category is price-sensitive and under these circumstances, we would rather not increase prices for our biscuits.”

So, in the context of higher prices across a swathe of consumer goods, what is happening to the consumer’s shopping basket? Are they downtrading to cheaper products, postponing purchases, refraining…?

Mr R. Subramanian, Managing Director of discount retail chain Subhiksha, who closely observes that “moment of truth” when a customer makes a brand purchase, does see an impact at some levels.

“But the core basket still survives, mostly the impulse discretionary items are clearly suffering at the margin. This month (May) is key — this is the first month of salaries under lower taxes — and hence more cash in consumer hands.”
Shift in preference

Mr Subramanian emphasises that impulse goes down — and substitution happens.

“Gingelly oil at Rs 150 per kg is clearly substituted in large part by groundnut oil while palm oil consumption has also grown at the cost of sunflower oil. There are clear shifts, even in items like rice, but prices of agri-produce have been the biggest pain area in the basket,” he adds.