FMCG firms to hold prices despite rise in commodity costs; prioritise volume growth

FMCG companies are likely to hold prices through the festive season despite a rise in commodity prices, including sugar, and the impact of geopolitical disruptions, as they seek to protect consumer demand and maintain volume growth amid improving consumption.

Leading industry executives said companies have already gone for judicious increases of around 2-5 per cent in the June quarter to partly offset higher input costs and are unlikely to raise prices further before the end of the festive season, even as margins remain under pressure.

The sector has been facing renewed cost pressures, with sugar prices touching a new high, alongside a sharp increase in costs of key inputs such as edible oils, coffee, cocoa and crude oil derivatives used in packaging, amid geopolitical disruptions and supply concerns in global markets.

While most companies have absorbed a significant part of the inflation through cost-control initiatives and portfolio management, they remain focused on protecting volume growth, even as pressure on margins remains elevated, industry executives said.

ITC Chief Executive Officer, Foods Division, and Executive Director Hemant Malik said the company would maintain prices through the festive season despite cost inflation.

“We are attempting to hold prices,” Malik said, noting that companies have been absorbing a large part of the increase in commodity prices through cost management initiatives and portfolio actions.

Referring to the impact of the GST rate reduction on several consumer products last year, Malik said the move had led to buoyancy in volumes across multiple categories and supported market demand.

However, he indicated that companies may have to revisit pricing decisions later in the financial year if cost pressures persist.

“Maybe in quarter three or quarter four, we will have to look at some corrections on prices,” he said, adding that most FMCG firms have so far implemented only modest price hikes of around 3-5 per cent despite facing much higher cost increases.

Home-grown FMCG major Dabur India, which has also gone for calibrated pricing actions on select products to partly mitigate input costs, is watching the situation.

“We have taken up prices on a few products over the past few months to partly mitigate the inflationary impact due to the geopolitical situation, while keeping the competitive intensity in mind. Going forward, we will be closely watching the situation as it develops,” said Dabur India CFO Ankush Jain.

Parle Products Chief Marketing Officer Mayank Shah said most FMCG firms are expected to hold prices at least till Diwali, citing strong demand across urban and rural markets and a recent easing in sugar prices due to government measures.

“Most companies would probably be holding the price right now. They will not increase prices because of the festive season. Nobody would like to disrupt demand,” Shah said.

According to Shah, demand has been encouraging across both urban and rural markets, and companies would prefer to sustain the momentum rather than risk slowing consumption through price increases.

He said easing prices of certain commodities, particularly sugar, following government interventions has also provided some relief to manufacturers.

“My understanding is that at least till the festive time, as in till October-November, we will not see any major price hike coming in FMCG categories,” Shah said.

He added that companies are focusing on operational efficiencies and cost optimisation measures to protect profitability while prioritising volume-led growth.

“Companies would prefer volume growth rather than increasing the pricing right now,” Shah said.

The comments come amid several FMCG makers grappling with higher costs of key inputs, including edible oils and packaging materials, amid supply-chain disruptions and geopolitical uncertainties.