The FMCG companies continues to see rising prices in categories such as soaps, edible oils, tea and detergents due to sustained inflation on essential oils such as palm oil, crude tea and copra. Increased packaging costs and crude oil prices, too, add to the pressure.
Hindustan Unilever has increased the prices of its brands such as Lifebuoy and Lux by 6-7 percent, while its tea brands such as Brooke Bond and Lipton have seen an increase in prices in the second quarter now.
Marico has increased the price of Saffola edible oil product by 50 percent in the last two quarters. One of its variants, Parachute, has also seen a two-digit price increase over the past two quarters.
“This quarter, the company experienced a series of price increases in March, which required further price adjustments in Q1FY22 in selected key products,” Marico said in a press release announcing its fourth quarter results ending in March (Q4).
Britannia, too, has shown an increase in prices to cover installation costs.
“As we begin to rise in price by the end of the quarter, we are confident that we will completely override inflation by 3% above FY22,” Varun Berry, MD, Britannia Industries, told investors after reporting Q4 results.
In addition to HUL and Marico, Tata Consumer Products, Emami, Colgate-Palmolive, Wipro Consumer Care and ITC have raised the prices of several products at the beginning of February this year.
Inflationary pressure piles up
Inflation by consolidated consumer goods companies has become necessary due to the rising cost of raw materials. The price of palm oil, for example, is a major ingredient in many home and personal care products including soap, which has seen a 40-50% inflation, says Himanshu Nayyar, Lead Analyst – Institutional Equities, Yes Securities.
Similarly, tea prices have also risen and increased by 70-80 percent in the past few months, adds Nayyar.
The rise in crude oil prices has not only increased the cost of equipment for FMCG firms but also increased the cost of importing soap makers such as a number of raw materials linked to raw materials used in production.
Marico, in a press release, reported that the price of rice bran oil increased by 39 percent annually (YoY) in Q4, with crude extracts such as Liquid Paraffin (LLP) and HDPE also rising by 29 percent and 1 percent -31 YoY in Q4, respectively.
“In Q4, prices in the copra market were up 25 percent of YoY, mainly due to the supply of oil and coconut in the copra conversion,” he added.
In addition, packaging costs have increased due to COVID-related restrictions. According to Gaurav Jalan, the founder of Packman Packaging, due to a shortage of waste products, there has been a 30 to 40 percent increase in the cost of packaging materials.
FMCG companies, on average, receive about 20-30 percent of the installation costs from packaging. Costs are very high in high-end unit packs.