Is the FMCG sector coming out of the woodwork?

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Fast Moving Consumer Goods (FMCG) companies have priced up 10-15% in recent months. They have also reduced the weight of cookies, juice and several other packaged items to compensate for the loss suffered due to rising input costs.

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Almost all spices have seen double-digit increases in price over the past year. Chilli powder rose 12.6%, while Garam Masala jumped 15.6%, according to data from Bizom, a trade intelligence platform. The prices of turmeric, Jeera and coriander have increased by 11.6%, 12.7% and 16.9% respectively over the past year.

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In the essential food category, milk prices increased by 5.4% compared to the period last year, while those of Atta and bread increased by 8% and 12.3% respectively. . Branded bath soaps and detergents, which fall under the essential non-food segment, have also seen double-digit price increases over the past year.

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Rising prices have also affected the drop in consumption, especially in rural areas. FMCG companies reported lower volumes across all categories over the past two quarters. According to a Nielsen report, volumes were down 4% in the March quarter, driven by a sharp drop in the non-food category.

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Also in the June quarter, volumes remained under pressure. Consumer goods giant HUL’s sales growth in the first quarter was largely driven by price increases, while underlying volume growth was moderate at around 6%.

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Godrej Consumer Products Ltd (GCPL) and Marico also said they expect volumes to decline “mid-single digit” in the first quarter. Experts say FMCG volumes may have contracted around 5-8% in the June quarter.

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Mayank Shah, Senior Category Manager, Parle Products, says the sector is already seeing signs of rural demand picking up in the current quarter. He expects an overall recovery in demand by the end of the current quarter. The holiday season could boost large-scale consumption, he says.

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Palm oil – one of the main commodities used in FMCG products – fell to around $1,200/MT from peak levels of $1,800-1,900/MT. So, is the worst behind for the industry and could there be relief for consumers in the future? Akshay D’souza, head of growth and insights at Bizom, said a slight decline in commodity prices in some categories is likely. However, there is no pressure on companies to ease the price burden.

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FMCG companies could seek to focus on effective rates by delivering higher value to consumers at the same price to drive volume growth. There could also be competitive pressure on companies in terms of offers and programs ahead of the festival season.

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Beating analysts’ estimates, Hindustan Unilever (HUL) said on Tuesday that its standalone net profit for the quarter ended June 2022 was up 11%. HUL Managing Director and CEO Sanjiv Mehta said that although there are short-term concerns about inflation, the recent easing in commodity prices, monetary and fiscal measures taken by the government bode well. for industry. India’s rural areas contribute 35% to the overall sales of the FMCG sector. If the monsoon is good and regular over the next month, it could lead to an increase in rural incomes and an increase in rural consumption.

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Akshay D’Souza, head of growth and insights, Bizom, says FMCG companies will look to hold prices even if commodity prices fall. They might give a higher value per gram or per rupee on the product. Consumer companies will focus on consumer-oriented offers and programs ahead of festival season.

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In a context of inflationary pressures, the recent decision to impose GST on prepackaged food products up to 25 kg such as atta, paneer and curds could add some pressure on volumes in the short term and also make more expensive items for consumers.

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A recent report by ICICI Direct Research said commodity prices could fall in three to six months due to rising interest rates around the world. FMCG companies are banking heavily on the festive season to drive overall volume growth and a pick-up in demand on the back of a good monsoon could bode well for the industry.

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