Over the past month, there has been a sharp correction in two crucial commodities – crude oil and palm oil – which together account for more than half of business input costs. The price of palm oil – used to make products such as soaps, cookies and noodles – fell to $830 per metric ton from highs of $1,900. Crude oil, a key input for detergents and packaging, among others, fell to less than $100 a barrel from a high of around $130.
“Input costs are still very volatile. They are not expected to return to peak levels, but they need to stay at these levels or fall further for companies to directly reduce MRP or increase the packaging weight,” said Mayank Shah, senior category manager at Parle Products, India’s largest food company. “So until then, consumers will get indirect benefits through promotions like free extra packs or discounts.”
The fast-moving consumer goods (FMCG) market rose 7% in value and fell 5% in volume in the quarter ended June. As volumes have fallen over the past three quarters, value growth has also begun to slow, the companies said. “Despite price increases, if value growth is declining, it is a clear sign that demand is under pressure. While commodity prices are still volatile, increasing promotions and product bundling at lower prices can help manage growth temporarily and at the same time pass on the recent drop in commodity prices,” said Anil Chugh, food business manager at Wipro Consumer Care.
“ Back to recommendation stories
Most companies have already bought or contracted raw materials at high prices, which translates into higher manufacturing costs for the current quarter. In addition, rising freight costs and the depreciation of the rupee are still of concern.
During his earnings call,
said prices for a few commodities cooled but most inputs remained significantly high relative to the long-term average.
The company expects some moderation in inflation in the December quarter, especially if geopolitical tensions ease.
In standby and watch mode
“If the slowdown we’ve been seeing lately in commodities continues, we expect the net material impact in the December quarter to be less than the September quarter. We’ll have to wait and watch how prices move commodities over the next few months to get an idea of the exact amount of reduction,” Ritesh Tiwari, Chief Financial Officer,
CMD Sanjiv Puri told ET that even though commodity prices have cooled down, it is very difficult to predict the outlook as there are multiple factors including supply issues.
“Inflation will remain at a high level. But whenever there is some reduction, we will pass the savings on to inflation-stressed consumers. Any benefit will accrue to consumers,” he said.
The planned promotions are initially expected to occur through modern shopping and online channels, the distributors said. “Price discounts could be passed on to supermarkets and e-commerce players, as distributors generally have more incentive to increase volume sales instead of new stock with offers,” said Dillip Gupta, founder of Svastiga. Distribution, which distributes for half a dozen companies, including Hindustan. Unilever,
ITC and Parlé.