FMCG firms express concern over inflation, hint at potential price hikes

NEW DELHI: Leading FMCG companies reported a decline in margins in the September quarter on account of higher input costs and food inflation, which ultimately slowed down the pace of urban consumption.

Rising prices of commodity inputs such as palm oil, coffee and cocoa were also accentuated and some FMCG firms have hinted at a price hike.

HUL, Godrej Consumer Products Ltd (GCPL), Marico, ITC, and Tata Consumer Products Ltd (TCPL) have expressed concerns over squeezing urban consumption, which as per industry experts forms 65-68 per cent of FMCG total sales.

“We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs,” said GCPL MD-CEO Sudhir Sitapati in a Q2 earning statement.

GCPL, makers of Cinthol, Godrej No 1, HIT had a steady quarter given the headwinds of oil costs and tough consumer demand in India and its standalone EBITDA margin was lower, caused entirely by high inflation in palm oil.

The rural markets, which were earlier lagging behind, continued their growth journey ahead of urban. Besides, FMCG players reported growth from premium products and from sales through quick-commerce channels.

Another FMCG maker Dabur India also said the demand environment was challenging in the September quarter marked by “high food inflation and a resultant squeeze in urban demand.”

The maker of Dabur Chyawanprash, PudinHara and Real juice reported a decline of 17.65 per cent in its consolidated net profit to Rs 417.52 crore and revenue from operations slipped 5.46 per cent to Rs 3,028.59 crore.

Recently, Nestle India CMD Suresh Narayanan also raised concerns over decline and said “middle segment” is under pressure as high food inflation continues to cripple household budgets.

“It is extremely clear that the market is facing muted demand. The growth in F&B sector, which used to be in double digits a couple of quarters ago, is now down to 1.5-2 per cent,” he said.

Over the rise of food inflation, Narayanan said there is a “sharp uptick” in prices of fruits and vegetables and oil prices.

“This could lead to an increase in prices if raw material costs become unmanageable for companies. We are ourselves facing a difficult situation as far as coffee and cocoa prices are concerned,” he said.

TCPL MD-CEO Sunil D’Souza also said urban has softened and has an impact on consumer spending in urban areas.

“My hypothesis is probably food inflation is higher than what we think it is and the impact is far higher,” said D’Souza in the earnings call for the September quarter.

HUL CEO-MD Rohit Jawa said the market volume growth trajectory remained muted in this quarter. At an MAT (moving annual total) level, total FMCG volume growth has slowed down slightly in recent months.

“The pattern is quite clear that urban growth has trended down in the recent quarters or quarter and rural has continued to grow gradually and has now for the past few quarters been ahead of urban, and also continues to be ahead of urban this time,” Jawa said in an earnings call.

HUL, which owns power brands such as Surf, Rin, Lux, Pond’s, Lifebuoy, Lakme, Brooke Bond, Lipton and Horlicks, reported a 2.33 per cent decline in consolidated net profit.

We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs

Sudhir Sitapati, MD-CEO, GCPL

My hypothesis is probably food inflation is higher than what we think it is and the impact is far higher

Sunil D’Souza, MD-CEO, TCPL

The pattern is quite clear that urban growth has trended down in the recent quarters or quarter and rural has continued to grow gradually and has now for the past few quarters been ahead of urban, and also continues to be ahead of urban this time

HUL CEO-MD Rohit Jawa

It is extremely clear that the market is facing muted demand. The growth in F&B sector, which used to be in double digits a couple of quarters ago, is now down to 1.5-2 per cent

Suresh Narayanan, CMD, Nestle India