FMCG Firms Prioritize Volume Growth to Mitigate Profit Impacts from Rising Energy Costs and Consumer Budget Constraints

FMCG Companies Raise Prices and Reduce Grammage Amid Rising Input Costs

The ongoing tensions in West Asia have led to a surge in input costs for consumer-packaged goods (CPG) makers, prompting companies such as Hindustan Unilever (HUL), Britannia, and Dabur to raise prices and reduce grammage in some cases.

While the focus remains on driving volume growth, these pricing moves have impacted consumer wallets, which are also grappling with rising costs of fuel and energy. According to a new report by market researcher Kantar India, consumers are balancing optimism with caution ahead of the Union Budget earlier this year. However, escalating geopolitical tensions, concerns about a global economic slowdown, and rising anxieties around employment have intensified pressures on households since.

To offset rising input costs, FMCG companies are taking a cautious approach to pricing actions. Hindustan Unilever, which makes Dove soaps and Surf detergent, has announced that it is reducing grammage in low-priced sachets and increasing the price of larger packs to combat the surge in crude-linked raw material. This move comes after the company undertook a price hike of 2-5 percent across its product categories due to an 8-10 percent cost inflation caused by the West Asia war.

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Britannia, the biscuits major, has also announced selective pricing actions for packs priced above Rs 10 and grammage cuts in the June quarter in a bid to protect margins from rising palm oil, laminates, fuel, and freight costs. The company's managing director and chief executive officer, Rakshit Hargave, stated that the company will be taking calibrated price increases starting from this quarter.

Dabur India, the maker of Real fruit juice and Hajmola candy, has stated that it will be taking a second round of price hikes after an initial 4 percent increase in prices amid continued geopolitical volatility. The company's global chief executive officer, Mohit Malhotra, told investors that the firm will be undertaking a "second round of price increase also after considering the war situation."

Increasing strain on wallets

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Experts feel that amid this inflationary environment, consumers may reduce shopping trips or swap regular purchases for larger pack sizes, which are more value accretive, but impact volumes for firms. According to Kantar India, while the consumer remains resilient, it is becoming increasingly focused on financial security.

"Confidence in economic and personal financial prospects has softened, and consumers are responding by strengthening savings intentions, becoming more selective in their spending, and prioritising purchases that deliver long-term value," stated Kantar India.

As energy costs remain elevated, Anand Ramanathan, partner and consumer industry leader, South Asia at Deloitte, stated that companies will now start looking at packaging innovations. "This may make bulk packs relevant once again as customers start to look for value amid a growing inflationary environment," Ramanathan said.

Volumes growth for profitability

For consumer goods makers, the focus remains on volume growth. Hindustan Unilever has invested to make its brands more desirable and strengthened execution at the point of sale to help drive volumes and ensure growth is broad-based and sustainable. The company's CEO and MD, Priya Nair, stated that competitive volume-led growth is the company's number one priority.

For Dabur, too, the focus will be to drive volume growth through price increases. "With the inflation picking up in India business, we expect a part value growth through price increases to come in along with the volume growth that we have pencilled," stated Mohit Malhotra.

However, Worldpanel by Numerator believes that volume growth could moderate significantly if tensions continue. "If higher energy costs coincide with food inflation from weather stress, FMCG volume growth could soften to 3-4 percent," stated the researcher.