Like inflation is skyrocketing, India’s consumer trends are experiencing a palpable impact. With rising commodity prices, fast-moving consumer goods (FMCG) companies are raising product prices, not only by directly increasing retail prices, but also by reducing package sizes, a practice of the industry known as “grammage reduction”. On the consumer side, shoppers of items such as soaps, shampoos, toothpastes, cookies, etc., are ‘down’, meaning they are either opting for cheaper alternatives or smaller packages.
Even though the strategy of shaving small quantities – a few grams or milliliters – from biscuit packets and shampoo bottles is deployed at all levels by FMCG companies to cope with input cost pressure, from the 1st October, these businesses will be required to display the unit sale price of pre-packaged items, according to a notice issued by the Department of Consumer Affairs in March. Companies will have to display prices per gram when the net weight is less than one kilogram, and per kilogram when the net weight is more than one kilogram; per milliliter when the net volume is less than one liter and per liter when the net volume is greater than one litre, allowing consumers to better compare non-standard pack sizes.
A letter sent to the ministry on the tendency to reduce the grammage by companies remained unanswered.
According to information from companies and analysts in the FMCG industry, raw material inflation has led to price increases in all product categories, either through increased MRPs or reduced packaging quantities. .
Some categories like soaps have seen price increases of 25% to 50% over the past year (April 2021-April 2022), while others like detergents have seen price increases of 4% to 18 % in the three months from February to April this year. In the same three months, companies making toothpaste increased the prices of their products by 2% to 18%, while some brands of shampoo saw a price increase of nearly 47%. In the food and beverage segment as well, while edible oils saw a price increase of 10-29%, noodles saw an increase of 10-17%.
On Tuesday, the Department of Trade and Industry said the rate based on the wholesale price index (WPI) hit a record high of 15.1% in April, while retail inflation, according to data released last week, had also hit an eight-year high. of 7.79%. Analysts have attributed the rise in prices of key commodities to geopolitical factors such as Indonesia’s palm oil ban and the Russian-Ukrainian war.
The grammage reductions have been particularly concentrated on products with a low unit price, according to the FMCG companies. For biscuit maker Britannia, weight reductions accounted for around 65% of the price increases it undertook in 2021-22. The company’s chief executive, Varun Berry, said on a call with analysts this month that going forward “the weight reduction could end up being even higher than that.”
For FMCG companies, these grammage reductions mainly occur on low priced unit items which are priced at Re 1, Rs 2, Rs 5, Rs 10, etc. “Almost 30% of our business comes from packs that run at magic prices like Re 1, Rs 5 or Rs 10. In these packs, our preferred mode of price increase is to reduce the grammage. As a result, even the same number of units sold results in lower volume. This had an impact of around 2-3% on our UVG (Underlying Volume Growth),” said Ritesh Tiwari, Chief Financial Officer of Hindustan Unilever, India’s largest FMCG company.
For Britannia, low-cost packs represent 50% to 55% of the company’s sales mix.
Tiwari said that due to “unprecedented” inflation, growth in the market value of FMCGs has slowed significantly and volumes have fallen into single digits. “The impact is most pronounced in the rural segment, where even value growth has started to decline. Consumers are tightening volumes and essential products are prioritized over discretionary categories,” he said.
Rising prices are also prompting consumers, especially in the rural segment, to shift to cheaper items and smaller packaging.
“There is a pushback from rural areas in terms of LUPs (low unit price packs) which are selling more in rural India… And even in urban areas of India we are seeing a bit of a drop in transactions on all wallets. So whether it’s a portfolio of shampoos, hair oil or oral care, our prices of Rs 20, Rs 10, Rs 5 or Re 1 fares significantly better than larger packs, except for e-commerce and modern commerce,” Mohit Malhotra, CEO of Delhi-based Dabur India, said earlier this month on an analyst call.