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Consumers Downtrade To Smaller Packs, Regional Brands As Inflation Bites

The spike in food inflation, amplified by the Ukraine war, has prompted multiple price hikes in the ongoing March quarter.

<div class="paragraphs"><p>As per the data furnished by the National Statistical Office on Monday, the <a href="https://www.thequint.com/topic/consumer-price-index-inflation">Consumer Price Index (CPI)</a> rose to 6.07 percent last month from 6.01 percent in January 2022.</p></div>
As per the data furnished by the National Statistical Office on Monday, the Consumer Price Index (CPI) rose to 6.07 percent last month from 6.01 percent in January 2022.

As makers of staples to soaps increase prices to offset rising input costs, consumers are switching to cheaper regional brands and smaller packs to keep pace with inflation.

"The demand for smaller packs is on the rise due to higher costs," Krishnarao Buddha, senior category head at Parle Products Pvt. Ltd., told BloombergQuint.

The change in consumption pattern reflects soaring prices of milk and cooking oil to shampoos. The spike in global food prices, amplified by the Russia-Ukraine conflict, prompted domestic fast-moving consumer goods companies to increase prices more than once in the ongoing March quarter.

"Retailers have started repackaging loose items like wheat, rice, dal and atta into smaller packs of 250 gm and 500 gm," said Prem Kumar, founder and chief executive at SnapBizz, which digitises neighbourhood stores and has a network of over 30,000 kirana stores across seven cities. “They are creating stock-keeping units on their own to cater to demand.”

Standard one-litre edible oil bottles are being edged out of supermarket shelves by smaller, more affordable 750ml or 500ml packs.

Costlier products nudged consumers away from "pricey professional brands", Kumar said. “What we are seeing as a trend is that local brands across the country are having a good run.”

According to Dabur India Ltd.'s Chief Financial Officer Ankush Jain, inflation remains unabated and is a cause of concern for the second year in a row. The inflationary pressures and resultant price increases have prompted consumers to tighten their purse-strings and relook at discretionary purchases, while downtrading to smaller packs, he said in an emailed response.

Price Pinch

Inflation in the food and beverages component—which has highest weightage of 45.86% in the Consumer Price Index—strengthened by 35 basis points to 5.9% in February. The inflation reading has come against a fairly high base of 4.3% in February 2021.

Hindustan Unilever Ltd. and Nestle India Ltd., among others, have attributed price hikes on higher input costs. “The operating conditions remain challenging in the near term,” HUL Chairman Sanjiv Mehta said during an investor call. He expects inflation to moderate in the second half of 2022.

Prices of household goods have gone up in the range of 3-20%. Data sourced from Snapbizz shows that a 500-gram Bru Instant Super Strong Coffee jar now costs Rs 430 as against Rs 390 in February.

The price of a 70 gm Maggi Noodles pack is up 8% at Rs 13, while a 500 gm Rin detergent powder now costs Rs 48 compared with Rs 44 earlier. Meanwhile, Amul and Mother Dairy both raised milk prices by Rs 2 a litre in the first week of March.

Raw materials have turned12-15% costlier. "Wheat—a key input for making biscuits—though in surplus, is seeing a rise in price due to a sudden increase in demand," Rao said. "Since Russian exports of wheat have taken a hit, India is looking at exporting the commodity and hence, (the) rise."

Parle's overall packaging costs are up 20-25% as laminate—made from crude derivatives—corrugated boxes and craft paper cost more.

"The war is having a huge impact on our input prices," said Buddha.

Cooking Oil Price Spike

Edible oil companies have taken a steep price hike. A litre of Fortune Oil now costs Rs 189 as opposed to Rs 135 in April last year.

It's expected to turn costlier due to supply shortage. “Ukraine was a top supplier to the world for sunflower oil," said Buddha. "As they have stopped exports completely, it has led to an increase in prices of sunflower oil and other oils as well."

Countries like Malaysia and Indonesia—key producers of palm oil—have also raised prices, he said.

Brent crude surged to more than $130 a barrel before paring gains as Russia's war in Ukraine threatened supplies.

“There has been a 100% increase in the fuel used for manufacturing. Gas prices had already been on an increase," Buddha said. "Looking at the overall situation, we anticipate an increase in the coming quarters of April-June too."

Dabur's Jain said the company is "closely watching the situation and will undertake calibrated price increases to mitigate the inflationary pressures".