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HUL To Britannia Plan Up To 20% Price Hikes In Ongoing Quarter

Price rise has been relentless for companies and consumers. And it continues unabated.

<div class="paragraphs"><p>Haji Iqbal along with his son Mudasir at the store in Delhi. (Sesa Sen/BQ Prime)</p></div>
Haji Iqbal along with his son Mudasir at the store in Delhi. (Sesa Sen/BQ Prime)

Price rise has been relentless for companies and consumers. And it continues unabated.

For several quarters now, consumer firms like Hindustan Unilever Ltd. to Britannia Industries Ltd. have guided for price hikes as commodity costs surged. The makers of staples to soaps have again warned that prices will continue to soar in the ongoing April-June quarter.

Britannia Industries Ltd., Nestle India Ltd., Marico Ltd., Tata Consumer Products Ltd., Hindustan Unilever Ltd., Dabur Ltd. and Parle Products Pvt. have either raised prices or will hike rates in the range of 5-20%, or lower grammage to shield companies from diminishing margins.

The Bloomberg Commodity Price Index rose 42.5% year-on-year as on May 5, 2022, driven by crude oil and farm commodities.

“The company is struggling to keep pace with inflation because estimations weren’t made for it,” Varun Berry, managing director, Britannia Industries, told analysts at a post-earning call. Wheat production has been less than expected due to the heat, and the Russia-Ukraine crisis is impacting global supply as well, Berry said.

“If spot prices continue at a similar level for the next 12 months, then an additional 10% year-on-year price hike would be needed as against the previously estimated 7% to manage profitability.”

Wheat is the latest concern. Input costs of sugar, laminates, corrugated boxes, palm oil and cashew are also high, Berry said.

HUL, India's largest consumer goods maker, plans to take further price hikes, introduce low-unit packs, and cut weight to sustain profitability.

The near-term operating environment remains challenging, according to Sanjiv Mehta, chief executive officer and managing director at HUL. “We expect sequentially more inflation in the next two-to-three quarters on the back of volatility in commodities prices like vegetable oil, Brent crude, agri products, etc.”

The company raised maximum retail price up to 15% since April across nutrition and personal care products, while the 500-gram and 1-kilogram packs of Wheel and Rin detergent powder turned costlier by 8-13%, an HUL distributor told BQ Prime on the condition of anonymity citing business concerns. That marks the third round of hikes in 2022.

Lux single soaps are now priced at Rs 35 from Rs 30 earlier, while the prices of Lifebuoy multipack variants have gone up by 9% in the last one month, according to the distributor. The company has increased the price of 1kg Horlicks by 4-5%, while shampoos have seen a slightly steeper increase hike of 15% with 100 ml bottle of Clinic Plus getting costlier by Rs 7 and a 100 ml Sunsilk pack costing Rs 8 more, the distributor said.

Tata Consumer Products raised salt prices by 20% from Rs 21 to Rs 25 in April due to lesser availability of brine and inflation in coal, Chief Executive Officer and Managing Director Sunil D’souza said in a post-earnings call. The company will remain “nimble” on margins through pricing actions, he said.

Similarly, Parle Products plans a 7-8% price increase in the ongoing quarter. “The situation is extremely alarming, particularly for commodities like palm oil,” Krishnarao Buddha, senior category head at Parle Products, told BQ Prime. “Prices of other inputs like wheat, packaging material and logistics have gone up by 15-25% since January."

Ayurvedic products maker Dabur, too, has hiked prices by 5-6% and expects inflation to rise unabated till the second half of the year.

"Prices of goods will inch up till commodity prices abate," said its Chief Executive Officer Mohit Malhotra.

Consumers will feel the pinch. A Bloomberg poll of 24 economists forecasts CPI inflation in April at 7.43%, the highest in 18 months.

The 'Bridge Pack' Strategy

Consumers continue to downtrade or opt for cheaper or unbranded products to beat inflation. That's reflected in weak demand and declining volume growth in the fourth quarter for consumer goods makers.

The exception was Britannia which reported a 4% growth in volumes in the quarter ended March, outstripping peers. The growth was driven by affordable packs priced at Rs 5 and Rs 10, which comprise 50-55% of the product mix. "Volume growth was led by Tiger Crunch, Milk Bikis and milk drinks," said Berry.

Shoppers are prioritising essentials over discretionary products or buying smaller packs of discretionary products. To keep demand flowing, consumer goods makers are pushing low-priced packs or introducing cheaper variants.

Roughly, 30% of HUL's portfolio is “price-locked” where it can’t “titrate” or reduce volumes by much. It's now looking at “bridge packs” or cheaper variant as a solution. “We have a Lifebuoy soap (priced) at Rs 10. The next price point in Lifebuoy soap bar is at say Rs 35-36. We launched a price point in between these two price points–in terms of volume, grammage, and price,” said Mehta.

The company is experimenting with these “bridge packs” across all commodity price-impacted categories, he said. “This way, the consumer is still able to source good brands at an affordable price point. And for us, it gives us scale.”

Other companies such as Dabur and Britannia are also pushing Rs 5, Rs 10 and Rs 20 packs–especially in the hinterland.

Margin Pressure To Persist

Most FMCG companies saw margin contract in the fourth quarter despite taking multiple rounds of price hikes in the previous fiscal. The trend is expected to last at least till September-end.

Nestle India has been among the worst hit on the profitability front.

According to Suresh Narayanan, chairman and managing director at Nestle India, the margin squeeze can be attributed to a steep rise in the cost of edible oil, coffee, wheat, fuel and packaging material. “Continued inflation is likely to be a key factor in the short to medium term.”

Bajaj Consumer Care Ltd., the maker of Almond Drops hair oil, saw revenue from the sale of goods fall 12.21% to Rs 215 crore in Q4.

Prices of light liquid paraffin increased from Rs 53 a litre in Q4 FY20 to Rs 74 a litre at the end of Q4 FY22, according to the company. It expects commodity prices to remain at elevated levels, impacting demand.

HUL’s Mehta, too, said that margins “could decline” in the ongoing first quarter of FY23.

While soft copra prices cushioned Marico’s margins, the stress on margins would continue with the renewed price pressures following Russia’s invasion of Ukraine, said Saugata Gupta, chief executive officer and managing director at Marico.