FMCG makers keeping close watch on commodity prices; may extend some benefits

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Major FMCG companies say they are closely monitoring prices of key commodities, which have fallen in case of some items like palm oil, but the decline is not “secular and broad-based”.

While palm oil prices have eased and sugar is stable, FMCG firms pointed out that rates of some other key commodities, including wheat, are still stable and hence they will wait and watch before taking any decision to reduce prices.

The softening of commodity prices will help FMCG firms improve their profit margins as well as give some scope to pass on the benefits to consumers by reducing the MRP (Maximum Retail Price) of their products.

Nestle India Chairman and Managing Director Suresh Narayanan said the company is monitoring the situation. However, he added that the moderation in commodity prices is not secular and broad-based.

“We will monitor the situation and evaluate our next step,” Narayanan told PTI on the sidelines of an event here. The fall in commodity prices is not secular and broad based.

Asked about new product launches this fiscal, he said, “There will be some new initiatives.”

Apart from palm oil, edible oil prices have also declined in recent months. Recently some FMCG manufacturers have reduced the prices or increased the quantity of some big packs of soaps and packaged food to benefit the consumers.

Last week, Varun Berry, vice-chairman and managing director of leading bakery maker Britannia Industries, had said that overall commodity prices are yet to soften but expressed hope that they should come under control going forward.

“The only commodity that is softening right now is palm oil. Wheat prices are rising. Sugar has been stable. On a balance, we are almost flat to modest inflation. Hopefully, as we move forward, things Gotta get it under control.” ” They said.

Berry also said that as and when the benefits of softening commodity prices accrue, they would be passed on to the consumers.

Avneesh Roy, executive director, institutional equities, Nuwama Group, said softening prices of some commodities would help traditional FMCG companies improve their volume growth.

“Promotions and grammage may pick up, leading to a gradual recovery in volume growth,” said Roy.

Bharat Puri, managing director of Pidilite Industries, said last month that inflation is still higher than earlier, but has come down to a “controllable level”.

Data analytics firm NielsenIQ in its latest report on the FMCG industry had said that its consumption continued to decline in the September quarter, with rural markets reporting a higher decline in volumes than the three months ended June.

Also, consumers continued to prefer buying smaller packets amid price hikes by companies in response to broader inflationary pressures.

The FMCG industry saw an overall volume decline of 0.9 per cent in the September quarter as compared to the previous three months.

However, the report also said that FMCG manufacturers continued to bring new offerings in Q3 2022, with the contribution of new launches being higher than the year-ago level across key FMCG categories.

Much of this new product offering is in the context of a change in pack size, which may be the result of manufacturers working with smaller grammages as raw material prices are still high.

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