FMCG companies chase volume growth, slice prices, bump up grammage

Fast-moving consumer goods (FMCG) companies are chasing volume growth as raw material prices come off from their peak. They are now going for higher grammage and price cuts.

This comes on the back of an uptick (3.1% growth) in rural demand in the January-March period, after remaining in negative territory in the previous six quarters, according to NIQ’s data.

FMCG major Parle Products has gone for price cuts on its large packs and increased grammage for lower price-point packs. “We’ve increased the grammage on smaller packs last month and on larger packs, we’ve dropped the prices in the range of 10-15 per cent,” said Mayank Shah, senior category head at Parle Products.

For the past two years, these companies were forced to increase prices and cut grammage as raw material costs rose significantly.

Ritesh Tiwari, chief financial officer at Hindustan Unilever, recently told analysts after announcing its results that the company expects price-to-volume growth to rebalance further.

“Price growth will continue to taper off… due to price reduction in categories. We expect volumes to recover gradually due to high levels of cumulative inflation and the fact that consumption habits will typically recover with a lag,” Tiwari said.

He further said, in the current circumstances, HUL will continue to manage its business with “agility to grow its consumer franchise while maintaining margins in a healthy range”.

“Our focus is on ensuring a right price-to-value equation for competitive volume growth, building back gross margins, and setting up A&P (advertising and promotion) investments,” he said

Biscuit major Britannia Industries, too, has initiated price. Varun Berry, vice-chairman and MD, told analysts during a conference call after announcing Britannia’s results that it doesn’t want to only chase margins. “We don’t want to become margin hungry and not continue our march on revenue growth, volume growth, and market share growth. It has to be a balanced play and that's what we are trying to do,” Berry said.

 “We shall deploy appropriate pricing actions to remain competitive and drive market share growth,” he told analysts, adding that the company has started to initiate some price cuts and added that the company may take further pricing action going ahead, as well.

Dabur India’s chief executive officer, Mohit Malhotra, also told analysts that the key is to drive growth and volume tonnages, and increase penetration in the country.