FMCG firms may be allowed to use stickers to offer lower GST rates

FMCG companies executives who spoke on the condition of anonymity said that they are waiting for the roadmap from the government on the transition

Fast-moving consumer goods (FMCG) companies may be allowed to use stickers to change the price in order to pass the lower goods and services tax (GST) rates to consumers post September 22, according to sources. 

 

A government official said there is no harm in companies using stickers in the interim to pass on the benefit of lower tax rates to the consumer.

 

A notification on this is expected from the government in the next few days. However, this will be allowed only in the interim till companies manage to introduce the new prices in the market. 

 

In 2017, when the GST regime was introduced, the government had allowed companies to offer the new prices with stickers due to the change in tax rates for a few months. This was till they aligned their pricing and pack size with the new rates.

 

FMCG executives said they are waiting for the roadmap from the government on the transition.

 

Currently, the industry is stuck with packaging material for the next two-three months which have the old pricing and grammage.

 

Distributors have also reduced their buying since August 15, after Prime Minister Narendra Modi hinted at purchasing power-nudging measures and possible GST cuts.

 

“Now that the new GST rates and implementation date are clear, distributors are restricting themselves to need-based inventory,” an executive said. Distributors typically hold inventory for 15–20 days.

 

Another senior executive said that packaging and stocking decisions are made two to three months in advance, complicating the transition and the new prices are only expected to hit the market from late October. 

 

The executive further said that smaller stock-keeping unit (SKU) packs priced at ₹5, ₹10, ₹15, and ₹20 will be tricky, since these price points cannot change. Industry representatives had earlier asked for clarity on whether they can use stickers to display revised maximum retail prices until new stock reaches the shelves.

 

In a media statement, Sudhir Sitapati, managing director (MD) and chief executive officer (CEO) of Godrej Consumer Products Limited, said, “One of the advantages of GST rationalisation is that not only the categories where rates have been reduced will benefit, but even categories where GST has not been reduced will see an uptick, as the overall available spend on consumption and discretionary expenses goes up. So, we are bullish not just on soaps, but across our portfolio.”

 

He added, “There will, of course, be some short-term disruptions. The FMCG sector operates on maximum retail price (MRP) regime, and stocks that dealers and companies are sitting on today are at higher MRPs. Simply passing on money to trade does not guarantee that it reaches consumers directly. It will take a little time before new MRPs flow into the market.” Sitapati further said that by early or mid October, consumers will start seeing reduced prices on FMCG products. September may be somewhat choppy, with pipeline changes and stock adjustments, but this is temporary.

 

From Q3 onwards, the company expects stronger growth momentum. 

The transition 

• New prices expected by October end
• In 2017, frims were allowed to offer new prices with stickers
• Cos await government road map on transition
• Cos have packaging stocks for 2-3 months 
• Price changes tricky for small packs