Shift to Smaller Packs as Prices Soar

In response to escalating prices of groceries and household supplies, Indian consumers are increasingly opting for smaller packs of consumer goods. This trend is notably affecting categories such as soaps, snacks, and tea, which have seen significant inflation due to rising commodity costs.

Impact of Commodity Inflation

Analysts from Nuvama Institutional Equities highlight a nearly 30% year-on-year inflation in palm oil, a crucial ingredient in these products. The price hikes have led consumers to purchase smaller packs, adversely affecting the volume growth of FMCG companies.

FMCG Companies' Response

Leading FMCG firms, including Hindustan Unilever and Godrej Consumer Products, have implemented price increases of up to 10% in the December quarter. With more hikes anticipated, companies like Marico are strategizing further adjustments to manage the inflationary pressures.

Challenges in Urban and Rural Markets

While rural markets show some resilience due to favorable monsoons, urban demand remains sluggish. The gradual recovery in rural areas is insufficient to offset the urban slump, compounded by the inability of companies to reduce prices amidst high commodity inflation.

Strategies to Sustain Consumer Interest

Brands are focusing on maintaining affordability by adjusting pack sizes and grammage. However, this strategy of 'shrinkflation' risks pushing consumers towards alternative brands that offer better value for money, as noted by consumer consultant Akshay D'Souza.

Call for Policy Support

The FMCG industry seeks policy incentives to stimulate mass consumption, as companies like Nestle grapple with the rising costs of raw materials like green coffee, essential for products like Nescafe.