Strained household budgets are pushing consumers towards Rs 5 and Rs 10 packs of everyday products, prompting fast-moving consumer goods companies to ramp up production of small packs.
Executives at leading consumer goods companies said demand for low-priced packs is growing at 9-10% since March as against 4-5% growth in larger formats as families grapple with rising living costs and weak income growth. The shift comes even as companies reduce grammage in a bid to protect margins from high material costs due to the West Asia conflict.
"Sales of packs under Rs 20 have been growing 5 percentage points faster than the larger ones as consumers find it harder to manage household expenses," Parle Products Vice President Mayank Shah told NDTV Profit. "We've increased their share in our portfolio as they help sustain volumes amid the war-led cost pressures seen across freight, packaging as well as our raw materials."
Rising demand for 200 ml and half-a-litre edible oil packs has prompted AWL Agri Business, the country's largest edible oil company, to add production lines at its Haldia plant.
"Instead of spending Rs 180-200 on a one-litre pack of mustard oil in a single purchase, people are opting for smaller packs and buying more frequently, allowing them to spread household expenses over the month," said its Executive Deputy Chairperson Angshu Mallick.
Even in atta, he said, there is a shift from large 5kg packs to 1 or 2 kg packs. "This is not just a rural phenomenon, we are seeing it in urban pockets, even in a city like Mumbai."
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Britannia MD Rakshit Hargave told analysts recently that consumers are increasingly trading down to Rs 5 and Rs 10 packs as inflation concerns deepen.
Smaller packs currently account for 40-60% of sales in categories ranging from biscuits and soaps to shampoos and staples.
Faced with mounting cost pressures, FMCG companies have taken price hikes of 4-10% in several categories since April.
Hindustan Unilever has increased soap and detergent prices by 4-10% across brands, Colgate raised toothpaste prices by up to 9%, while Marico has taken a 6-10% price hike in Saffola Oil.
While manufacturers initially raised prices on larger packs, many are now turning to shrinkflation-reducing pack sizes while keeping prices unchanged, especially at the popular Rs 5, Rs 10 and Rs 20 price points that consumers are highly sensitive to. Moreover, these Rs 5, Rs 10 price points are considered sacrosanct and direct price increases aren't feasible on these packs.
Dabur's Chief executive Mohit Malhotra recently told analysts that the company has started trimming grammage in its Rs 10 and Rs 20 packs, as increasing the sticker price could hurt demand. The move effectively reverses a post-GST trend, when consumer goods companies had increased pack sizes after tax rates were lowered while maintaining the same retail prices.
According to Malhotra, that additional grammage now provides room for companies to adjust pack sizes without immediately altering price points.
Parle's Shah also noted that price hikes in FMCG categories are far from over. "The price hike taken so far is limited to select categories and only partly offsets the cost pressure...there will be more price hikes but for now we are waiting for oil prices to stabilise to decide the next quantum of price hikes," he added.
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