Wednesday, May 7, 2008

FMCG prices up on higher input costs

The rise in raw material costs has caused a 10 per cent increase in the retail prices of fast-moving consumer goods as companies are passing on the rise in costs.

In the last few weeks, the price of the 100 gram bar of Godrej No 1 has gone up by Rs 2.5 to Rs 13, Wipro's [Get Quote] Santoor by Rs 2 to Rs 16, Reckitt Benckiser's Dettol by Rs 2 to Rs 17 and Hindustan Unilever's Pears by Rs 2 to Rs 23. Even mass market brand Lifebuoy, the largest selling, has become costlier by Re 1 to retail for Rs 12.

Food items, too, have become costlier. "We had increased milk prices in February 2007, August 2007 and then again in February 2008 - each time by Re 1. We also raised the prices of select items such as ice-creams by 1-2 per cent in February," said R Sodhi, chief general manager, Gujarat Cooperative Milk Marketing Federation, which markets the ubiquitous Amul.

Procter & Gamble's Ariel detergent now costs Rs 122 for a 1 kg pack, a rise of Rs 6, while HUL's Surf Excel's price is up at Rs 126, costlier by Rs 10. In some cases, the prices have remained unchanged but packs have become lighter. The 1 kg pack of HUL's Wheel washing powder has shrunk to 800 gm.

However, HUL has bucked the trend in the case of Lux, its flagship soap brand, deciding to roll back the 5 per cent price increase it had effected earlier.

"This is consequent to the excise duty reduction announced in the Union Budget for home and personal care products from 16 per cent to 14 per cent, along with changes in abatements," said a spokesperson for the company.

This is an act unlikely to be replicated. The price of palm oil, which comprises 80 per cent of the raw material in soap making, has gone up by 9 per cent since January. Soda ash, a key ingredient in detergents, has become costlier by 20 per cent in the last six months to touch Rs 9,000 a tonne.

Since January 1 this year, the price of groundnut oil has gone up 7.81 per cent, sugar by 9.34 per cent and wheat by 3.09 per cent.

A temporary relief for some players is a forward contract cover for vegetable palm oil for the next three to six months. However, once this contract ends, the new contract will be based on the increased prices and put still more pressure on consuming companies.

"The way the prices of raw materials are increasing, the indications are that we would need to take another price hike. We are contemplating a price hike of up to 6-8 per cent in soaps," said Hoshedar Press, executive director and president, Godrej Consumer Products [Get Quote].

ITC is dealing with the situation by building scale. The company has also dispersed its manufacturing base, reducing the time and distance to market.

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