Major consumer goods firms such as Hindustan Unilever (HUL), ITC, Maruti Suzuki, and Parle Products have reported fluctuations in certain commodity prices. According to industry executives, these fluctuations are influencing the companies’ decisions on product pricing and affecting the recovery process of demand in specific categories.
In a investor presentation on Monday, ITC highlighted that although there is commodity price deflation on a year-on-year basis in the October-December quarter, there is a sequential increase in prices for specific commodities like wheat, maida, and sugar.
HUL, the largest consumer goods manufacturer in the country, stated that sectors such as health food drinks and coffee are experiencing rising inflation, affecting volume recovery. Additionally, in the tea category, consumers are downgrading due to the price disparity between premium and regular tea. The company has labeled this phenomenon as an ‘inflation-deflation cycle.’
Earlier this month, Ritesh Tiwari, the Chief Financial Officer of HUL, informed analysts that the foods and refreshment business maintained positive pricing, driven by inflation in commodities such as coffee and sugar.
Producers of automobiles and household appliances, including refrigerators, air conditioners, and washing machines, have reported a 3-4% sequential rise in commodity costs like steel, aluminum, and polypropylene over the past 2-3 months. While this situation justifies a potential price increase, appliance manufacturers are absorbing the additional costs, whereas car makers are passing on a portion to support the recovery of demand.
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Maruti Suzuki implemented a slight 0.45% price increase, while Hyundai Motor raised prices by 0.5%. MG Motor India has not made any price adjustments thus far. Tata Motors has announced a conservative price hike of 0.7%, which will be effective from February 1. This marks one of the most restrained price hikes in the industry, as companies traditionally raise prices by 2-3% in January.
Mayank Shah, senior category head at Parle Products, noted that over the past 3-4 months, the prices of wheat have increased by 10-15%, and sugar has seen a rise of 20-25%. These hikes are attributed to shortages, offsetting the gains achieved from the significant 50% decline in edible oil prices.
“At an overall deflationary environment, certain commodities are acting volatile whose contribution is high in the total input cost. Due to this, we are not able to pass on the full benefit of dip in edible oil prices. Input cost deflation is not happening the way it was expected initially,” he said.
Shashank Srivastava, senior executive officer (marketing and sales) at Maruti Suzuki, stated that the price increase in January is among the most minimal the company has implemented in recent times.
“We did not want to raise prices and put pressure on the small car segment. While steel prices are still high, costs of some other commodities have softened balancing out that impact. We have also undertaken production efficiency measures to control costs and not burden our customers,” said Srivastava.
Material expenses make up 75-77% of the total vehicle costs across various car manufacturers.
Certainly, the majority of commodity prices have stabilized, leading to a decrease in the overall material costs for FMCG companies in recent months. In an effort to enhance volume recovery, FMCG companies have either lowered prices or increased product weight where feasible. Consequently, HUL witnessed a negative price growth of 2% in the December quarter, resulting in a flat underlying sales growth.
