Consumer goods companies are vigorously safeguarding their ability to explore price elasticity for their products, while distributors are striving to find order amidst the chaos.
FMCG companies generate a substantial portion of their additional – and occasionally total – sales in rural markets. Their strategy to combat inflation in these markets involves providing reduced quantities for the same price, necessitating modifications to production processes at an added expense and absorbing some of the increased costs of raw materials.
On the opposite side of the spectrum, it’s comparatively simpler to display elevated prices on larger packaging. Nevertheless, this particular market segment experiences slower growth. FMCG companies leverage consumers purchasing larger packs to subsidize the cost for entry-level buyers. Nevertheless, their aim is to encourage these entry-level buyers to upgrade to larger quantities. This is where bridge packs, providing enhanced price-to-weight value, come into play. These types of packages have proliferated since the pandemic and are causing congestion in distribution networks.
Three key factors are propelling this trend.
To begin with, the hyperinflation in commodity prices during the pandemic compelled companies to revise their stock-keeping unit (SKU) strategies.
Secondly, the decline in purchasing power compelled rural consumers to shift to lower-priced brands and smaller unit sizes.
Thirdly, the expansion of retailing formats is giving rise to a demand for a variety of packaging sizes.
Additionally, there exists a marketing necessity to provide various price options for attracting new consumers and subsequently increasing their demand for consumer products. However, safeguarding these price points has its limitations, as its repercussions become evident in terms of volume growth, a metric closely monitored by investors in FMCG companies.
Distributors are in search of a four-tier SKU structure designed to encompass vital facets of FMCG pricing strategy, including market expansion and market share retention. Meanwhile, producers must concentrate on enhancing competitiveness and refining their business models. While the sector has successfully navigated through the challenges posed by cyclical factors driving downsizing, it still grapples with enduring structural transformations. Maintaining healthy penetration levels is a pivotal FMCG metric, but it tends to suffer when the distribution network becomes overwhelmed.
