Consumer goods prices are still elevated compared to two years ago, even though companies have reduced prices on the majority of products in home, personal, and food categories over the past few quarters.
Raw material prices are beginning to exhibit early signs of inflation following a period of moderation, suggesting potential price hikes in certain categories may be imminent.
Over the past two years, the majority of consumer goods companies have implemented price increases of over twenty-five percent to counteract escalating costs attributed to factors such as raw materials, supply chain, and energy.
Cost inflation initially emerged during the pandemic and intensified following Russia’s invasion of Ukraine. Prices of crude oil, palm oil, LAB, and coffee experienced notable increases compared to both a quarter and a year earlier, while cocoa, coffee, and sugar prices saw sharp rises.
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Krishnarao Buddha, senior category head for marketing at Parle Products, India’s largest food company, stated, “We need to acknowledge that the current product prices represent the new norm. Despite reductions in the prices of certain raw materials, we continue to face pressure on input costs, particularly in the food sector. Product prices are likely to either remain steady or even rise in some cases, with further price reductions being improbable.”
Boston Consulting Group notes that prices for household care products, foods, and beverages have more than doubled over the last decade, with a particularly sharp rise observed in the period following the Covid pandemic.
Analysts noted that despite the deflation of raw material prices over the past year, companies have mostly preserved the benefits through margin expansion. In a recent report, BNP Paribas mentioned that due to competitive pressures, volume constraints, and robust gross margins, companies are likely to refrain from raising prices in the immediate future.
The report, which monitors monthly prices of over 150 FMCG products across 20 categories, states that in beauty and personal care, some categories experienced slight price reductions in the last two months. However, oral care witnessed significant price increases with no reversal observed thus far. Despite a 15% reduction in prices for detergents and dishwashing products over the last six months, they remain 4-30% higher compared to two years ago. In the food and beverage sector, prices have largely remained stable over the past six months, except for edible oil.
For instance, soap prices have remained steady over the past six months but are still 15-20% higher compared to levels seen two years ago.
Over this period, the oral care category has experienced significant price increases, contributing to market leader Colgate’s Ebitda margin reaching a record high of 33.6% in the December quarter.
While detergent prices saw a 15% rise over the past two years, there were price cuts in the last quarter. However, with raw material prices beginning to rise again, implementing further price increases may prove challenging.
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The growth in sales of fast-moving consumer goods (FMCG) in rural areas has surpassed that in urban markets for the first time in nearly three years. This early indication of demand recovery is attributed to a lower base and price reductions aimed at mitigating hyperlocal competition.
In February, Sudhir Sitapati, the managing director at Godrej Consumer Products, remarked that commodity prices are currently stable to slightly on the rise, whereas wage inflation is increasing. As a result, product prices are expected to be slightly higher than before in the coming quarters, potentially leading to high-single-digit value growth for the industry this calendar year. He also noted that in Fiscal Year 2024, volume growth outpaced value growth for the industry, mainly due to many FMCG product prices turning negative.