food items
Food items can be expensive. In fact, the prices of goods used by FMCG companies such as palm oil, coffee and cocoa have increased. To compensate for the increased costs and declining margins, FMCG companies will increase the prices of their products. This can increase your household budget. Hindustan Unilever (HUL), Godrej Consumer Products Ltd (GCPL), Marico, ITC and Tata Consumer Products Ltd (TCPL) have expressed concern over the decline in urban consumption. According to experts, the share of urban consumption in the total sales of FMCG sector is 65-68 percent. “We think this is a short-term setback and we will recover margins through prudent price increases and cost stabilization,” GCPL Managing Director and Chief Executive Officer (CEO) Sudhir Sitapati said on the sidelines of the second quarter results announcement. GCPL, which sells products like Cinthol, Godrej Number-One, Hit, has delivered a stable quarterly performance despite fluctuating oil prices and subdued consumer demand in India.
The special thing is that the rural markets, which were lagging earlier, have maintained their growth pace as compared to the urban markets. Dabur India, another FMCG company, also said the demand environment in the September quarter was challenging, including ‘high food inflation and subdued urban demand’. The maker of Dabur Chyawanprash, Pudin Hara and Real Juice has reported a 17.65 per cent decline in consolidated net profit during the quarter at Rs 417.52 crore. During this period, the company’s operating income declined by 5.46 percent to Rs 3,028.59 crore.
Nestle will also increase the prices of its products
Recently, Nestle India Chairman and Managing Director Suresh Narayanan also expressed concern over the decline in the FMCG sector and said the ‘medium segment’ is under pressure as high food inflation has hit household budgets. Regarding the rise in food inflation, Narayanan said there has been a ‘sharp rise’ in the prices of fruits and vegetables and oil. He said, if it becomes difficult for companies to manage the cost of raw materials, then it may lead to increase in prices. We find ourselves facing a difficult situation as far as coffee and cocoa prices are concerned. Nestle India owns brands like Maggi, Kit Kat and Nescafe. The company’s sales growth has been a modest 1.2 percent. Another FMCG company ITC has reported a decline of 0.35 per cent in margins due to increase in costs. The company owns brands like Ashirwad, Sunfeast, Bingo, Yippee.
Companies suffered losses due to food inflation
Tata Consumer Products Ltd. TCPL Managing Director and Chief Executive Officer (CEO) Sunil D’Souza also said consumer spending in urban areas has been affected. Speaking at the announcement of the company’s results for the September quarter, D’Souza said, I believe that food inflation is probably higher than we think and its impact is much greater. HUL CEO and Managing Director Rohit Java said the market volume growth has been sluggish in the quarter. Java said, the situation is quite clear that urban growth has been affected in the recent quarters. The rural sector continues to grow slowly and is now ahead of the urban sector for the last few quarters and this time too it is ahead of the urban sector. HUL owns brands like Surf, Rin, Lux, Ponds, Lifebuoy, Lakme, Brooke Bond, Lipton and Horlicks. HUL’s consolidated net profit has declined by 2.33 percent in the September quarter. Similarly, Marico has also reported double the annual growth in demand in rural areas as compared to urban areas.
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