Double trouble for FMCG players: Costly commodities, weak demand

NEW DELHI: Leading FMCG companies reported a decline in margins in the Sept quarter on account of higher input costs and food inflation, which ultimately slowed down the pace of urban consumption. Rising prices of commodity inputs such as palm oil, coffee and cocoa were also accentuated and some FMCG firms have hinted at a price hike. HUL, Godrej Consumer Products, Marico, ITC, and Tata Consumer Products have expressed concerns over squeezing urban consumption, which according to industry experts forms 65-68% of FMCG total sales.
GCPL, makers of Cinthol, Godrej No 1, HIT had a steady quarter given the headwinds of oil costs and tough consumer demand in India and its standalone EBITDA margin was lower, caused entirely by high inflation in palm oil.
Another FMCG maker Dabur India also said the demand environment was challenging in the Sept quarter.
Recently, Nestle India chairman & MD Suresh Narayanan also raised concerns over decline and said “middle segment” is under pressure as high food inflation continues to cripple household budgets. “This could lead to an increase in prices if raw material costs become unmanageable for companies. We are ourselves facing a difficult situation as far as coffee and cocoa prices are concerned,” he said.
HUL CEO & MD Rohit Jawa said the market volume growth trajectory remained muted in this quarter. “The pattern is quite clear that urban growth has trended down in the recent quarters or quarter and rural has continued to grow gradually and has now for the past few quarters been ahead of urban, and also continues to be ahead of urban this time,” Jawa said in an earnings call. ITC, which operates in the FMCG segment with brands such as Aashirvaad, and Sunfeast, reported drop of 35 basis points in margins amid inflationary headwinds in input costs.