Business - Low price points become difficult to swallow

The recent rise in input costs may have forced fast-moving consumer goods companies to revisit their prices and pack sizes, but they have refrained from touching the sacred price points of Re 1 and below for products like confectionaries, digestives, hair oils and shampoos.

Top FMCG players like Perfetti van Melle, Parle, ITC, Dabur and Godrej have decided not to revise the prices of their Re 1 and 50 paisa brands. Parle will not raise the price of its 25-paisa Kismi toffee and Orange candy, though sugar prices went up 10-12 per cent and packaging prices 8-7 per cent in the last one year.

Companies as well as sector experts said the purchase of such products is driven by impulse and even a slight increase in price takes its toll on sales volume. As a result, companies are stuck with their prices and this has started hurting their profit margins. “It is difficult to tamper with these price points as it may lead to a decrease in volumes,” said Anand Shah, sector anaylst with Angel Broking.

“These are very sensitive slots which if tampered with will have a significant bearing on the margins. The 50-paisa price point cannot be made 60 paisa, nor can it be doubled to Re 1 as it may lead to a decrease in demand. Hence, these price points will be around for a while,” said Parle Products General Manager (marketing) Pravin Kulkarni.

The Rs 1,800-crore confectionary market has had to face the brunt of this dilemma. Analysts say this had further squeezed the single-digit margins of the manufacturers.

Companies have refrained from increasing prices because of another reason. In case the price falls subsequently, they will be left with no option but to buy back from the trade the entire unsold old stock marked with higher prices. This could dent their profits further.

Also, shopkeepers prefer to stock products with such price tags as it helps them square off their trade with customers.

While most companies have refrained from a hike so far, Emami has raised the price of its Navratna hair oil sachets from Re 1 to Rs 1.50. “What most of the companies are doing now is streamline their processes to achieve cost efficiency and bank on scale benefits,” Shah said.

Others could follow if things do not improve in the near future. Dabur India CEO Sunil Duggal told Business Standard that the company would have no option but to revise the climb in the prices of inputs continues unabated