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| FMCG firms raise prices on input cost, inflation |
| Viveat Susan Pinto / Mumbai Aug 26, 2010, 01:11 IST |
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Fast moving consumer goods (FMCG) firms are increasing their prices in response to input cost pressures.
In the Rs 12,000-crore soaps category, for instance, market leader Hindustan Unilever (HUL) was the first to react to the upward price movement in palm oil, with selective raises in the prices of key brands such as Dove, Pears and Liril.
Palm oil is a key ingredient that goes into making soaps. It has moved up 70 per cent in recent months, touching $680 per tonne from $400 per tonne earlier. HUL increased the price of a 75g bar of Liril to Rs 20 from Rs 19, while a 75g bar of Dove now costs Rs 34 instead of Rs 33. Rs 80g bar of Pears costs Rs 27 from the earlier Rs 26.
The latest round of price rises by HUL centre around its Lux and Lifebuoy brands. A company spokesperson said a 120g Lifebuoy has moved up to Rs 16 from Rs 15. On Lux, the 10g consumer offer on a 100g pack has been discontinued, even as the price remains Rs 18.
We, too: Godrej
This new round has clearly buoyed the sentiment of rival and number two player Godrej Consumer Products (GCPL). In a telephonic conversation with Business Standard, GCPL chairman Adi Godrej said, “There is a valid case for a price hike, since palm oil prices have been moving up. We could take a price hike or a weight reduction on our brands. We are working that out.”
Two years earlier, when HUL raised soap prices in response to input cost pressures, Godrej had instead opted to hold these. The result: HUL’s market share took a beating. As an FMCG analyst, on condition of anonymity, says: “There was a prolonged period of market share loss for HUL, moving down from 52 per cent to 44 per cent. Godrej gained at HUL’s expense.”
This year for HUL? “It is too early to say,” says Anand Shah, senior research analyst at brokerage firm Angel Securities. “The price hike that HUL has taken on Lux and Lifebuoy is about five-six per cent. It is not a huge hike, meant largely to deal with the input cost pressures.”
At present, GCPL has a market share of close to 11 per cent, while HUL has 44 per cent. Even so, Godrej’s moves cannot be ignored by HUL, say analysts. “If Godrej does indeed bite the bullet and increase product prices, then HUL gains because it becomes an industry-wide move,” says Shah of Angel.
Marico
Meanwhile, as HUL and GCPL make their moves and countermoves in soaps, Marico, another FMCG major, has increased the price of key brands Saffola and Parachute by approximately three per cent and five per cent, respectively. The price of a one-litre pack of Saffola Gold, a key variant of the Rs 400-crore brand, has been increased by Rs 3. It is now Rs 115, from Rs 112 earlier. A five-litre pack of Saffola Gold costs Rs 580 from Rs 565 earlier, says the firm’s M&A and investor relations head, Chaitanya Deshpande.
Parachute, whose annual turnover is close to Rs 800 crore, has seen price hikes in bigger packs only, says Deshpande. “The smaller packs, or recruiter packs as we call them, have not been touched at all,” he says.
The 200-ml and 500-ml Parachute packs are now up by Rs 2, while a 100-ml pack is up by Rs 1, he says. The effective price points are: 100 ml, Rs 21; 200-ml, Rs 42 and 500-ml, Rs 92.
Deshpande says the rise in copra prices is what compelled Marico’s price increases in Parachute. “On a year-on-year basis, the increase in copra, a key raw material used to extract coconut oil, has gone up four per cent. We see the inflationary trend continuing.”
Saffola’s, in contrast, is actually a price correction, says Deshpande. “In the last financial year, the price of Saffola was brought down 10 per cent. We wanted to correct this. Which is why the price hike,” he says.
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