Margins of the country’s major companies manufacturing fast-moving consumer goods (FMCG) have declined in the September quarter due to high production costs and food inflation. This has ultimately affected consumption in urban areas. The prices of goods used by FMCG companies such as palm oil, coffee and cocoa have increased. In such a situation, now some FMCG companies have indicated to increase the prices.
Hindustan Unilever (HUL), Godrej Consumer Products Limited (GCPL), Marico, ITC and Tata Consumer Products Limited (TCPL) have expressed concern over the decline in urban consumption. According to industry experts, the share of urban consumption in the total sales of FMCG sector is 65-68 percent. Let us also tell you from where there are signs of further inflation.
short term shock
GCPL Managing Director and Chief Executive Officer (CEO) Sudhir Sitapati said at the announcement of second quarter results that we think this is a short-term setback and we will recover the margins through prudent price increases and cost stabilization. GCPL, which sells products like Cinthol, Godrej Number-One, Hit etc, has delivered a stable quarterly performance despite fluctuating oil prices and weak 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.
decrease in profit
Dabur India, another FMCG company, also said the demand environment in the September quarter was challenging, including high food inflation and weak 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.
Increase in food inflation
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 increase in food inflation, Narayanan said that there has been a sharp rise in the prices of fruits, 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.
Reduction in expenditure in urban areas
Tata Consumer Products Ltd. (TCPL) Managing Director and Chief Executive Officer (CEO) Sunil D’Souza also said that 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.”
boom in rural areas
HUL CEO and Managing Director Rohit Java said that the market volume growth has been sluggish in this quarter. Java said that the situation is quite clear that urban growth has been affected in the recent quarters. The rural sector continues to grow slowly and now for the last few quarters it is ahead of the urban sector 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 recorded double the annual growth in demand in rural areas as compared to urban areas. Another FMCG company ITC has reported a decline of 0.35 percent in margins due to increase in costs. The company owns brands like Ashirwad, Sunfeast, Bingo, Yippee.
