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FMCG firms ignore slide in crude oil

Colgate toothpaste has got more expensive. From Rs 75 earlier, a Colgate Herbal 200g pack now costs Rs 82, a nine per cent jump.

Select variants of essential items such as detergent powders, bars, shampoos, creams and hair oils have all inched up by 1-15 per cent in November, even as prices of crude oil-linked derivatives, used as inputs in all these products, have dived.

In the past six months, inputs such as linear alkyl benzene (LAB), used in making detergents, and high density polyethylene (HDPE), used in packaging material, have all dropped. Crude oil is at $ 70 a barrel; six months earlier, it was $ 112 a barrel. The situation is no different in agricultural commodities. Palm oil, used in making soap, is down 15 per cent in the past six months. The price of copra, used in making hair oil, has grown at a slower rate (eight per cent) in comparison to the year-ago period (two-fold).

A commodity deflation, say experts, builds a strong case for a price cut. Yet, none of the national-level consumer goods companies have cut prices significantly. If anything, they have increased it. “The price hike has been very selective,” says Sunil Duggal, chief executive officer at Dabur India, about this month’s nearly two per cent and 11 per cent increase in Dabur Vatika and Amla hair oil prices, respectively. Dabur’s 90-ml Vatika Shampoo saw a price rise of 1.7 per cent in November.

“Our strategy has always been to be cautious in terms of price hikes. The increase (in price of select stock keeping units) was partly necessitated because when commodity inflation was high, we did not take price hikes commensurate to it. We have to ensure that margins don’t suffer,” says Duggal.

Adi Godrej, chairman, Godrej Consumer Products Ltd (GCPL), says: “Passing on gains will depend on the brand and category. While there could be some passing on, our margin profiles have to be kept in mind at every stage and what the market dynamics are at that point. These are decisions that are carefully thought through.”

GCPL’s Cinthol Deo Cologne soap has seen a nine per cent price rise in November. Other key soap brands such as Godrej No. 1 have been left untouched.

Marico, maker of the Parachute brand of coconut oil, has said it will get a clearer picture on pricing by February, when the new copra season begins. For the month of November, Marico marginally raised the price of its 175-ml Parachute pack, by 0.8 per cent. The country largest consumer goods maker, Hindustan Unilever (HUL), has not indicated when it will begin cutting prices in most categories, though soap prices were reduced in November. The price cut on 100g bars of Lux, Lifebuoy and Dove soap brands was between four and 10 per cent this month. However, the price of some of its shampoos, detergents and creams were increased by one to 20 per at the same time.

Analysts say with at least a quarter more to go before an urban recovery sets in, companies are hedging themselves from a possible slide in revenue growth by propping price-led growth in the financial year’s third quarter (October-December). “To a large extent, top line growth in the past few quarters was aided by price rather than volume. The latter is not expected to recover anytime soon, which means the only tool available to aid top line growth is price,” says Gautam Duggad, vice-president, research, Motilal Oswal.

“And, FMCG (fast moving consumer goods) companies prefer moderate inflation because they can take price increases, since they can keep competition at bay. In a scenario where commodity prices are falling, regional players typically get back into the marketplace (by cutting prices), increasing competitive intensity. This impacts the share of bigger players,” he says.

Small soap and detergent manufacturers in states such as Maharashtra and West Bengal have already passed on price cuts of five to seven per cent in recent weeks, industry sources said. C R Joarder, president of the West Bengal chapter of the Small-Scale Soaps and Detergents Manufacturers Association, confirmed this. He said the commodity downcycle had allowed smaller entities to take price cuts. Also, that more were in the offing, depending on the price movement of key inputs. Executives at the Maharashtra chapter of the body could not be contacted in time for their comments.

SHAMPOOS

  • Dove (HUL) has taken a price rise of 1.5% on its 80ml pack
  • L’oreal Total Repair has taken a price hike of 4.3% on its 75ml pack

HAIR OIL AND EDIBLE OIL

  • Parachute Coconut Oil (Marico) increased the price of its 175ml bottle by 0.8%
  • Vatika (Dabur) took an effective price increase of 1.9% on its 100ml pack

CREAMS

  • Lakme Perfect Radiance (HUL) pricing by 20.1% on its 100gm pack
  • Ponds Cold Cream (HUL) increased its price by 19% on its 100ml pack

DETERGENTS & BARS

  • Active Wheel (HUL) increased the price of its 1kg pack by 2.1%
  • Rin Detergent Bar (HUL) raised pricing by 4.2% on its 250gm bar

TOOTHPASTES

  • Babool (Dabur) has taken an effective price increase of 11.1% on its 200g pack
  • Dabur Red has taken an effective price increase of 12.5% on its 100g pack

Source: Edelweiss

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