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FMCG companies scramble to hike prices faster than planned

Commodity prices are at record highs as a result of the Russian invasion of Ukraine. This has put fast-moving consumer companies in a spot, forcing them rethink their price hike strategies. Consumer companies have been increasing prices since last year and had planned hikes due to high raw material costs, which will now change.

They are still monitoring the situation as prices are on an upward swing due to the crisis. But, companies may have to raise prices earlier than planned. Parle Products may hike prices depending on how rates of commodities like wheat and edible oil move.
The company had earlier initiated a 5-10 per cent price hike in the current quarter.

“The crisis will put significant pressure on food processing companies, and it will be a very challenging time if commodity costs continue to escalate further,” Mayank Shah, category head at Parle Products told Business Standard.

Shah added that the industry has already been raising prices since last year but could not comment on the extent of hikes the company will have to undertake as prices continue to inch higher.

Varun Berry, managing director of Britannia Industries, said the company will have to raise prices as soon as possible. But, it will only be possible to do so in April. He did not elaborate on the extent to which the biscuit major will hike prices.

The company had already announced price hikes to the tune of 7.5 per cent in the third quarter and 10 per cent in Q4. However, Berry told analysts in an earnings call after the December quarter results that the company may have to opt for a higher price increase than initially planned due to a sharp rise in commodity inflation.

Brent crude oil touched a high of $122 per barrel on Wednesday, while wheat prices on CBOT touched a high of $9.97 per bushel, last seen in 2008. Crude palm oil is also at an all-time high of $1,854 per tonne.

However, not all companies can afford to raise rates. Balaji Wafers, for instance, has decided to cut retailer margins by 25 paise per pack as it is not possible to increase prices, especially of lower price point packs like that of Rs 5 and Rs 10. “We cannot increase prices at this time, so we have had to reduce margins of the retailer, but three to four months down the line we will have to cut by 5 gms in order to deal with inflation in commodities,” Chandu Virani, founder and director of Balaji Wafer, said.

Adani Wilmar has hedged its position, but Angshu Mallick, CEO of the company, believes prices are not sustainable at current levels as it is sentiment-led and expects them to correct.

“If prices continue to stay elevated even a month later, then the company will take a call on increasing prices,” Mallick said. Business Standard

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