Everything from soap to clothes is taking a beating, yet why are the companies themselves facing losses?

Effect of Inflation: In this age of inflation, there is relief news for common consumers. The country’s major FMCG companies are not passing the full burden of rising raw material prices on the consumers’ pockets. Major companies like ITC, Hindustan Unilever, Godrej Consumer, Emami, Havells, Reliance Retail and Aditya Birla Lifestyle have changed their strategy. Instead of raising the prices of everything, these companies are reducing their internal costs. Its direct objective is to prevent disruption of consumer demand in the market. Besides, companies also want to maintain their sales momentum.

Due to the rise in the cost of raw materials, the math got worse

Companies have been facing a major challenge of cost escalation for some time now. According to a report by the Economic Times, during the recent quarterly results, many companies said that the cost of transporting goods has increased significantly due to the cost of raw materials and supply disruptions. According to Asif Malabari, CEO, Godrej Consumer Products, inflation in crude oil related goods, palm oil and other items was very high in the last quarter. This has led to the biggest rise in raw material prices in many years. Malabari said most of its products come in fixed-price packets. However, the company has very cautiously increased the prices. Besides cost saving, emphasis is also placed on improving business investment.

Laying off vendors to cut costs

Companies are not only holding down prices, but also looking for new ways to cut costs. For this, business expenses are being cut. Companies are now working with select vendors instead of more vendors. This is helping them buy goods at cheaper rates by placing large orders at once. Reliance Retail, the country’s largest retail chain, has also started absorbing a portion of the increased costs to support demand. Dinesh Taluja, the company’s chief financial officer, says that inflation is at its highest level in two years, which is affecting the purchasing power of consumers. In such a situation, Reliance Retail is identifying markets where demand is high. There, fewer sellers are being partnered to increase profits without increasing prices. Meanwhile, Ashish Dixit, MD, Aditya Birla Lifestyle Brands, said that they have balanced costs by raising prices by only 6 per cent. A large part of the increased cost is reduced together with the vendors rather than being passed on to the customers.

Impact on the profits of companies

In this effort to provide relief to customers, there has been pressure on the companies’ own profit (margins). Margins at many large consumer firms contracted during the July to September quarter as they cut costs to limit price increases. Harshvardhan Aggarwal, managing director of Emami, says demand has not been affected by low rainfall or drought in some states. The biggest concern right now is inflation. Therefore, a balance has to be struck between cost saving measures and price changes.

Lose weight in small packets

Despite all efforts, companies have had to increase prices in some parts. Prices of branded clothing, daily necessities, personal care products like soaps and shampoos and packaged food have increased by an average of 3 to 6 percent in the last two quarters. Apart from this, companies have not increased the price of fixed-price packets of Rs 5, Rs 10 or Rs 20, but have reduced the weight (grammage) of the goods found inside. Relievingly, demand in the market has been steadily improving for the last two quarters. Recently, strong double digit growth in year-on-year sales has been recorded even during the last festive season. However, companies such as Britannia, Hindustan Unilever and Havells have indicated that some more price hikes may occur in the near future.