Suryaa National Desk: Surya Corporate & Economy Desk, Mumbai: Rising raw material prices are hitting the domestic fast moving consumer goods sector hard. Current financial year... Surya Corporate & Economy Desk, Mumbai: Rising raw material prices are hitting the domestic fast moving consumer goods sector. In the second quarter (Q2) of the current financial year, the operating cost of the companies has risen sharply due to a sharp rise in prices of agro-based products, palm oil, coffee, tea, coconut and packaging raw materials.
Industry sources have made it clear that the slowdown in consumption in urban areas, while at the same time the significant increase in the cost of manufacturing essential products, is having a severe negative impact on the gross margins of companies. Price hike – burden on consumers: Major FMCG companies have been implementing gradual price hikes on soaps, oils, food items and essential commodities to cope with the raw material burden. A few others are opting for a 'grammage reduction' policy of reducing gram size while keeping prices constant. However, geopolitical tensions in the international markets due to rising crude oil and sea freight charges have become a hindrance to the protection of companies' margins.
Although the rural market has shown some positive growth in the form of small size packets, rising prices have put pressure on the purchasing power of the common consumer. Shadows over profitability in second half: Financial analysts warn that similar margin pressure may continue in the second half of the financial year (H2). Although sales volume is likely to increase during the festive season, profit margins are likely to remain limited as companies have to maintain advertising and promotional costs. To overcome these pressures, organizations feel the immediate task is to make supply systems more efficient, focus on premium segments and tighten cost control measures.
