Consumer goods prices remain elevated compared to two years ago, despite recent price reductions across various categories. While many companies have cut prices in response to market pressures, the cost of raw materials is showing signs of inflation, hinting at potential price increases in certain categories.
Over the past two years, most consumer goods companies have raised prices by more than a quarter to offset rising costs, including raw materials, supply chain expenses, and energy costs. Factors such as the pandemic and geopolitical events like Russia’s invasion of Ukraine have contributed to cost inflation, particularly affecting commodities such as crude oil, palm oil, LAB, and coffee.
Krishnarao Buddha, senior category head for marketing at Parle Products, acknowledged the challenge of maintaining stable prices amid persistent pressure on input costs, especially in the food segment. He suggested that while some raw material prices have decreased, further price cuts are unlikely, and prices may even rise in some cases.
According to Boston Consulting Group, prices of household care products, foods, and beverages have more than doubled in the past decade, with a steeper increase observed post-COVID. While raw material prices have decreased over the past year, companies have largely retained the benefits through margin expansion.
Analysts predict that companies will be hesitant to raise prices in the near term due to competitive pressures, uncertain volumes, and strong gross margins. However, certain categories like oral care have seen significant price hikes, contributing to record-high margins for market leaders like Colgate.
Although some categories witnessed price cuts in recent months, prices remain higher compared to two years ago. For example, soap prices remain 15-20% higher, while oral care prices have seen the largest increases. Despite price reductions in detergent and dish wash categories, raw material prices are beginning to rise again, posing challenges for further price adjustments.
While rural demand for fast-moving consumer goods (FMCG) has shown promising growth, companies anticipate only modest value growth in the coming quarters due to cost pressures. Sudhir Sitapati, managing director at Godrej Consumer Products, expects product prices to rise slightly in the near future, leading to high-single digit value growth for the industry this year.