The article discusses how FMCG companies in India are shifting focus back to more affordable Rs. 10 price points and moving away from ‘bridge’ packs priced at Rs. 7 and 15. This indicates moderation in commodity price inflation, allowing companies to offer better value propositions to increasingly price-sensitive consumers.
Analysis of this news for a layman:
FMCG refers to Fast Moving Consumer Goods – products that sell quickly such as packaged foods, beverages, personal care items. Bridge packs were introduced by FMCG companies over the past year priced at unusual points like Rs. 7 and 15 instead of more familiar Rs. 5 and 10 price points. This helped FMCG companies maintain margins despite high inflation earlier.
But with commodity inflation cooling off now, companies are finding Rs. 10 packs more viable as they offer better grammage (product quantity) and avoid issues with consumers having to fish for Rs. 3 & 5 coins. Consumers also feel Rs. 10 offers better price-value. So most FMCG cos across biscuits, noodles, snacks etc. are reintroducing Rs. 10 packs while slowing production of Rs. 7 & 15 packs. This should also help fight off local/unbranded competition.
The shift back to more familiar price points, especially Rs. 10, indicates the inflationary pressures faced by both consumers and FMCG firms are stabilizing. Companies can now offer better value without compromising too much on margins. This will expand the target consumer base, drive volumes, and fight off alternate cheap products. It also shows the pricing power held by national brands – they recognize that consumers have become more price-sensitive but haven’t had to resort to deep discounting. Instead they are offering virtually the same products repackaged into better value offerings, without any major changes to brand positioning. This reflects pricing elasticity and product portfolio flexibility allowing brands to cater to various consumer segments.
Impact on Retail Investors:
For retail investors, this indicates the operating environment for the FMCG sector is improving. Volumes and revenues should see an uptick across major listed FMCG players like HUL, Dabur, Nestle if they follow suit in offering Rs. 10 price points. This volume growth rather than price hikes will drive topline expansion and support stock valuations.
FMCG stocks are considered defensive given steady demand and the pivot back to value offerings further reduces risks of down-trading. Margins may remain stable if companies balance grammage offered at Rs. 10 and cost control measures. So FMCG stocks present safety and growth opportunity for retail investors. Focus should remain on market leaders as second-rung regional players will face pressure.
Impact on Industries:
The pivot toward Rs. 10 price point will boost demand across FMCG categories like packaged foods, personal care and home care. Manufacturing, packaging will see higher capacity utilization. Demand for commodities like wheat, edible oils will also rise as more affordable packs hit shelves.
Modern retail like Big Bazaar, Star Bazaar may gain footfalls. But Kirana stores in heartland India will benefit more given their personalized service and convenience. Rural demand could outpace urban given bridge packs cater more to lower income consumers.
E-commerce may also see a fillip as discounted packs offered on apps like BigBasket, Grofers, JioMart become more appealing and drive online penetration of daily essentials.
Overall sentiment across the consumption sector will improve as national brands extend reach affordably.
Long Term Benefits & Negatives:
The renewed focus on lower price points can change consumer habits and loyalty long-term. If new Rs. 10 consumers see no discernible change in quality vis-a-vis earlier higher priced packs, it may permanently alter their outlook and trust toward brands and deter them from up-trading later.
This can compel brands to sustain variants at multiple price points instead of temporary ‘bridge’ packs, adding to portfolio complexity. Offering too many SKUs can also strain supply chains and inventory management.
National brands lowering prices also further crowds an already competitive space, leaving little headroom for regional players to operate unless they niche down. This may force consolidation among smaller companies.
But the long-term volume gains for big brands once new customers enter the fold could offset margin pressure. There is also potential for premiumisation once income levels rise.
Short Term Benefits & Negatives:
The obvious short-term gain is increased affordability driving higher consumption, revenues and capacity utilization as more price-sensitive segments open up.
Stocks of FMCG majors may see a re-rating thanks to volume growth, better revenue visibility.
But this demand spike could strain supply chains in the near-term. Manufacturing capacities may need to be ramped up, distribution infrastructure widened, working capital needs may rise.
Marketing spends may also have to increase to ensure adequate brand communication on lower priced variants. But lower individual pack prices can allow for higher volume off-take compared to costlier packs – an advantage in the short-term.