ITC, HUL, Godrej & others take the bullet for you

Kolkata and Mumbai: Consumer goods giants are stepping in to absorb the rising cost of raw materials instead of immediately raising prices, in an effort to keep demand high and maintain sales growth. Companies like ITC, Hindustan Unilever, Godrej Consumer Products, Emami, Havells, Reliance Retail, and Aditya Birla Lifestyle Brands are blending selective price hikes with cost-cutting to keep the burden on both consumers and their own profits relatively light.

The rise in raw material costs is due to factors such as high prices for raw materials, supply disruptions, and freight charges. These companies are reducing trade investments and streamlining their vendor networks to secure better rates through higher purchase volumes. Some of the cost impact is being absorbed into their profit margins.

Godrej Consumer Products CEO Asif Malbari noted that inflation in crude oil-linked derivatives, palm oil, and other commodities surged last quarter, leading to a high single-digit increase in input costs - one of the steepest jumps in years. Despite a significant portion of its portfolio consisting of fixed-price packs, Malbari told analysts that the company adopted aggressive pricing actions along with cost-saving measures and trade investment optimization.

Retailers and apparel makers are also finding ways to balance pricing actions with cost-saving initiatives. Reliance Retail, India's largest retailer, is absorbing part of the input cost increase to sustain demand. CFO Dinesh Taluja pointed out that inflation is at a two-year high, squeezing consumers' purchasing power. The company is focusing on high-demand areas, working with fewer vendors in those markets, and undertaking joint business planning to improve margins without raising prices too much.

Aditya Birla Lifestyle Brands CEO Ashish Dikshit explained that the firm offset cost increases through a 6% price increase, with the majority of added costs being passed on to consumers. They have worked closely with vendors to minimize the increase, he said.

Across various industries, consumer goods companies are grappling with the impact of inflation, which remains their biggest worry. They are aiming to strike a balance between pricing actions and other cost-saving measures to sustain the recovery in demand. Inflation concerns, coupled with variable monsoon conditions or drought in certain regions, have not dampened demand.

Despite this, companies are implementing average price increases of 3-6% across various product categories in the past two quarters. Some have also trimmed grammage in fixed-price packs. Companies like Britannia, HUL, and Havells say they are prepared to implement more price hikes.