In 2021, Indians bought smaller packs more frequently and companies slashed grammage to keep prices unchanged amid escalating costs that impacted volume growth.
Though consumers bought more packs of daily essentials and groceries, volumes remained unchanged as consumers opted for smaller sizes as rising inflation pressured monthly budgets.
Homes across India bought about 645 packs in 2021 on an average, 8% higher compared to a year ago, according to a recent Kantar report. Yet, volumes, which indicate the number of products sold, expanded just 0.1% as the average pack size purchased fell to 321 grams, a 10% drop from 356 grams in 2020.
Though consumers bought smaller packs more frequently, companies reduced grammage to keep prices unaffected by escalating costs that impacted volume growth. Volumes remained under pressure during the year due to price increases, which led to the frequent buying of smaller packs.
Yet, consumers of staples have settled with the new price structure, especially of basic staples, and will not downtrade or lower consumption just due to price hikes, “said Angshu Mallick, chief executive of Adani Wilmar, which sells the Fortune brand of staples and edible oils.
The volume of packaged consumer products plunged 1.8% in the quarter ended December-the second consecutive decline-as companies increased prices to offset rising input costs.
Several companies, including Hindustan Unilever (HUL), Britannia, ITC, Godrej Consumer, Parle and Dabur, have warned that prices would continue to rise in the next couple of months amid the highest levels of inflation seen in decades.
Prices have already risen by 10-20% across the board.Within small packs, we see an increased trend of people preferring Rs. 10 packs instead of Rs. 5 in categories such as snacks and biscuits.
Hence, there is an upgrade in terms of value as lower price points now offer significantly reduced grammage, “said Krishnarao Buddha, senior category head at India’s biggest food company, Parle Products.
Kantar said consumers are adjusting to these changes by buying fewer quantities. According to the report, “With inflation expected to be high in 2022, and many manufacturers already confirming price changes for the first quarter, we expect this behaviour to extend.” In its recent earnings call, Hindustan Unilever said that nearly a third of its overall business comes from affordable price points such as Rs. 1, Rs. 5, and Rs. 10, where pricing remained unchanged but grammage was reduced.
HUL chairman Sanjiv Mehta said, “A large part of the price point packs are sold in rural areas and in these packs, even if you don’t touch the MRP (maximum retail price) but adjust the volume, it does reflect in your volume growth going down.”
According to Kantar data, not all categories were impacted by the secular trend in price increases. While segments including toilet cleaners, hand sanitisers, ready-to-eat foods, chyawanprash, honey, detergent bars, and atta saw a sharp decline in volume by around 5%, categories such as hair wash, noodles, biscuits, and salty snacks saw steady volume growth of 12%. Also, several segments, such as hair colour, chocolate, soft drinks, deodorant, and coffee, saw a sharp recovery with growth of around 15% due to a weaker base in 2020, when they dropped 9%.