Has the sachet economy begun to feel the effects of inflation? Companies in the fast-moving consumer goods (FMCG) industry believe so.
A customer may get one cup of Horlicks for Rs. 2, while a lady can get a full hair wash for Rs. 1 Clinic Plus shampoo. As inflation hits, FMCG manufacturers are finding it difficult to maintain these pricing points by lowering the quantity per pack, or grammage. “You can only go down to a certain point.” A comprehensive hair wash will not be possible if the volume of a Re 1 Clinic Plus shampoo falls below a specified level. Ritesh Tiwari, CFO of Hindustan Unilever, stated, “There are certain criteria that we work within, and we can’t lower volume beyond that.”
Why are MCG firms unable to decrease packets despite rising inflation?
Has the sachet economy begun to feel the effects of inflation? Companies in the fast-moving consumer goods (FMCG) industry believe so.
A customer may get one cup of Horlicks for Rs. 2, while a lady can get a full hair wash for Rs. 1 Clinic Plus shampoo. As inflation hits, FMCG manufacturers are finding it difficult to maintain these pricing points by lowering the quantity per pack, or grammage. “You can only go down to a certain point.” A comprehensive hair wash will not be possible if the volume of a Re 1 Clinic Plus shampoo falls below a specified level. Ritesh Tiwari, CFO of Hindustan Unilever, stated, “There are certain criteria that we work within, and we can’t lower volume beyond that.”
Mayank Shah, senior category head at Parle Products, explained that because tiny packets cannot be changed in price, the only way to manage expenses in this high-inflation time is to reduce grammage. “For the Rs. 5 price range, what used to be 100 grammes is now accessible in roughly half the amount.” “However, the quantity available after grammage reduction is insufficient to satisfy one’s hunger,” Shah said, adding that Parle Products is adamant about continuing to sell its Rs. 5 pack of Parle-G biscuits, despite the poor margins.
Because the firm said that it did not want to earn money on the Rs. 5 stock keeping unit (SKU) so that it is affordable for the public, Shah claimed the company will never withdraw the price point. “On the Parle-G Rs. 5 SKU, we barely break even, with margins in the low single digits.” But we’ll keep making sure it’s available on the market since biscuits are the cheapest meal for people, and affordability is crucial,” Shah added.
Consumers are likely to switch to a Rs. 10 bag of cookies, according to Shah of Parle Products. “In tier-1/tier-2 towns, we’re witnessing early patterns of customers switching to Rs. 10 packs from Rs. 5 packs,” he added. Parle-sales G’s are dominated by the Rs. 5 and Rs. 10 packs, which account for 40-45 percent of total sales.
According to Bizom’s research over the previous year, Rs. 10 is quickly becoming a bargain pricing point for biscuits. Bizom, a platform that automates retail execution at 7.5 million kirana stores, has seen a 2.4 percent drop in revenue share at the Rs 5 price point over the last year, while revenue share has increased by 3.8 percent at the Rs 10 price point, owing to a shift from both Rs 5 and higher prices towards Rs 10.
“Reduced grammage across lower price points driven by high food inflation is making consumers look for packs that offer value (that is, more grammes of biscuit per rupee) and that seems to be driving this shift towards Rs 10, which is fast emerging as a value price point,” said Bizom’s chief of growth and insights, Akshay D’Souza. This might also imply that more consumers are upgrading to multi-use packs from single-use packs in order to keep their spending in check.”
HUL, on the other hand, is developing bridge packs (between two price points) to give its customers the best price-value relationship, ensuring that products stay inexpensive and accessible. The business intends to release more bridge packs in a variety of areas. It will begin activating these in the coming quarters. According to Tiwari, the measure would also aid in the market development of these categories.
Consumers may be lured to bridge packs by providing them additional value at a new price point ahead of the one they typically buy, according to Tiwari, when unit economics are stressed due to inflation. has launched a Lifebuoy pack priced at Rs. 16, which serves as a midpoint between the Rs. 10 and Rs. 36 pricing points. “We have solid unit economics when customers discover value at these price points.” “That’s the sweet spot we’re trying to find now,” Tiwari added.
With commodities prices and volatility where they are, Tiwari believes it is not the proper time to make long-term plans on a Re. 1 sachet, either way.
“Wait a quarter or two to watch how commodity inflation develops in comparison to where it is currently. As things stand, we expect higher inflation in the June and September quarters. Hopefully, we will see the pinnacle of this inflation in the next one or two quarters. People are titrating their consumption as they perceive the impact on their wallet, which has an influence on volumes. Our aim in these times of rising inflation is to deliver value to consumers, invest in our brands, and safeguard our financial business model. Our first priority is to make saving more difficult. “After that, we take calibrated price adjustments to safeguard and build our consumer franchise,” Tiwari explained.
Packs that run at these ‘magic pricing points’ account for over 30% of HUL’s sales. In addition, around 30% of its portfolio is price-locked.