scorecardOats and honey are some of the health foods that Indians are buying less of
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Oats and honey are some of the health foods that Indians are buying less of

Oats and honey are some of the health foods that Indians are buying less of
IndiaIndia3 min read
  • Most households are cutting down their consumption of oats, honey in addition to the much inflated cooking oil, which is haunting FMCG players like Marico.
  • Marico’s cooking oil brand Saffola has suffered the most as the company had to pass on some of its input costs to the customers.
  • Its total volumes dropped to mid-single digits during April to June.
  • FMCG players will have to deal with lower margins and volumes for another two months, say analysts.
Indian grocery bags are getting smaller, all thanks to price hikes seen in the last few months. According to a top FMCG player Marico, most households are cutting down their consumption in their immunity-led category of oats, honey.

However, cooking oil, which became the most expensive household essential, is the category where they were hit the most. Marico’s cooking oil brand Saffola was one the biggest victims of price rise and supply shocks.

“Saffola Oils declined in double digits, having to contend with high in-home consumption in the base quarter and significant downtrading visible from super premium to mass segment in edible oils,” the company said in a statement to the stock exchanges.

Edible oil prices rose by 10-15% since April after FMCG players had to pass on some of the input cost pressures to the consumers. This was not the only oil sale that affected the company.

Parachute rose slower too
Even its hair oil brand Parachute had a minor volume decline in spite of the fact that copra prices have been low and they have been passing on the benefits in terms of low prices. Yet, there were positive surprises as well since value-added hair oils grew in low single digits despite weak consumption sentiment, especially in rural areas.

All in all, its total volumes dropped to mid-single digits during April to June.

“In India, the sector continued to witness tepid demand as rising retail inflation exerted pressure on share of wallet for FMCG. Current trends indicate that consumers titrated consumption in some nonessential categories and either downtraded among brands or switched to smaller packs in the essential categories,” the company said in a BSE statement.

Stress on FMCG volumes and margins will persist say sector experts
As volumes lowered, Marico decided to maintain its margins as opposed to holding on to higher sales – after a sharp rise in raw material prices. Most sector experts believe that all FMCG companies will continue to do this for the foreseeable future and their sales volumes will come back only in the second half of the current financial year. Despite the price hikes, they would have to ingest some of the margin pressures too.

“We believe margin pressure would continue in the first quarter of FY23 as well given commodity inflation was persistent until mid-June and volume growth would also be flattish. We expect volume growth to come back to the positive territory in the second half of FY23,” said a report by ICICI Securities.

Most FMCG companies also implemented grammage reduction, a practice that’s come to be known as shrininflation.

“Despite such price hikes, FMCG companies have witnessed gross margin contraction to the tune of 200-500 bps in the last two quarters. The incessant price hikes have also led to demand contraction specifically in rural regions. Consumers have been switching to economy brands and smaller stock keeping units in detergent, soaps and edible oil categories,” said the report.

Analysts believe companies with a high proportion of imported commodities in their raw material basket would continue to remain impacted for some more time — making brokerages as cautious as their consumers.

$MARICO.NSE is a classic example of MANGO business which I covered in my book You Can Compound...past winner with great track record but future growth missing.. It's at best dividend play...such businesses keep consolidating for long time...

— (@vivek_mashrani) July 06, 2022]]>

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