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Marico has been reducing the price of Saffola and Parachute, and it may go down further

Marico has been reducing the price of Saffola and Parachute, and it may go down further
  • Marico’s chief Saugata Gupta has confirmed that the company has engaged in three rounds of price deduction for Saffola and Parachute in the last four months.
  • These reductions are based on the declining copra prices.
  • This pricing strategy is likely to start paying off by fiscal year 2023, the company believes.
Rising input cost was one of the major pain points for all major fast moving consumer goods (FMCG) companies like Nestle, Hindustan Unilever, Britannia and others over the last two years. These companies had to constantly increase the price of their products in order to keep their margins intact and show higher growth to their investors.

Even Marico — the company behind brands like Saffola and Parachute — had taken part in this pricing strategy. However, the company has now decided to backtrack a bit and reduce the price of its products in the months to come.

Marico’s managing director (MD) and chief executive officer (CEO) Saugata Gupta, in the earning call with the analysts, highlighted that the company has already engaged in three rounds of price deduction for Saffola and Parachute in the last four months.

The first price deduction was in October 2021, followed by December 2021 and January 2022.

Parachute and Saffola are the most popular products by Marico.

Product

Market Share

Price increase since 2021

Parachute

63%+

Up to 6% in coconut oil

Saffola

83%+ (refined oil), 43% (oats)

50% in refined oil category


Reduction in price come on declining copra price

The company will further look to reduce prices of these products as it expects the input costs to lower due to dropping Copra (dried coconut kernel) rates. Copra prices account for nearly 50% of raw material costs overall for its coconut oil portfolio, Marico’s chief financial officer (CFO) Pawan Agrawal has previously said.

“Parachute part is clearly certain, but it is difficult to take a call on the rest of the business that will all depend on rural growth and inflation [as well as crude oil prices],” CEO Gupta said. He assured, “We have put in a lot of cost management exercises, which will also accrue next year [financial year 2023]... Operating margin will definitely be higher next year than this year [FY2022].”

The company has decided to focus on price cuts in order to focus on sales volume, instead of margin. It believes that this will further help the company’s long term growth vision and make the price of its product more competitive.

“We are not shy in taking price drops, our endeavour is to ensure that volume growth happens and not short term price margins,” Gupta said, adding that it may be able to achieve a normal EBITDA margin of 19% in the last quarter of FY2022.

EBITDA stands for earnings before interest, taxes, depreciation, and amortisation.

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