The Hindu Business Line : Up go prices, again

IT'S that time of the year again. Last year, at around the same time, prices of many fast moving consumer goods (FMCG) began to rise due to a steep increase in input costs, and this trend appears to be repeating now.

With increasing global oil prices, FMCG companies have been hard put to contain the resultant input cost increases over the last few months. But a combined impact of inflationary pressures and the VAT regime appears to be forcing their hand.

Product categories such as shampoo, toothpaste, and even detergent, have witnessed sporadic price hikes over the last two weeks. Hindustan Lever has been the first to hike prices, as a result of which Pepsodent and Close-Up toothpastes are dearer by up to 5 per cent, and Sunsilk and Clinic Plus shampoos by up to 10 per cent.

An HLL spokesperson admitted that the 175 gm Pepsodent now comes Rs 2 dearer at Rs 42, while the 150 gm pack of Close Up is also Rs 2 dearer at Rs 44. The 400 gm pack of Sunsilk shampoo has become costlier by Rs 10 at Rs 135, while the 200 ml pack of Clinic Plus is costlier by Rs 5 at Rs 60.

Meanwhile, Colgate Palmolive has also jumped on to the bandwagon, hiking pricing across all its toothpaste stock buying units (SKUs) by about five per cent. The company has several toothpaste variants, including the flagship brand Colgate Dental Cream, Colgate Herbal and Colgate Herbal White besides the Colgate Fresh Energy Gel portfolio. Again, analysts believe the across-the-board hike has been carved out keeping in mind the strong growth oral care has been witnessing over the last 2-3 quarters. And while a company spokesperson remained unavailable for comments, sources said there has been no increase in toothpowder prices.

However, Dabur India plans to maintain prices across all product categories for the time being. Company officials said that though inflationary pressures have been felt, there was no cause to hike product prices just yet.

While acknowledging the fact that inflation has led to a severe squeeze in margins, Henkel India's Managing Director A. Satish Kumar said: "We have increased prices of our detergent brand, Mr White, by Rs 2 to Rs 41 per kg a few weeks back. I am not sure if a further increase would be absorbed by the market. FMCG companies will have to bring in greater cost efficiencies to survive the present inflationary conditions."

Nikhil Vora, Vice-President (Research) at SSKI Securities, said HLL has hiked toothpaste prices after a gap of over three years and Colgate is expected to follow suit. "We see it as a sign of marginal revival. HLL has increased prices of select SKUs of Pepsodent (150 gm and 80 gm) and Close Up (150 gm and 80 gm) by about five per cent. These SKUs account for 55 per cent of HLL's oral care business. Intense competition in the mass segment has restricted HLL from any price hike at the strategic price points of Rs 5 and Rs 10."

Vora pointed out that HLL's market share in the oral care business has been on a decline for the last 14 quarters, barring a few exceptions, and is currently at 32.5 per cent against 36.4 per cent in 2000. He said intense price competition from small and regional players had resulted in downtrading in the oral care category in the last couple of years. "After the price realignment by Colgate and HLL, the category has bounced back to grow at higher single digits. We expect the price war to be settling and the category to register a faster growth."

He said that the oral care business accounts for 6 per cent of HLL's revenues and a four per cent weighted average price hike in the oral care portfolio will result in marginal improvement in the company's revenues and profits.

Analysts say that increasing competition from companies such as Dabur India in the oral care segment is also being seen as the trigger for the price correction. After the acquisition of Balsra's three oral care brands — Babool, Promise and Meswak — Dabur has plugged the gaps in its oral care portfolio at the lower price end of the market. Analysts said other economy brands may find it tough to compete in this scenario. This partly explains why HLL may have thought of raising the bar in the premium end of the toothpaste market while keeping the economy end insulated.

In the case of detergents, the price hike is being seen largely as a function of the steep rise in input costs.

When the price hikes were first announced by HLL a couple of weeks ago, there was widespread speculation that Procter & Gamble would follow suit, in the shampoo segment at least, but there has been no intimation by P&G on any fresh pricing initiatives for either detergents or shampoos.

Analysts point out that the FMCG industry is well on its way to recovery and sporadic price increases are an indication that big players will not hesitate to shore up margins when the overall sentiment is upbeat.

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