Has the MRP clarity come a bit late for consumer goods firms?

Meenakshi Verma Ambwani New Delhi | Updated on January 11, 2018 Published on July 05, 2017

Many firms offered flash sales to liquidate stocks just before the GST kicked in

Earlier clarity may have prevented distress sales, say firms; ad costs likely to rise

The government’s announcement on GST-related rules for old inventory and MRP has come a tad late for consumer product companies and retailers, helping them to manage their supply chains better and preventing pre-GST distress discounts.

Companies believe that had Tuesday’s announcement on maximum retail price (MRP) and old inventory come earlier, they would have been better prepared. For now, most of these companies will face practical difficulties in affixing price stickers, say analysts, pointing out that the latest announcement will lead to higher advertising and promotion (A&P) costs for companies for products whose rates have increased after GST. According to an analyst report by Edelweiss Securities Ltd, putting new stickers on millions of packs, especially for staple companies, will be a challenge. Also, it would be cumbersome to change prices of packs overnight.

“A&P spends could increase for companies where rates have risen post-GST in segments such as skin care products, Ayurvedic products, detergents, malt beverages, lower-priced biscuits, paints etc. We believe players may hesitate to undertake price hikes amidst the regulation and anti-profiteering rules under GST,” it added.

In fact, companies that have seen higher incidence in taxes are either absorbing the costs or are yet to take a call on raising prices.

Oliver Mirza, Managing Director & CEO, Dr. Oetker India Pvt. Ltd, said while the company had seen an increase in tax incidence in categories such as mayonnaise and peanut butter, besides chocolate spreads, it has decided to keep the price unchanged. He said the company would have incurred a cost to change packaging, point of sale and advertising materials.

Similarly, while the aerated beverages industry has been indicating that it will need to increase prices, a decision has not yet been taken as the peak demand season of summer is over.

Mayank Shah, Category Head, Parle Products, said: “As far as lower priced biscuits are concerned, it will take us at least a month before we can consider all the aspects and take a call on any revision in prices.” He said most FMCG companies had been keeping a control on inventory and supply pipelines, so that distributors were not saddled with a lot of old stocks.

Analysts also wondered if publishing ads would serve any real purpose for consumers.

Suresh Nandlal Rohira, partner, Grant Thornton India LLP, said: “It warrants a mammoth exercise for manufacturers/packers/importers to rush to the print media for publishing changes in the price of a packaged commodity. The consumer may wonder how to verify the actual difference between the original tax and the increase due to GST; and subsequently the wherewithal for the authorities to cross-examine.”

Added Lalit Agarwal, CMD, V Mart Retail: “This regulation has come nearly five days late. Retailers would not have had to go for liquidating old stocks at discounts. Also, we keep 50,000-80,000 stock keeping units as inventory, and it will be challenging to operationalise these guidelines.”

Published on July 05, 2017
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