Mumbai: Localisation, using alternatives wherever feasible and removing non-essential product features to cut cost of production. These are some measures brands are undertaking as they prepare for the festival season.CEOs are clear that measured price increases have to be taken amid persistent commodity inflation but margins also have to be sacrificed to an extent to boost volume growth in the crucial business period. Festive sales targets have not been slashed and they are hopeful that a longer festive window (Diwali is in Nov this year against Oct last year) alongside premiumisation will support demand.
Festive planning in disarray
The biggest challenge for companies is that they cannot afford to pass on the full price increases to consumers at a time when the mass market is already under pressure. Some executives also said that rural demand is a bit uneven amid deficient monsoons. “The problem is that there is no end to this situation (volatility). We have to go for product innovation to improve margins. One way is to remove unnecessary features to bring down the input cost of products,” said B Thiagarajan, MD at Blue Star.Companies plan for the festive period well ahead of time but commodity cost volatility and intermittent disruption in supplies of items have thrown things into disarray this season. To top it all, crude is back to $100 per barrel while copper has hit new all-time highs amid the flare up in West Asia. “The conversation cannot stop at crude and copper. Sugar has moved up sharply, and dry fruits, which sit at the very heart of the sweets business, are at an all-time high. Prices are moving on sentiment as much as on fundamentals. A rate quoted this fortnight looks different the next,” said Umesh Kumar Agarwal, director, Haldiram Marketing.Wherever possible, brands are considering alternatives-for instance using aluminium instead of copper, said an executive with a consumer durables firm. “Our first focus will be on localisation, productivity, sourcing and operational efficiencies before passing the entire cost increase to consumers,” said Sanjay Chitkara, director and co-CSMO at LG India. Kishan Jain, director at Goldmedal Electricals said that the company will look to absorb further increase in commodity costs rather than pass on to consumers.Brands are trying to source products when prices are low but many times, product availability in itself is a challenge, said Kumar Rajagopalan, executive director & CEO at Retailers Association of India (RAI). “Getting (shipping) containers has often been an issue,” said Rajagopalan. Input costs for retailers across segments have risen by about 20% since the start of the war; of that, only half has been passed on to consumers, hurting margins, Rajagopalan said.Godrej Appliances is banking on premiumisation and consumer desire for product upgrades to support festive demand, targeting over 40% growth for the season. “Festivals continue to be an important purchase window for appliance categories,” said Kamal Nandi, business head at appliances business, Godrej Enterprises Group, adding that pricing will be calibrated to protect consumers.Although HyFun Foods is positive about the festive season, it expects the market to remain fairly value-conscious. “The entry-level consumer is naturally more sensitive to price movements, particularly after the cost increases seen across the ecosystem,” said MD & group CEO Haresh Karamchandani.
