As palm oil, sugar prices ease, biscuits and cakes become cheaper

Now satisfy your daily cravings without burning a hole in your pocket: Just keep in mind the calories. Thanks to cooling down inflation, major FMCG player Britannia is seeing price cuts in its commodities.

Over the last one year, consumers have been hit hard by rising prices of daily packaged goods such as biscuits, cakes, beverages etc.. But relief is on the horizon.

“The cumulative price increase in the inflationary environment was about 20 to 23%. And from there, it is reduced by one and a half to two percent,” said N Venkat Raman, the Chief Commercial Officer of India’s largest biscuit-maker Britannia said this week on a call to discuss the company’s second-quarter results.

What Raman is referring to is the relentless rise in prices of packaged consumer goods, including home care and personal care items, seen in the market over the last year.

Companies such as Britannia Industries, Hindustan Unilever Ltd and ITC were forced to jack up prices as prices of key commodities — such as flour, milk, vegetable oil, sugar and crude oil — started rising sharply from around mid-2022.

While these companies held off on price increases of their finished products for some time, eventually, they had to throw in the towel and pass on the higher prices to consumers in the form of price hikes of the finished products — to the extent of 20-30%.

Now, as Venkat Raman indicated, that cycle seems to have peaked, and commodity prices seem to have begun their march downward.

For example, the company said prices of key raw materials — palm oil, sugar, and packaging materials — continued to ease during the three months ended September. Palm oil prices, for example, fell 7% during the quarter, while sugar prices corrected 1%.

However, on the negative side, the price of flour — a key ingredient in biscuits and cakes — rose 5% compared to the preceding quarter.

Rising Competition

One of the problems faced by big companies like Britannia when raw material prices start declining is increased competition from informal players — such as local bakeries.

“On the regional players, I think, we, I would not say that for the full quarter, this has been a big issue,” said the management “But yes, for the first, let us say, month, month and a half, this was something that was an issue. So, we did take some pricing actions. And we will continue to be vigilant on that.”

At the same time, it maintained that it did not largely impact the premiumization of its commodities.

“What we have seen even in the last six months is that it is not affected, if you look at the mix, it has only moved towards the premium brands. It is not like the popular or cheap brands are jumping up in every portfolio. While the B players would have gained in certain pockets, I do not think it adds up to the base of the pyramid becoming much larger than what it was. So to that extent, I do not think there is downgradation happening in the market,” said the Britannia management.