Godrej Consumer may raise prices in premium categories

Price hikes are back in the FMCG sector after a long break. With raw material prices up and margins getting beaten down, market leader HUL has decided to make the first move. This has led other FMCG companies to re-look at their pricing.



Godrej Consumer Products which was earlier not planning any price rise has given in. In an interview to CNBC-TV18 Adi Godrej, CMD, Godrej Consumer Products said that the company may raise prices in premium categories soon. However he said that price hikes will be within 5% on weighted average basis.







Excerpts from Markets Midday on CNBC-TV18 Watch the full show »

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Godrej is likely to reduce weightage of few stock-keeping units (SKUs) to counter cost pressures, he informed. It is likely to reduce weightage of few stock-keeping units (SKUs) to counter cost pressures.



\"We might reduce weight in certain cases where we have stock-keeping units (SKUs) of soap. At Rs 5 and Rs 10, it does not make sense to raise prices, we might reduce weight,\" he elaborated.



Here is the verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal. Also watch the accompanying video.



Q: The important development in the fast moving consumer goods (FMCG) space is that Hindustan Unilever has raised its prices of several soaps by weighted average of 3% and some edible oil prices have also been raised by Marico. Any reaction, what would Godrej do with its soap product prices?



A: We might reduce weight in certain cases where we have stock-keeping units (SKUs) of soap. At Rs 5 and Rs 10, it does not make sense to raise prices, we might reduce weight. So, the cost increases that are have hit HUL and Marico similarly hit us, although we have good coverage of raw material. Going forward, we think commodity prices are likely to rise even further. So, we will follow suit.



Q: You would reduce the weights perhaps in the smaller categories. In the more expensive ones, can we expect a price hike?



A: It could be. Yes.



Q: What would be the percentage rise in prices?



A: It is difficult to tell. Our people are studying the situation. I can't tell you exactly what kind of price hike there would be. But it is likely to be implemented soon.



Q: The strategy is just to cover costs or go a little further, since you are expecting more in terms of price rises?



A: No. It will be more or less to cover cost.



Q: Is the pricing power back or do you think the price hikes are only to compensate for the hike in commodity prices and also the raw material prices?



A: I think if all competitors take up prices, there is no major issue in terms of consumption. But if one or two competitors do then there might be some issues. But in this case the cost increase is sufficient that I expect all soap players to raise prices.



Q: Do you expect any thing by way of a demand reaction? What kind of elasticity do you see in terms of demand response?



A: These price increases are relatively marginal. We are talking of around 5% and I do not see any major demand constrains with such price increases. Remember there is general inflation, so prices of other things are going up. People's remuneration, wages are also going up. I do not expect any negative reaction in terms of elasticity of demand.



Q: Would there be a similar strategy in the non-soap products as well?



A: We have already raised prices in our main selling hair colour, which is shashe, from Rs 10 to Rs 11 that was done last month. So, I expect there would be some increases in other FMCG products by other companies also and we would also look at similarly. There is a general inflationary effect on cost.



Q: Your sense is therefore your margins in the second or third quarter will be similar to the first or a little better?



A: No. They should be better. Anyways margins were improving, so I expect for the rest of the year, especially third and fourth quarter margin should be better.


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