Weighed down by higher input costs and food inflation, fast-moving consumer goods (FMCG) companies are reviewing their entry price points of Rs 5 and Rs 10. Those who don’t want to vacate the low-priced packs segment are considering a grammage reduction due to rise in prices of commodity inputs such as palm oil, coffee and cocoa by up to 50-60% in the last one year.
“Rs 20 is becoming the new Rs 10,” said Krishnarao Buddha, senior category head, Parle Products, a leading biscuit maker. “Rs 20 price point contributes about 12-14% to food companies right now. This will go up to about 25% in the next 3-4 years as companies look to grow this price point,” he said. However, he said that Rs 5 and Rs 10 price points are “sacrosanct”. “We may reduce grammage, but will not vacate these price points,” he said.
According to data by Kantar Worldpanel, sourced from the industry, Rs 5 price point currently delivers volumes of around 32% to FMCG companies. Packs of Rs 10 deliver volumes of around 23% and that of Rs 20 account for around 12-14% respectively.
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Industry executives say that the share of Rs 5 is reducing in the FMCG basket. It was 35% two years ago, and will go down further in the future. They suggest that the Rs 10 price point is slated to grow and will touch 25% in terms of FMCG volumes, but will remain stagnant thereafter as the attention shifts to the Rs 20 price point.
Last month, Suresh Narayanan, chairman and managing director at Nestle India, said they “never wanted” to vacate the Rs 5 segment. “But the water went above my nose,” he said. “I would have had to sustain it at such huge losses that it would have meant eroding the margins for the company, permanently.”
Narayanan said the company moved from Rs 5 to Rs 7 and then to Rs 10,
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