With rising commodity prices and household inflation squeezing spending power, consumer companies are limiting price increases, rationalising costs and absorbing part of the additional burden, putting pressure on margins
Consumer goods companies are increasingly turning to procurement efficiencies, lower trade spending and selective price increases to manage rising input costs, wary that passing on the entire burden to consumers could derail the recovery in sales volumes.
ITC, Hindustan Unilever (HUL), Godrej Consumer Products, Emami, Havells, Reliance Retail and Aditya Birla Lifestyle Brands are among the companies balancing pricing actions with cost-control measures. Some are absorbing a portion of the additional costs, putting pressure on margins in an effort to keep products affordable.
The balancing act comes at a time when inflation is squeezing household budgets and raising concerns about the sustainability of consumer demand. India’s retail inflation rose to 5.54 per cent in September, its highest level in nearly two years, while food inflation climbed to 7.74 per cent. Price increases across vegetables, fruits, edible oils, sugar and prepared foods have added to the burden on households, alongside higher expenses on transport, restaurants and other services.
For consumer companies, the challenge is no longer limited to managing commodity inflation. They must also account for consumers becoming more cautious with discretionary spending, particularly in lower-priced and entry-level product categories.
Godrej Consumer Products chief executive Asif Malbari said inflation in crude oil derivatives, palm oil and other commodities intensified during the July-September quarter, resulting in a high single-digit increase in input costs. He described the rise as one of the steepest increases in raw material costs in several years.
The company responded with pricing measures, cost-saving initiatives and tighter control over trade investments, despite a sizeable part of its portfolio comprising fixed-price packs, Malbari told analysts.
However, not all companies are willing to pass on higher costs through price increases. Varun Beverages, PepsiCo’s India bottler, has flagged pressure on profitability as it contends with rising raw material prices without fully transferring the additional costs to consumers.
“There is margin pressure due to raw material price,” Varun Jaipuria, the company’s executive vice chair, told analysts on an October 30 conference call. “Everybody is under pressure, they’re figuring out what to do and how do you negate the cost.”
Reliance Retail is also absorbing part of the increase in input costs to protect consumer demand. Its chief financial officer Dinesh Taluja said inflation had reached a two-year high, affecting consumers’ purchasing power. The retailer is instead focusing on categories with stronger demand, reducing the number of vendors in select markets and using joint business planning to improve margins.
Aditya Birla Lifestyle Brands has taken a more measured pricing approach. Managing director Ashish Dikshit said the company implemented a 6 per cent price increase to offset rising costs but absorbed a larger portion of the incremental expenses.
“We have worked very closely with our vendor partners to be able to minimise the increase from that,” he said.
Inflation Puts Volume Recovery At Risk
The pressure on household budgets is beginning to influence consumption patterns across categories, particularly products that depend on discretionary spending and lower-income consumers.
United Spirits, the Indian arm of Diageo, has reported an impact on its entry-level spirits portfolio as consumers face higher living costs. Chief executive Praveen Someshwar said the pressure was particularly visible among lower-income urban households.
“The bottom end of the urban consumer is feeling the inflationary pressure,” he said during an earnings call last month.
The packaged food segment is also facing cost-related concerns. Motilal Oswal, in an October 15 report, flagged the risk of higher commodity prices affecting Nestle India’s profitability. The company has indicated that it is relying on operational efficiencies to cushion the impact on its bottom line rather than resorting to broad-based price increases.
The emphasis on affordability is also shaping product strategies. Devyani is expanding its offerings at entry-level price points to retain consumers amid rising food costs. Its group chief executive Manish Dawar told analysts on November 2 that higher food inflation and rising interest rates could weigh on discretionary expenditure.
“With food inflation firming and interest rates beginning to rise, we expect discretionary spending to stay under pressure,” he said.
Consumption estimates suggest that the pressure could extend into the coming quarters. According to Worldpanel by Numerator, India’s consumption growth is expected to moderate to 3.5 per cent in the current quarter from 5.2 per cent in the April-June quarter.
HSBC economist Aayushi Chaudhary has also cautioned that consumption could weaken in the second half of FY27 as elevated living costs erode purchasing power. Weaker demand from the informal sector and tighter financial conditions are additional factors that could weigh on spending, according to her assessment.
Price Increases Offer Limited Relief
Although companies are attempting to contain costs internally, selective price increases have already become part of the industry’s response. Over the past two quarters, businesses have raised prices by an average of 3-6 per cent across branded apparel, daily essentials, personal care products and packaged foods. Some manufacturers have also reduced grammage in fixed-price packs priced at Rs 5, Rs 10 and Rs 20.
Britannia, HUL and Havells have indicated that further price increases could be on the table, suggesting that companies may find it increasingly difficult to absorb prolonged input-cost inflation without affecting profitability.
Emami managing director Harsha Vardhan Agarwal said demand had not been affected by uneven monsoon conditions or drought in some states, but rising inflation remained a concern for the industry.
“The patchy monsoon or drought in some states has not impacted demand. Inflation is the biggest concern right now and hence we have to balance pricing action with other cost-saving measures,” he said.
The festive season has provided some support to consumer businesses, with companies reporting double-digit year-on-year sales growth, supported by a recovery in volumes. The period leading up to Diwali in November is traditionally an important sales window for consumer goods manufacturers and retailers.
However, the improvement in festive demand may not necessarily translate into sustained consumption growth. With food and other household expenses remaining elevated, companies face the challenge of maintaining volumes without further weakening margins through additional cost absorption or alienating price-sensitive consumers through higher prices.
