Packaging Cost Lowers Profits Of FMCG

Recent hike in petrol ,diesel prices and  price rise in  major raw materials coupled with increase in packaging materials  have now forced all major  Indian FMCG companies to revise their prices . Every companies have been holding up  price s  with internal cost reduction programs but now it has become difficult to sustain manufacturing at present prices  .Packaging cost is around 8-10% of the total cost of product . Recent hike in CBB or Carton  price  is  due to  increase of Kraft paper  prices by 25- 30%.

Recent Article On ET

MUMBAI: A sharp surge in packaging costs is tormenting consumer product marketers, squeezing their margins and forcing them to consider increasing


prices of processed food and some other products in a cut-throat market, company sources say.

Prices of packaging materials such as aluminium foil, kraft paper, adhesives for corrugated boxes and packaging plastics have increased up to 25% in the last three months, forcing companies such as Marico and Dabur to talk price hike in a marketplace where increasing prices and cutting advertising spends could prove fatal.


"We believe that any expansion of current margins is not sustainable for long-term volume growth," said Saugata Gupta, CEO consumer products business of Marico. "There will be some moderate inflation in prices," he added.

FMCG companies, working with extremely low margins after absorbing most of last year’s rise in raw material prices and higher logistics costs due to fuel price hike, are also exploring innovation in packaging and hedging materials to retain profitability.


Some analysts expect companies to cut internal and advertising costs for some time before hiking prices in the second quarter of the next fiscal.


"In the current scenario FMCG companies will exercise options like trimming internal costs, hedging in the packaging materials or cut down adverting & promotional expenses for a quarter if they are not launching any new products," says Shirish Pardeshi, senior analyst at Anand Rathi Securities.


He added that companies may increase prices after first quarter of 2010-11.


A Dabur India official said while the company has absorbed higher packaging costs so far, it may increase prices in some categories if costs rise further.


"We are finding it a bit difficult to procure our requirement in the corrugated box and paper segment. However, we have enough hedging contracts in place for packaging materials such as plastics and kraft paper," said Jude Magima, executive director-supply management at Dabur India.

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