New Delhi: In a proactive move to address rising costs amidst impending reforms, manufacturers of essential goods such as snacks, shampoos, and teas are planning to restore the weight of their smaller packs priced at Rs 5 and Rs 10. With a major overhaul of the Goods and Services Tax (GST) set to take effect next month, companies are adapting strategies to remain competitive while navigating economic pressures.
Restoring Pack Sizes Amid GST Reforms
Top producers of daily essentials are shifting gears in response to anticipated changes in the Goods and Services Tax (GST). Amidst economic challenges, they are focused on restoring grammage in smaller packaging, priced at Rs 5 and Rs 10. This initiative comes as companies like DFM Foods, which manufactures Crax snacks, emphasize the impracticality of altering fixed prices. “Since our products come at fixed prices of Rs 5 or Rs 10, it is impractical to change pricing,” noted Vipul Prakash, chief executive of DFM Foods. The plan is to increase the quantity in packages wherever feasible, marking a significant shift from the past two years characterized by shrinkflation—reducing the weight or quantity in packs without changing prices.
The upcoming GST reform, anticipated after the GST Council meeting on September 3-4, aims to simplify the tax structure. With Prime Minister Narendra Modi announcing comprehensive revamps, the focus will shift to reducing tax slabs, potentially benefiting daily essentials by placing most items in the lowest tax bracket.
Consumer Sentiment and Economic Impact
Varun Berry, executive vice-chairman and managing director of Britannia Industries, highlighted the broader impact of these changes: “Biscuits, which have near-universal usage, are overwhelmingly consumed down to the smallest village, priced at Rs 5-10.” He emphasized that a tax reduction from 18% to 5% on these small packs would disproportionately benefit lower-income segments. For Britannia, which has about 62% of its products in this pricing range, the GST overhaul is seen as a pivotal opportunity to address consumer needs more effectively.
In addition to biscuits, firms like Cremica Food Industries are preparing to respond promptly to the changes. “Relevant grammage which had to be taken off will come back in packs and this will be done very quickly,” stated Akshay Bector, managing director of the company, suggesting a rapid reintegration of weights in their product lines. With the fast-moving consumer goods (FMCG) market facing constraints, expected reforms are projected to invigorate demand.
Competitive Edge and Market Readiness
Leading companies are not only preparing to enhance pack sizes but are also strategizing to utilize this as a competitive edge. A senior executive from a major shampoo and cosmetics brand explained, “It’s not usually feasible to change prices of sachets, for example, from Rs 10 to Rs 9, as new packs would need to be printed. So we will put back weight across all existing small packs.” While adjustments will primarily affect small packaging, larger packs may see price reductions based on new tax regulations.
Distributors are optimistic about the market’s response. One prominent FMCG distributor shared insights from conversations with manufacturers, noting, “Companies making candies, noodles, and tea have hinted that they could replenish fresh stocks within days of the GST reductions being announced.” Industry giants such as Nestle, ITC, Tata Consumer, and Hindustan Unilever are among the key players ready to seize first-mover advantages.
Expert Analysis and Future Outlook
Financial analysts like those from Jefferies are optimistic about the potential rise in consumer demand resulting from lower GST rates. Their recent report highlighted that a tax cut on essential items could reinvigorate a consumer sector that has recently seen moderate growth. Meanwhile, Nomura has observed that snack manufacturers, in particular, stand to benefit significantly, with expected tax drops influencing market positioning.
Krishna Khatwani, head of sales at Godrej Consumer Products, commented on the landscape ahead: “Companies would look to pass more value to their customers through higher volume for relevant categories or lower price points.” As the GST reforms unfold, a robust push for demand is anticipated, following a mild revival in the June quarter where packaged food, cleaning products, and personal care items witnessed a 6% volume increase.
Final Thoughts
The FMCG sector’s proactive adjustments in response to impending GST reforms exemplify resilience in navigating economic challenges. With a commitment to restore pack sizes and strategically adapt pricing, manufacturers are readying themselves to meet consumer needs effectively. As changes take effect, the shift is poised to not only enhance customer satisfaction but also bolster the Indian economy during a crucial transitional phase. The market watches closely as the GST Council’s decisions unfold, potentially signaling a new era for the consumer goods landscape in India.
Bankerpedia’s Insight💡
The anticipated GST reforms will significantly impact India’s banking and finance sector by enhancing liquidity and driving demand for essential consumer goods. As companies shift from shrinkflation to reinstating grammage in small packs, consumers can expect greater value for their money. This could boost overall sales in the FMCG sector, which is vital for economic recovery. For individuals, paying attention to these changes can help in budgeting and maximizing purchases of daily essentials, as prices stabilize and availability improves. Embrace this opportunity to reassess your household spending as the market adapts.
What Does This Mean for Me?🤔
- Salaried Person → Increased product value without higher prices for essentials.
- Business Owner → Increased grammage could enhance customer satisfaction and sales.
- Student → More product quantity at same price benefits students financially.
- Self-employed → Increased product availability may boost self-employed sales.
- Homemaker → More quantity in small packs benefits budget-conscious homemakers.
- Retiree / Senior Citizen → Lower prices for essentials benefit retirees financially.
- Job Seeker → Increased product availability and potential job opportunities arise.
- Farmer / Rural Citizen → Lower GST may increase affordable essentials for rural citizens.
Research References📚
- economictimes.indiatimes.com
- RBI
- SEBI
- Ministry of Finance
- NABARD
- Department of Financial Services (DFS)
📲 Stay ahead in banking & finance!
Join the Bankerpedia WhatsApp Channel for instant updates, and
subscribe to our YouTube Channel for in-depth analysis and expert explainers.
