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FMCG firms find novel ways to cut costs, maintain prices

24-January-2005
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FMCG firms find novel ways to cut costs, maintain prices

The fast moving consumer goods (FMCG) sector is gearing up for price corrections once again. But, instead of a direct price increase, it has adopted novel ways to pass the spiralling input cost to the consumer. Some companies have decided to do away with promotions and freebies, while others have chosen to retain the price point but reduce the net weight of the product.

Take the case of India Household & Healthcare Ltd (IHHL), the sole licensee for LG Household & Healthcare Ltd (that owns the LG Care brand) in India. A one-kg pack of IHHL's detergent brand, Super Enz, was priced at Rs 159 initially, but the company soon realised that unless it braves a price correction, sales would not pick up. So, late last year, IHHL brought down the effective price of Super Enz by 60 per cent, by offering shampoo brand Double Rich, worth Rs 99, free with a one-kg pack of Super Enz.

However, recently, IHHL has effected a price increase of sorts. It has changed the offer so that now, for Rs 159, one can get 1.5 kg of Super Enz but no shampoo. This translates to about 32 per cent price reduction against the 60 per cent offered during the earlier promotion.

Says the IHHL Managing Director, Mr Vijay R. Singh: "There can be no further price cuts for any of our products. Even after the freebies we are offering, Super Enz is the most expensive detergent brand right now; we cannot lower prices since there is a hefty import duty."

The confectionery industry too is looking at new ways of containing costs while maintaining prices at current levels. These include reducing the grammage of products (net weight) while keeping the same prices. Says Lotte India's Managing Director, Mr N.C. Venugopal, "Since confectionery makers operate on tight price points, they have to look for alternative ways to manage rising input costs. One way is to reduce grammage. In recent times, a child could end up buying as little as three gm of a confectionery product for 50 paise against 5.5 gm earlier."

Not only does the end-consumer pay the same money for lesser product weight, even retailers have to settle for this differential.

For example, a retailer buying one kg of Ravalgaon Cherry will get only 180 pieces, whereas he would get 250 pieces of Coffee Bite and 330 pieces of Alpenliebe. While the price paid for the total weight (one kg) remains the same, the number of pieces per kg varies widely, thanks to the grammage jugglery, point out industry watchers.

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