Retail inflation of fast-moving consumer goods (FMCG) has been at an all-time high for the past few months in India. In March 2022, India’s retail inflation rose to a 17-month high of 6.95% due to the rise in food and oil prices and rose to 7.8% in April 2022. Food prices have become costlier, resulting in the Consumer Food Price Index (CFPI) reaching a 17-month high of 8.4% in April 2022 from 7.7% in March 2022. Food prices in rural India increased by 8.5 percent in April 2022, faster than the rest of the country in rural India.
Extraordinary factors at play
Markets are unable to predict stability in these figures, with a continued global rally in energy, fuel and food prices due to the Ukraine crisis, the plight of Indonesian palm oil, and sub-prime wheat production in India’s wheat belt. many other factors.
Also, the central government has recently announced a complete ban on exports as a measure to control rising domestic prices of the crop.
Challenges for the FMCG Sector
The biggest challenge of these extraordinary inflationary pressures is that they have persisted for months. Because of this, retailers are paying attention to consumers’ downtrading (thus eating up their volumes as well as their margins) and opting for cheaper brands or smaller packs instead of the standard ones to save some money. . They are concerned about falling demand for goods and even how to balance the delicate issue of passing rising costs on to consumers while adjusting market demand against profits at such times. The last time such a situation was seen was in 2005-2012 when it saw price-based price increases but margins were strained.
While the skies look dark for the retail sector, this segment has always been a resilient one and will rise positively from this whirlwind of a situation.
Focus on core-price ranges and products
Each brand has certain products that drive its overall value perception as consumers see and closely follow these items as representatives of the brand as a whole. So, if they see the rising cost of such products within the brand range, they see this as the overall pricing strategy of the brand.
Therefore, retailers should identify such key-price categories and products and keep their prices stable. If they can offer a selling price on these products that sends a positive signal to the consumer, as they are happy that the brand is able to maintain or even reduce their prices in these peak times. Thus, the retailer will be able to comfortably hold on to its current profits and market share.
Monitor the Competition Closely
One way to assess a market is to study competitors closely. How they react to long-term inflation, for example raising the price of their entire product range or just a select few, says a lot about what they think about the market’s performance in the near future.
Understand their motivations and actions, only then decide whether you want to follow suit or take an entirely different path.
Adjust costs for inflation before raising prices
If a company is planning to increase the current prices of their products then they should strategize through forecasting model to study all the variables which will affect the product cost in near future, say 6 months, And calculate the future costs by implementing the selected strategy. To adjust costs for inflation and then arrive at new prices.
Since retailers have to account for every variable that may have an impact on the future cost of the product, this method is quite tedious as it deals with large amounts of data and information. It’s challenging to balance and analyze so much information from so many sources and work on it in real time to determine a logical number. To simplify such a challenging process, AI-based predictive analytical programs can be a good place to start.
FMCG players can beat the current inflation as they have always done in the past. That’s not to say it will be easy, but the solution to fighting inflation and staying afloat in this market is how the company decides to move forward.
,The writer is Director, Bikano, Bikanerwala Foods Pvt Ltd,