Inflation and its effect on the FMCG industry

Introduction

For a few years, the FMCG industry has bloomed extensively. It has grown continuously and reached some new dynamics in the industry of e-commerce and digitization. The input prices were low, inflation was low, and so the economy grew at a faster rate. The year the food prices are quite high and the economy suffers food inflation. In turn the raw material cost surmounts to unexpected levels suddenly. Therefore, high food inflation adversely affects the FMCG industry. People will start spending less money on discretionary items that will hit the FMCG industry. A good monsoon can curb food inflation to a great extent. Food inflation will decline with a good monsoon and will subsequently increase the consumption power. Thereby, creating demand for hair oil, soaps, shampoos, laundry, toilet soaps, and many other FMCG products.

High input costs

High input costs bring worries on other aspects as well like, the cost of milk powder and sugar would go up and several beverage and chocolate-making industries will suffer a huge blow. Cereal prices will affect several industries like biscuit making industry using wheat. In addition, companies using coconut and palm oil will also get affected. This has over increased the packaging cost of the FMCG industries. Tons of industries get affected by inflation in food prices. This happens because they are consumed directly or indirectly.

Rural market


Surveys show that urban markets are showing lower growth dynamics than rural areas. Huge market tycoons have been discovered getting more than half of their revenue from rural lands. The urban markets are overflowing with n number of companies and with tons of competitors. Thereby, leaving fewer margins for the companies. Thereby raising the purchasing power of the rural areas. This has lead to a change in the 
consumption pattern with an increase in commodities above basic care and necessity products.

Rural market

Surveys show that urban markets are showing lower growth dynamics than rural areas. Huge market tycoons have been discovered getting more than half of their revenue from rural lands. The urban markets are overflowing with n number of companies and with tons of competitors. Thereby, leaving fewer margins for the companies. Thereby raising the purchasing power of the rural areas. This has lead to a change in the consumption pattern with an increase in commodities above basic care and necessity products.

Feeling the heat of inflation

Today the expenses seem to rise faster than the income of people. As the fuel prices keep on increasing and the economy keeps on dipping, it is probably making a heavy toll on the consumers and they are the ones suffering in plight. Several surveys have confirmed that consumer’s expenses have skyrocketed and their incomes have therefore increased by a much lesser percentage. Not to say the least, it is understandable that lower-income consumers have to suffer the most. To survive the inflation, some are cutting down the non-essential buyouts and even some are doing the same with essentials. At times, we even see the upper-middle-class people are impacted more than the middle class. With the rising inflation, they feel it difficult to keep up with the lifestyles they are accustomed to. Middle-class consumers are comparatively adapting better as they are used to managing their budget and acting accordingly.

Curbing extra expenses

To deal with inflation, the consumer can cut down the consumption of luxury products. Also, one cannot do the same with the necessary ones. The basic essential products need to be a part of daily life otherwise the economy will start entering poverty. This has a bit change in the quantity bought. Because people seem to buy in bulk fearing the prices might rise further in the future. Now, this leads to a shortage in the market, and the prices will rise further as the market is experiencing a shortage of commodities with the explosion of demand for the same. Consumers become value-conscious at such times. Consumers are more inclined towards the deal and the better value rather than the brands offering. Therefore, they switch brands accordingly.

FMCG sector not affected- A different aspect

As we know that FMCG sector is more about supplying daily use products and low-cost products. In such a time of inflation, people tend to cut down on luxurious commodities and lavish items or eating out, holidays and entertainment, but the grocery sales do not seem to get impacted. FMCG sector has always been banking on impulse buying, so it always shows an uptrend. As the customers cannot cut much on the essential items, the FMCG industry does not suffer much in the inflation. However, it still needs to keep upgrading its marketing and pricing strategy in both rural and urban areas. It is essential to sustain customer interest.

When budgets are impacted, consumers don’t cut down on food expenditures first, but the priorities on cutting down go with spending on clothes, utility expenses, eating out, holidays, and vacations are the first shots to be cut down. Sometimes we can even say the sales of fast-moving consumer goods actually benefit in such inflationary times. As the budget gets reallocated, consumption of day-to-day grocery products might increase at times.

Right strategy: downsize or price increase?

With inflation making huge setbacks in sales, the producers are coming up with new sale ideas like selling the smaller-sized pack of the product. Therefore, the counter keeps going and people would buy at least something and not cut the whole consumption due to price surges. But here the price rise or downsizing according to the small packages should be managed carefully. Thereby, not impacting the volumes to a great extent. Even the producers can segregate products with the class of people. They can design products in accordance with the lower band of people and even for the ones at the high band. This will ensure their sale and profit from all sectors compensating each other. 

The trend or demand for small package sizing is coming from all over the world. It is because the children are living independently from their family for studying or for jobs so the brands need small package according to the requirements of the consumers. They need to do the proper allocation of investment in packaging, raw materials, and everything. It is essential so that at the time of inflation they can get out the true result of their investment.

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