GST 2.0: FMCG companies expect magical price points for products to restore within 2 months

New Delhi, Sep 23 (PTI) With lower GST rates taking effect, fast-moving consumer goods players face challenges in setting reduced prices of their products in round figures, but expect the magical pricing to restore within two months.

The FMCG companies have reduced the magical price points, such as Rs 2, Rs 5, and Rs 10, of their product packs that were part of the sachet economy and popular among middle-class and rural consumers for various household and food items like biscuits, candy, and spices.

Now, a small pack of Parle G biscuits of Rs 5 costs Rs 4.5, and a shampoo pouch that was earlier priced at Rs 2 has come down to Rs 1.75.

Due to time constraint to get new packages reprinted, companies have launched product packs with reduced price tags to pass on the benefits of lower tax rates to customers with immediate effect.

According to industry leaders and experts, companies have no other option but to go for 'non-standard' prices as they did not get time to increase grammage so quickly as it requires changes in the factory mould.

As a stopgap measure, they have reduced the MRP of the popular price packs to follow the government's directions.

The new two-slab GST (goods and services tax) structure of 5 per cent and 18 per cent, which has become effective from September 22, has replaced the earlier four-rate duty regime following GST Council's sweeping reform aimed at boosting consumption across the country.

This led to price cuts of most of the common-use items ranging from foods, toiletries and cosmetics to white goods such as TV and air-conditioners.

"Yeah, it's a 100 per cent temporary phenomenon. Normally whenever you talk about a changeover or anything like this, the lead time for any changeover in terms of any difference in pack weight and stuff like that takes about, you know, one and a half to two months. Companies normally work with a one-and-a-half to two months lead time," Parle Products Vice President Mayank Shah told PTI.

Currently, a packet of Parle G biscuits, which was costing Rs 5, after passing the GST benefit,s is selling at Rs 4.45.

"So today as we talk, my wrapper for October and November is printed. Now it is difficult for me to go out and make any change in weight and keep the MRP constant. So obviously, we are passing it back through non-standard price points," said Shah.

Asked about difficulties faced by the customers while making small payments, he said the buyers have options of purchasing in multiples or paying through UPI.

Abneesh Roy from Nuvama Institutional Equities said these are "short-term measures" by the FMCG companies.

"Ultimately, companies will increase volumes and come back to coinage of Rs 2, Rs 5 and Rs 10 rupee, etc, because clearly Rs 4.5 or Rs 4.6 is not practical," he said.

Companies will come back with the magical price points, offering more volumes.

These magical price points are crucial as they add to the volume growth for the company.

"So, we remain positive. We do not see this as a fresh trend. This is just a small aberration because of less time lines for GST execution, because only two weeks time was there. Ultimately, companies will course-correct and come back to 5, 10, 20 rupee with extra gramage," said Roy.

Dabur CEO Mohit Malhotra said his company has also adjusted the prices of its packs.

"At Dabur, we believe that affordability should never come at the cost of quality. That's why we've proactively adjusted prices across our portfolio and commensurate to the GST reduction, including on our popular low unit price packs, to ensure that every consumer, regardless of budget, can enjoy the advantages of this tax cut," he said. PTI KRH HVA