Volume matters

Have you ever wondered how that packet of milk biscuits you pick up every now and then remains perpetually priced at Rs.20? Or that half kilo bottle of tomato ketchup keeps going at Rs.70 for as long as it does? Don’t milk, sugar and tomato prices rise frequently? Of course they do. Commodity prices ape the mercury all the time but your biscuit-maker and ketchup-maker have been putting you on a diet without even letting you know. Scrutinise the various packs carefully and you will see irregular numbers like 142 gm or 478 gm in place of 150 gm or 500 gm. The strategy? Reduce the weight of the product but don’t raise its price. “FMCG companies have increasingly resorted to such a practice to pass on costs and still retain price perception,” says Ashish Nanda, partner-consumer products, Ernst & Young. 

However, they can’t do this anymore. The Government of India notified the Legal Metrology (Packaged Commodities) Rules, 2012 in October last year, to enforce standard weights in packaging. The rules apply to 19 FMCG categories, including toilet soaps, detergents, tea, coffee, biscuits, baby foods and edible oil. They come into force from November 2012 although the government gave in to the hue and cry raised by the FMCG industry and excluded products priced in the Rs.1 to Rs.10 band from these rules. 

Pravin Kulkarni, general manager-marketing, Parle Products, is relieved that the sub-Rs.10 range of products, which contributes a good 50% his company’s sales, was spared. But his flexibility in dealing with price-sensitive products has certainly been compromised. “There is no option left for companies but to pass on rising costs to some extent,” says Kulkarni. “It’s worth noting that customers will not mind such hikes on products they buy once in a fortnight or once a month (say, shampoo), as much as they will over items of daily need such as bread or milk.” 

Analysts feel that price wars might be over now and companies will have to fight on product quality. “Since they can’t play with the grammage so much now, it will force them to be more innovative on products and value,” feels E&Y’s Nanda. 

Industry watchers like Anand Ramanathan, executive director-KPMG, feel that companies may now get an excuse to pass on the rising costs they have been holding back: “They will revisit their cost structure and incorporate commodity cost escalation.” Commodities account for over 50% of the cost of food products. 

“So MRPs may go up,” says Parle’s Kulkarni. It’s true that the customer may not like this immediately. Still, he is now better placed to make fair comparisons — the standard grammage empowers him to choose better. The average consumer prefers everything straight. Standard weight packs will give him that: the right amount at the right price.