– Raw materials like grains, oils, and packaging make up a significant portion of FMCG production costs. – Fluctuations in these prices directly impact profit margins.
The Importance of Raw Material Costs
– Increased costs for essentials like palm oil, wheat, and sugar. – Packaging costs rise due to higher crude oil prices affecting plastic production.
Rising Raw Material Prices
– Companies struggle to maintain margins without passing costs to consumers. – Price-sensitive markets often limit the extent of price hikes.
Impact on FMCG Margins
– Reformulating products with cost-efficient alternatives. – Launching smaller packs at affordable price points. – Improving operational efficiencies to reduce production costs.
Strategies to Manage Cost Pressures
– Companies with strong brands and diversified portfolios better manage cost pressures. – Stocks like HUL, Nestlé, and Britannia often weather raw material price volatility effectively.