GST 2.0 Reform Launches: FMCG Companies Eliminate Popular Rs 5 and Rs 10 Pack Sizes
Popular price points of Rs 5 and Rs 10 are vanishing from the shelves of India’s fast-moving consumer goods (FMCG) sector. Notably, Parle-G has adjusted the price of its smallest biscuit pack from Rs 5 to Rs 4.45, marking a significant shift after two decades. Other common items are also seeing price changes, with a Rs 1 candy now costing 88 paise and a Rs 2 shampoo sachet priced at Rs 1.77. These adjustments come as FMCG manufacturers await guidance on how to implement the upcoming GST reforms, which are set to take effect soon.
Impact of New GST Reforms
The new Goods and Services Tax (GST) structure, announced by Finance Minister Nirmala Sitharaman, introduces two primary tax rates of 5% and 18%. Additionally, many food items will now fall under a NIL or 0% tax bracket. As these reforms approach, Prime Minister Narendra Modi emphasized their potential benefits, stating that they would lead to increased savings for consumers across various demographics. He described the implementation of these reforms as a “GST savings festival,” aimed at easing the purchasing process for the poor, middle class, and entrepreneurs alike. Companies are currently seeking clarity on whether increasing product sizes at existing prices can be classified as a price reduction under the new GST framework. Mayank Shah, Vice President at Parle Products, noted that while there might be an initial impact, consumers may adapt by using digital payment methods or opting for larger packs to manage price differences.
Mondelez Adjusts Prices Across Brands
Mondelez India, the leading confectionery manufacturer in the country, has also revised its pricing strategy. The company has shifted all its products to non-standard price points, with Bournvita now priced at Rs 26.69 instead of Rs 30, Oreo cookies at Rs 8.90 instead of Rs 10, and Gems and 5Star at Rs 17.80 instead of Rs 20. Mondelez has stated that these new maximum retail prices reflect the benefits of the GST changes, and it is essential for distributors to pass these savings on to consumers. This move highlights the broader trend within the FMCG sector as companies navigate the complexities of the new tax regime.
End of ‘Magic’ Price Points?
For years, FMCG brands have relied on Rs 5, Rs 10, and Rs 20 packs as “magic price points,” often reducing pack sizes during inflationary periods. However, with the current regulatory uncertainties, companies may temporarily move away from these low-cost offerings. Prashant Peres, Managing Director at Kellanova India and South Asia, remarked on the industry’s challenges, indicating that the inconvenience of fluctuating price points is becoming increasingly burdensome. He suggested that while there may be short-term price reductions, the long-term strategy will likely involve adjusting product grammage to return to these popular price points.
Price-Point Packs Still Dominate Sales
Despite the recent changes, small and affordable packs continue to play a crucial role in the FMCG market. These smaller packages account for a significant portion of sales across various categories: 79% of shampoo sales, 64% in biscuits, 58% in chocolates, 44% in salty snacks, and 29% in toothpaste. Sushil Kumar Bajpai, President at RSPL Group, which produces Ghadi detergent and Venus soap, mentioned that the company has reduced prices by 13% on existing stock to clearly demonstrate that they have passed on all benefits to consumers. He acknowledged the challenge of adapting to the new pricing landscape while striving for a more straightforward approach with future stock.
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