Companies Seek Balance in Margins and Pricing Strategies
Mumbai: Brands are adjusting their strategies ahead of the festive season by localizing production, opting for alternatives, and eliminating non-essential product features to manage costs. CEOs acknowledge the need for measured price increases due to ongoing commodity inflation but are also willing to sacrifice some margins to drive volume growth during this critical sales period. Despite challenges, festive sales targets remain intact, bolstered by a longer festive window this year, with Diwali falling in November instead of October.
Challenges in Festive Planning
Companies face significant hurdles as they cannot fully pass on rising costs to consumers, particularly as the mass market grapples with financial pressures. Rural demand has also been inconsistent, exacerbated by deficient monsoons. B Thiagarajan, MD at Blue Star, emphasized the need for product innovation to enhance margins, suggesting that removing unnecessary features could help reduce input costs.
The festive planning process has been disrupted by commodity cost volatility and supply chain issues. Crude oil prices have surged back to $100 per barrel, while copper has reached record highs amid geopolitical tensions in West Asia. Umesh Kumar Agarwal, director at Haldiram Marketing, noted that prices are fluctuating based on market sentiment as much as on fundamental factors, complicating procurement strategies.
Strategic Adjustments by Brands
In response to rising costs, brands are exploring alternatives, such as using aluminum instead of copper. Sanjay Chitkara, director and co-CSMO at LG India, stated that their focus will be on localization, productivity, and operational efficiencies before passing costs onto consumers. Similarly, Kishan Jain, director at Goldmedal Electricals, indicated that the company plans to absorb further commodity cost increases rather than transfer them to consumers.
Retailers are also facing challenges in sourcing products at lower prices, with shipping container availability becoming a significant issue. Kumar Rajagopalan, executive director & CEO at the Retailers Association of India (RAI), reported that input costs for retailers have risen by about 20% since the onset of the war, with only half of that increase passed on to consumers, negatively impacting margins.
Focus on Premiumisation
Godrej Appliances is banking on premiumisation and consumer interest in product upgrades to drive festive demand, aiming for over 40% growth this season. Kamal Nandi, business head at Godrej Enterprises Group, stated that festivals remain a crucial purchasing opportunity for appliance categories, with pricing strategies being adjusted to protect consumers.
HyFun Foods remains optimistic about the festive season but anticipates that the market will remain value-conscious. MD and group CEO Haresh Karamchandani noted that entry-level consumers are particularly sensitive to price changes, especially following widespread cost increases across the market.
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