Packaging cost rise put pressure on earnings for FMCG companies

Posted By: Religare
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Packaging cost rise affect earnings for FMCG companies
Indian consumer goods companies are reeling under dual impact of ever rising raw material cost and now packaging cost. The rising costs are driving the already wafer thin margins of the company southward.

Fast Moving Consumer Goods (FMCG) companies are having tough time managing profit during the recent quarters as prices of kraft paper, aluminium foil, adhesives for corrugated boxes, plastics jumping as much as 25 per cent in the past three months.

The rising incomes of the middle class is putting pressure on FMCG companies for more attractive and good quality packaging a dramatic shift from the earlier loosely sold or not-attractively packaged products.

Margins of consumer goods companies have been taking a nosedive hit due to rising packaging costs and the downward pressure will continue to affect them until crude prices ease as most materials are crude linked.

Packaging costs make up 7-11 per cent of the total cost of a product for most consumer goods firms.

Recently, oral care products maker Colgate Palmolive India signed an exclusive long-term agreement with packaging products maker Essel Propack to set up a unit in Goa to cater to the oral care firm's needs.

Most consumer firms such as Hindustan Unilever, Colgate Palmolive India, Dabur, Emami, Marico and Godrej have been forced to consider cutting advertising spends and may also resort to a fresh round of price hikes after the June quarter to manage costs.

As regards packaging cost the industry has witnessed an over-11 percent inflation.

Read more about: fmcg, industry, inflation
Story first published: Saturday, June 25, 2011, 9:30 [IST]
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