Why do companies like Gits and Rasna not raise prices amid inflation
Due to inflation, many consumer goods companies have hiked the prices of their products to protect their margins following high inflation.
However, there are a few FMCG companies that did not hike their prices and instead decided to expand their market share.
Gits Food Products is one of the companies that decided to absorb the shocks of inflation. It took a hit in terms of its margins; sales grew by strong double-digits, which resulted in market share gains as well.
Mr. Sahil Gilani, Gits Food Products Director (Sales & Marketing), said, we are trying to deal with inflation in the best possible way we can. Usually, most companies would raise the prices of their products in such an inflationary scenario. We haven’t done that. We haven’t reduced the grammage either. The price of skimmed milk powder, a key raw material for Gits, has risen due to higher transportation costs.
He added that even while this is hurting Gits’ margins, it was a conscious decision not to pass on cost increases to consumers so as to further improve upon Gits’ market share.
Consumers are taking note of how they’re losing value with companies reducing grammage and how product prices have gone up. Since we have held on to the price line, we hope to gain some amount of share in the market across our portfolio. Our primary sales are up 35% in April-May as compared to the previous year, which was hit badly due to the second Covid wave. New products have also contributed well to this growth, said Gilani.
Rasna Group had increased prices by an average of 7-8% way back in January. This, obviously, did not factor into the war that broke out subsequently. Rasna has not done any price increases since January.
We cannot take any more price increases even as our margins are getting squeezed. We are holding on to the price line so that consumer offtake does not get impacted, Rasna Group Chairman, Mr. Piruz Khambatta said.
Rasna’s strategy of not taking price hikes has paid off. Its sales in April and May, the peak summer months, grew in double-digits as compared to the previous year. With the festive season not too far away, and the monsoon expected to provide some relief from commodity cost escalation, companies are hoping to make up on margins for what was lost in the last few months.
But consumers may find fewer offers from these companies during the upcoming festive season. We may relook at our festive offers this year to maintain our margins as well as deliver value to consumers, said Mr. Gilani.
Mr. Khambatta said, given that we are already absorbing cost inflation and we are not passing it on to consumers, we will not be running any consumer offers except some standard ones in modern trade.
Mr. Khambatta believes now is the time to rationalize the GST on price packs of less than Rs. 50 MRP to benefit consumers. During high inflation, it’s these small price packs that consumers rely on.