The recent Goods and Services Tax (GST) rate revisions have posed challenges for fast-moving consumer goods (FMCG) companies, according to Parle Products Vice President Mayank Shah. Shah acknowledged that the transition has been difficult, particularly with regards to packet size, grammages, and pricing. He noted that FMCG companies require a lead time of one to two months to implement changes in their products and packaging.
As a result, the initial phase of the transition will see lower Maximum Retail Prices (MRPs) on larger or higher MRP packets. However, smaller packets with lower MRPs, which account for approximately 60-70% of the market volume, will undergo changes gradually by the end of November or early December. Shah illustrated this point by citing examples of price reductions, such as a Rs 5 pack potentially being reduced to Rs 4.50 or a Rs 10 pack being lowered to Rs 9.
Shah also observed that almost all lower MRP packs are currently being sold at non-standard price points. He predicted that the impact of GST rate changes on competitiveness in the FMCG sector will become more apparent in about six months, when rates may be revised again. In the interim, companies will need to decide whether to pass on the benefits of lower GST rates to consumers, which will influence their competitive position.
The VP emphasized that the decision to pass on benefits will play a significant role in determining competitiveness, not only currently but also in the future. As the FMCG industry adapts to the new GST rates, companies will need to navigate the challenges of transitioning to new packaging and pricing while maintaining their competitive edge. By the end of November or start of December, consumers can expect to see new packs with higher weights or grammages and lower prices, reflecting the changes brought about by the GST rate revisions.