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65-ml Frooti packs, 85-ml packs of flavoured milk-Shrinkflation is back

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As input prices, which were benign for a few quarters, turn inflationary, the spectre of shrinking packs looms large within the fast-moving consumer goods (FMCG) segment. This summer has seen the trend make its way back, albeit slowly, and in select categories. Companies have been cautious when reducing pack sizes, describing the move as a way to democratise consumption and tap into newer consumer segments.

Consider this: Bottled water brand Clear, popular at events, summits, conferences, etc., has been aggressively pushing its 200-ml pack (priced at Rs 6) into retail outlets of late, positioning it as a convenient, on-the-go consumption unit that can easily be held in one’s hand, fit into a purse, carry bag or shoulder bag.

While the 200-ml Clear pack is popular in the HoReCa (hotel, restaurant, catering) segment, within retail outlets, it is smaller when compared to nearest competitor Bisleri. The smallest pack of Bisleri is a 250-ml bottle, also priced at `6, implying that Clear’s bottle is 20% smaller in size at the same price point, retailers that FE spoke to said.

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While bite-sized packs or low-unit packs are the norm in FMCG, contributing around 40-45% of overall sales for an FMCG company, satchetisation has also invited criticism at the same time, with some experts saying that it can leave consumers dissatisfied.

Yet, sector analysts say that shrinkflation could grow as companies begin to feel the pinch of rising raw material prices on margins. Key inputs such as crude oil, palm oil, coffee, cocoa and sugar have seen a sharp surge in their prices in the March quarter. This inflationary trend may continue into FY25, analysts said, as global supply-chain concerns as well as geo-politics such as an escalating regional conflict in the Middle East and the ongoing Russia-Ukraine war weigh on these commodities.

While companies are expected to be cautious with price hikes to avoid hurting volume growth, grammage may take a hit.

“The pace of gross margin expansion in Q4 (of FY24) will be small for FMCG companies. Shipping costs and delays due to the Red Sea crisis may also have a slight impact on operating margins in select cases during the quarter,” Abneesh Roy, executive director at Nuvama Institutional Equities, said.

Roy says that the pace of gross margin expansion will get smaller for FMCG firms in the coming quarters as inflation surges. At the same time, companies are not expected to cut back on advertising and brand-building efforts immediately as competitive intensity will remain high.

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