Increase in packaging costs has put pressure on FMCG companies which are already working with low margins. Prices of packaging materials such as kraft paper, adhesives for corrugated boxes, aluminum foil and packaging plastics have increased to 25 percent in the last three months. This has put pressure on companies to either increase the price of processed food and some other products or to absorb the cost which would affect their margins. FMCG companies are already working with low margins because of the raw material price increase and higher logistic costs due to fuel increase. Last year FMCG companies absorbed these costs, but if packaging prices increase further some companies are considering increasing their product prices.
These increases are expected in the second quarter of this year. FMCG companies are considering innovative packaging and hedging materials to retain profitability. According to Dabur, “the company has absorbed higher packaging costs so far, it may increase prices in some categories if costs rise further”. Currently, FMCG companies have an option to reduce internal costs, cut down on promotional advertising and promotional expenses to accommodate the increase in packaging cost without passing it on to the consumers. Packaging costs typically account of 8-10% of the total costs in a FMCG company. The prices of corrugated boxes have increased 25-30% in last quarter because of low availability of kraft paper.
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