Consumer goods companies: Standard pack sizes extended but prices, profitability may still be impacted

NEW DELHI: Despite being given a 90-day extension by the Government to implement standard pack sizes, consumer goods companies say the move will impact their profitability and could lead to higher prices. According to the new norms, companies cannot sell sachets/packs of products in irregular sizes and will have to adhere to standard packs like 25, 50 and 100 gm, 1 kg packs and multiples of 1 kg.
The near-term impact of the proposal for standard-pack sizes may lead to likely higher consumer inflation as prices can move up only in multiples of Re 1, says a new report by brokerage firm Kotak Institutional Equities. "In the medium term, this could be an opportunity for challenger brands to target market share gains. However, we may just be going back to the pre-2004 period when only standard pack sizes were allowed and non-standard packs were not possible, effectively forcing companies to invest more on innovation," the report says.

The notification, issued by the Ministry of Consumer Affairs, was to come into effect from July 1.
Companies that are likely to be most impacted are Hindustan Unilever, Nestle and Britannia. The Government had allowed non-standard pack sizes in '04 to encourage lower price-point packs, which could increase affordability-led penetration growth. While makers of shampoo, skin care, oral care products benefitted, some like Nestle used it as a tool to improve its margins, because in most of its product categories like Lactogen and Nan infant foods, dairy whitener and Nescafe, it reduced grammage while maintaining price points.
"There is no such direct pack-size control anywhere in the world. While most companies' official stated position is that they would manage the transition effectively, most product categories are likely to see price hikes," the Kotak report adds.

Source : http://articles.economictimes.indiatimes.com/2012-06-09/news/32140778_1_pack-sizes-skin-care