Some like Dabur India have raised prices and Godrej Consumer Products plans to do so soon. A handful, such as Henkel, hopes to arrive at "value packaging solutions."
A few admitted they were struggling to find a solution. While flexible packs for shampoos etc use a crude oil derivative as a key component, bottles for hair oil, packaged water etc are created from PET, a petroleum-based plastic. Crude oil derivatives account for almost 17 per cent of the total cost of corrugated boxes.
The rise in crude oil prices has, therefore, sharply raised the packaging costs of FMCG companies. "Raw materials costs have escalated steeply in tandem with crude oil prices, especially for resins and flexible packaging but also for paperboard and paper where chemicals are dependent on such movements," said R Srinivasan, a member of ITC's corporate management committee.
The company is one of the biggest providers of value-added packaging solutions in the country.
Many firms have raised their prices to deal with the new burden. "The inflation in packaging material prices is almost 11 per cent due to the rise in crude oil prices as against the inflation in commodities which is around 2-3 per cent for us," said Dabur India CEO Sunil Duggal.
The company recently raised prices by five per cent. Godrej Consumer Products too has plans to raise prices soon.
These companies have raised prices at a time when there is a perceptible economic slowdown. With interest rates on the rise, experts have expressed concerns that consumers may cut their expenditure.
Clearly, cost pressures are such that these firms are left with no other option. "The price of packaging material made from petroleum derivatives is going up and is likely to affect our profitability," said H K Press, executive director & president of Godrej Consumer Products.
According to Duggal, FMCG companies need to raise prices carefully as these are difficult to roll back. "The trade suffers the losses on stocks with higher price tags. That needs to be compensated by the company," he said.
He also said that if the price rise was to continue unabated, Dabur may be forced to revisit some "sacred" price points for its products such as 50 paise, Re 1, Rs 5 and Rs 10.
Biscuit and confectionery company Parle too is skeptical about the price hikes.
"While it may work well to start with, at the end of the day volumes come down as consumers may opt to shift to another brand at the other price point. The lower price points are very sensitive slots which if tampered with will have a significant bearing on the margins," said Pravin Kulkarnii, general manager (marketing), Parle Products.
Companies are also looking at new pack sizes and pushing bulk packs to offset the added pressures of packaging.
Said Debashis Das, category manager (laundry and homecare), Henkel India, "Our research shows that at the end of the month, 25 per cent of the dish-washing liquid is left. So we are looking at bringing one-month packs which will also reduce the amount of packaging. Where there was only a 1-kg or a 3-kg pack, there will now be 1.5-kg pack for detergents."
Others are trying to balance out by achieving better economies at their back-end and manufacturing. "The competition is tough and we need to carefully evaluate ways to deal with the added pressure of packaging costs," said Kulkarnii.
According to Anand Shah, a sector analyst with Angel Broking, while the price hike has helped manufacturers deal with commodity-driven inflation, not much can be done to deal with the rising prices of packaging.
"What most of the companies are doing now is streamline their processes to achieve cost efficiency and bank on scale benefits," Shah says.
But even as companies try and combat packaging prices, the picture may be bleak if crude oil prices are to cross the $150-mark, as it would make flexible packaging material and corrugated boxes more expensive.
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