New GST era could see Indians opting for bigger packs of detergents, shampoos, biscuits: Experts

After Prime Minister Narendra Modi announced the lowering of GST rates across categories of consumer products - ranging from cars and bikes to apparels and air-conditioners as well as food, soaps and shampoos - there has been euphoria not just among consumers, but also manufacturers and brands as the move means bump up in consumption after quarters of lacklustre growth.

The anticipation of price drops in the coming months has, however, led to empty car showrooms and consumer durable stores through August and September – consumers preferred to buy after the new GST rates came into force, as that would result in price decrease. Today, ask any auto manufacturer about how consumption is shaping up, they would invariably say that it is spiralling upwards.

However, price reduction in FMCG categories hasn’t been as simple. Over 70% of FMCG consumption in India happens out of ₹5 or ₹10 packs. A 5% GST cut on a ₹5 pack of biscuit or a sachet of shampoo would mean a 50-60 paise reduction in prices.

And that’s where the dilemma lies–a 50 paise reduction in price would make transactions complicated, so manufacturers and brands prefer grammage enhancement and mention on the packs by how much their cost per gram has reduced, thanks to the GST cut. But grammage enhancement would mean reconfiguring packaging and that would take time. While regional brands are stickering the revised prices, the national brands are discounting on the old packs, says Prem Kumar, founder and CEO of Snapbizz, a retail tech company.

“As of today, it’s still old inventory. Retail is not flushed with new packs. Products are still reaching the distributors,” he explains.

The new packs will take time to hit the retail shelves, says Sarfaraz Ahmed, MD, United Marketing, a distributor for several large FMCG companies. “C&F distributors have at least one week of old stock that they are trying to get rid of. The new packs with the revised prices will come by first week of October. New packs of a few SKUs have come in as of now.”

While the larger packs will definitely have reduced prices, the new smaller packs (in ₹5 and ₹10) of FMCG products are more likely to have grammage enhancements and not price cuts. But the consumer is looking forward to price cuts and not grammage enhancement. No wonder Angshuman Acharya, partner and national retail leader, EY, expects consumers to up-trade. “The uptick of larger pack sizes will go up,” he says. 

“A 5% cut on a ₹10 product is 50 paise. I am not sure if the companies can recalibrate the prices like that because they are typically whole numbers at ₹10 or ₹15. Moreover, the impact is too small for that kind of elasticity that consumption will go up significantly. But surely on higher value products, where the real value of that money is significant, there we could see a bump up,” adds Alpana Parida, founder, Tiivra Ventures.

Both Kumar and Ahmed feel that the optimism around the price cuts is enormous both among the consumers and the traders. Ahmed expects medium income households to save ₹3,000-4,000 per month on FMCG or staples. But these savings could come on the back of not lower unit packs but larger packs where the price cuts will actually be substantial with GST of most FMCG categories reduced to 5%. Are Indians getting ready to embrace a culture of buying larger packs just as the West does? Only time will say.