Consumer goods companies in India are grappling with a steep increase in input costs driven by the ongoing conflict in the Middle East. The surge in raw material prices is compelling firms to monitor costs almost daily, frequently review pricing strategies, and prioritize short-term decisions over long-term planning.
Impact on Business Operations
As companies struggle with volatile input costs, executives have indicated to ET that the sudden spike in inflation has made business management more challenging. There are concerns that higher prices could dampen consumer demand, especially at a time when consumption had begun to improve following the government's reduction of goods and services tax rates on several products last September.
Havells India chief executive officer Anil Rai Gupta noted that the company is adopting a cautious approach and reassessing the situation on a monthly basis. “I have not seen this kind of price escalation in the recent past or in recent memory. Usually, inflation happens, but it is neither so steep nor spread across all product categories… consumer offtake can get affected if the price hike is too sharp,” he said.
Bajaj Consumer Care managing director Naveen Pandey stated that the company is closely tracking input costs and making decisions almost daily. During the company's earnings call last week, he revealed that costs across the business have risen between 20% and 60%. He added that the war has created “extreme volatility” in the prices of light liquid paraffin and packaging materials. Meanwhile, prices of mustard and copra have not fallen as anticipated and remain at pre-war levels. The company is now working on reducing costs across its operations.
Broader Economic Effects
Industry executives highlighted that the war has pushed up commodity prices and crude-linked products, increased freight costs, and made imports more expensive due to the weakening rupee. Even after a ceasefire, prices have not declined, and uncertainty persists regarding the possibility of renewed conflict.
Over the past month, companies have already raised prices in several categories, including air-conditioners, refrigerators, soaps, detergents, hair oil, apparel, decorative paints, and footwear. Some firms have also reduced pack sizes to manage higher costs. More price hikes are expected by the end of this month.
Parle Products vice president Mayank Shah described the pressure on input costs as very high and the uncertainty as “killing.”
Consumer Behavior Shifts
Retailers are observing more cautious spending. Trent Ltd, which operates Westside and Zudio stores, mentioned in an investor presentation that while demand was steady at the start of the January–March quarter, the current situation is affecting consumer behavior. “Consumers are spending with caution, resulting in moderation of discretionary spending on the back of continuing macro uncertainties and potential increase in cost of living. Structurally the demand levels and the underlying market opportunities remain strong. However, the duration and intensity of disruptions in the Middle East along with its second order effect on supply chain, commodity prices and inflation in general has potential implications for near term demand,” the company stated.
AWL Agri Business executive deputy chairman Angshu Mallick said the company has already increased edible oil prices by Rs 7–10 per kg to pass on higher freight costs. “Being a staples company, we hike or reduce prices immediately. As we are in basic necessities, the volume impact is usually lower,” he explained.
Conflict Background
The Middle East conflict is approaching the two-month mark. It began on February 28 when the US and Israel launched joint strikes on Iran. In retaliation, Tehran choked the crucial Strait of Hormuz, a pipeline that carries 20% of global energy supplies, straining flow across the globe.
