Indian Consumer: Amendments to Packaging norms - a breather
- Amendment to Packaging Norms: The Government has notified amendments to the Legal Metrology (Packaged Commodities) Rules, 2011 effectively deferring the implementation of the norms to November 1 v/s July 1 and allowing nonstandard pack sizes for SKU’s <= Rs10. It has also made concessions by allowing new pack sizes in certain categories, thus, providing additional degree of freedom to consumer companies to manage price points and grammage. Prabhudas Lilladher views this as a short term positive, especially, the removal of grammage restrictions on sub-Rs10 skus. However, government’s increased involvement in the packaging/grammage function underlines the continued risk. In the past (till CY04), only standardized packaging was allowed. Britannia seems to be the clear beneficiary of this amendment as its core Biscuits category was most impacted by the new rules.
- More pack sizes allowed; more flexibility to operate: The amendment has improved the ability of consumer players to manage price points and grammage by allowing more pack sizes in different categories viz. Toilet Soaps, Detergents, Tea, Coffee, Biscuits, Baby Foods and Edible Oil. Specifically in Soaps, it allows 15gm and 60gm packs as against earlier allowed sizes of 25g, 50g, 75g, 100g, 125g, 150g and multiples of 50g. In Detergents, it adds 75gm, 150g, 250g and 750gm against earlier allowed sizes of 50g (no restriction below 50gm), 100g, 200g, 500g, 700g, 1kg, 1.5kg, 2kg and multiple of 1kg. From Nestle’s viewpoint, in Baby Foods now 25g, 50g, 350g and 450g are allowed as against the earlier practise of 100g, multiples of 100g till 1 kg, 2kg, 5kg and 10kg. HUL may need to juggle its Toilet Soaps and Detergents portfolio to work around the new price points/grammage combination. It should not pose much problems now, given the new grammage points.
- Allowance of non‐standard packs for sub‐Rs10 sku is a key positive: Nonrestriction of pack sizes for sub-Rs10 skus is a key positive for the sector as it would have impacted the price point strategy of driving penetration via trial purchases, especially in Food and Personal Care categories. Any price increase in low grammage packs would have impacted volumes, given the higher price sensitivity in those packs. Secondly, coinage problems would have posed major threat to the trade, given the prevalent shortage of coins (chocolates being used as an alternative to 50 paise, Re1 coin in many places). It would have also led to some margin sacrifices, given the volume growth focus of most of the players. Addition of new grammage points for some of the key categories mentioned above allows more room for players to operate in market place by doing minor tweaking to their respective portfolios. Prabhudas Lilladher sees Britannia as the key beneficiary of this amendment, especially, the removal of packaging restriction for SKUs below Rs10. However, increased government/regulatory involvement will continue to pose as a threat in the medium/long term, in their view.
Click here to read the full report
Prabhudas Lilladher has a nationwide distribution network, consisting of branches, franchisees and associates, providing a comprehensive gamut of financial services in the Institutional and Retail domain. Their services includes Equity, derivatives; margin funding, mutual funds, PMS, IPOs and online trading.
For more information please write in to email@example.com
Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.
- The Paper Products: Business model provides steady growth & business visibility
- PET Films: Sharp spurt in prices
- Polyster Film Ind: Polyplex - most attractive pick
- PET Films: Improving cash flow
- Dont jump to Conclusions
Have a question?
Also On IndiaNotes.Com
- Technical Stock Pick: Sell HDIL between CMP and Rs87
- Federal Bank: Credit growth to resume, maintain buy