NEW DELHI: India’s consumer giants are increasingly absorbing higher costs from surging inflation rather than passing them on to financially stretched consumers, a sign that weakening household purchasing power is beginning to squeeze corporate margins.
Westlife Foodworld Ltd, the operator of McDonald’s Corp’s fast food chain stores in western and southern India, is “quite conservative” about raising prices beyond its standard annual hike to keep store traffic strong, its chief executive officer Akshay Jatia told Bloomberg News.
“We need to make sure that we don’t shoot ourselves in the foot over there.”
Westlife is among at least 15 consumer- facing companies cautious on raising prices or holding the line, with firms such as KFC and Pizza Hut operators Devyani International Ltd and Sapphire Foods India Ltd, leading paint maker Asian Paints Ltd, and retailer V-Mart Retail Ltd all flagging concerns about an uneven demand outlook as a reason.
India’s inflation accelerated to an almost two-year high of 5.54% in September, driven largely by food costs. Food inflation jumped to 7.74%, with prices rising sharply across vegetables, fruits, edible oils, sugar and prepared foods.
Pricing pressure is also spreading beyond groceries, with costs for transport, restaurants and other services picking up, adding to the squeeze on household budgets.
“With monetary and credit conditions tightening substantially, discretionary consumption is likely to moderate over the next few quarters,” Suvodeep Rakshit, an economist at Kotak Mahindra Bank, said in an interview.
That has made many consumer brands wary that further price increases could chip away at sales growth. As a result, some of these companies that are putting off price hikes, such as PepsiCo’s India bottler Varun Beverages Ltd, are warning about lower margins.
“There is margin pressure due to raw material price,” said Varun Jaipuria, the firm’s executive vice chair. “Everybody is under pressure, they’re figuring out what to do and how do you negate the cost.”
For liquor maker United Spirits, a unit of Diageo Plc in India, higher costs of living has started to hit lower-income consumers and have hurt its portfolio of entry-level spirits, Praveen Someshwar, its chief executive officer, said on an earnings call last month. “The bottom end of the urban consumer is feeling the inflationary pressure.”
That challenge extends to food products including snacks, with analysts at brokerages such as Motilal Oswal warning in a report published on Oct 15 of the risk of higher commodity costs weighing on Nestle India Ltd.
Indian consumption growth is expected to slow to 3.5% in the current quarter, compared with 5.2% in the three months to June 30, according to data from Worldpanel by Numerator.
“We are seeing a kind of short-term stress on the budget,” said Manoj Menon, the Mumbai-based director for commercial at the market research firm.
The signals on consumption are mixed. Tax collections and digital spending in India remain strong, suggesting consumers are still spending for now, even as surveys point to growing strain beneath the surface. HSBC Holdings Plc’s gauge of 100 growth indicators showed the breadth of economic expansion narrowing in September.
Domestic activity is likely to soften after December as elevated costs erode consumers’ purchasing power, according to a note by HSBC economist Aayushi Chaudhary.
She expects growth to moderate in the second half of fiscal 2027 amid weaker demand from the informal sector, rising costs and tighter financial conditions.
For now, the annual festival season may provide a buffer, with demand for staples expected to remain resilient. — Bloomberg
