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››Will bridge packs be the saving grace for FMCG company margins?

Will bridge packs be the saving grace for FMCG company margins?

By Hector C. Kimble
June 17, 2022
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Photo: iStock

HIGHLIGHTS

  • Bridge pack to down-trading addresses
  • Consumer businesses turn to ‘relay packs’ to maintain margins
  • Products are launched at prices between low-priced and high-priced packs

New Delhi: Inflation has hit its highest level in four decades, which has impacted the margins of most FMCG companies over the past year. Now, to fight against inflation, FMCG companies have already taken many measures such as cost cutting measures, price hikes and Shrinkflation. Now there is another strategy that comes into play – Bridge Packs. This is not a new strategy, but FMCG companies are now aggressively considering this strategy.

What is the Bridge Pack?

Bridge packs provide the right price-value equation for consumers while ensuring that products remain affordable and accessible. Having SKUs between LUPs and large packs allows a business to capture some of that downside trade from larger packs, should a consumer want it.

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Why the need for Bridge Pack?

The volume growth of major consumer companies has taken a hit in recent quarters as they have chosen to reduce grammage instead of increasing prices for small packages. But companies are unable to take direct price increases in low-priced packs for fear of hurting demand in this category, which is why they are considering launching ‘bridge packs’ which would be more priced. raised.

Edelweiss also points out in its report that inflation leads to lower prices in all categories and all price levels. Having SKUs between LUPs and large packs allows a business to capture some of that downside trade from larger packs, should a consumer want it.
Additionally, Edelweiss points out in its memo that Bridge packs provide the right price-value equation for consumers while ensuring products remain affordable and accessible. In LUP packs, which already have small volumes, it will be difficult to impose further grammage reductions beyond a certain extent as this will impact the quality of use. These SKUs account for around 30% of revenue in many categories.

FMCG business volumes have already seen a decline in Q4FY22 and FMCG business margins are expected to come under continued pressure. Now that FMCG companies are resorting to bridging packs, will this be the saving grace or will companies have to find a new, creative way to fight inflation and boost margins and volumes?

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