As the cost-of-living crisis escalates, Indian consumers are tightening their purse strings. Even as the cost of raw materials and energy are rising, consumer packaged goods (CPG) companies are hesitant to pass on the costs to the consumers who are increasingly becoming price-sensitive. However, these companies are downsizing product pack size to sustain sales, and the trend will grow more pronounced as CPG sales growth in India slows over 2022 and 2023^*, according to GlobalData, a leading data and analytics company.

Bobby Verghese, Consumer Analyst at GlobalData, comments: “Consumer price inflation in India is estimated to reach 6.6% in 2022 from 5.1% in 2021, according to GlobalData^**. Accordingly, 63% of Indian respondents in GlobalData’s Q3 2022 consumer survey expressed extreme concern about the impact of inflation on their household budgets^***.”

Low-income households are postponing non-essential purchases and scouting for better value on daily groceries. A case in point is dairy products, which are a staple in Indian diets and cuisine. GlobalData’s Q3 2022 consumer survey reveals that 49% of Indian respondents are switching to cheaper dairy brands, cheaper alternatives within the same brand, or to a cheaper retailer^***. Another 34% are sticking with their usual brands, however buying fewer products or smaller packs, or shopping less often^***.

Verghese continues: “The rising input costs are hurting the margins of CPG companies. However, they are wary of raising prices beyond a point as it may trigger a consumer trade down to local unpackaged goods or even illicit/illegal products. Instead, they are downsizing their product pack sizes to sustain sales. Consequently, the large family packs that gained popularity at the outset of the COVID-19 pandemic are vanishing from store shelves, replaced by small and micro packs. These small SKUs with pocket-friendly and rounded price tags are designed to attract bargain hunters and stimulate impulse purchases. For producers and retailers, these small packs stimulate revenue sales at the cost of volumes.”

Other CPG manufacturers are resorting to grammage reduction or ‘shrinkflation,’ wherein they marginally reduce the quantity in each pack while keeping the price constant. For instance, a 100g pack of biscuits that retails at INR10 ($0.12) is shrunk down to an 80g pack at the same price, simply by reducing the number of biscuits per pack or reducing the size of each biscuit. Streamlined packaging designs and discounts printed on the packaging label may mask the downsizing. This strategy plays on the fact that most Indian shoppers track the SKU prices, and seldom note subtle changes in quantity per pack. Foodservice operators also employ a similar strategy, marginally reducing the serve-portions of fast-moving menu items without altering the prices.

Verghese concludes: “Retailers are also adapting to the new normal, offering loyalty bonuses to regular shoppers. For instance, in challenging times, cash-crunched consumers may turn to local kirana (mom-and-pop) stores that offer ‘udhaar’—documentation-free, zero-interest credit—to their regular customers. Large-scale retail chains may partner with third-party vendors to roll out similar ‘Buy Now Pay Later’ schemes that allow consumers to make daily purchases without spot payments and settle their bills at the end of each month. E-commerce platforms have rolled out subscription offers to attract and lock in consumers onto their platforms.”

* GlobalData Consumer Intelligence Center ­– Market Analyzers, accessed in November 2022

** GlobalData Consumer Intelligence Center ­– Macroeconomic Data, accessed in November 2022

*** GlobalData 2022 Q3 Consumer Survey – India, with 378 respondents, published September 2022