Will bridge packs be the saving grace for FMCG companies’ margins?

Consumer Companies turn to ‘bridge packs’ to sustain margins.
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KEY HIGHLIGHTS
  • Bridge pack to addresses down-trading
  • Consumer firms turn to ‘bridge packs’ to sustain margins
  • Products are launched in price point between the low-priced packs and the high price

New Delhi: Inflation is at a four-decade high and this has impacted the margins of most FMCG companies over the last one year. Now to tackle inflation FMCG companies have already taken a lot of steps like cost-saving measures, price hikes, and Shrinkflation (i.e. reduction in grammage). Now there is one more strategy coming into play - the Bridge packs. This is not a new strategy but FMCG companies are now aggressively looking at this strategy.
So What is Bridge Pack?
Bridge packs provide the right price-value equation to consumers while ensuring products remain affordable and accessible. Having SKUs between LUPs and large packs allows a company to capture some of this down-trading from larger packs, in case a consumer wants to do so.
Why the need for Bridge Pack?
The volume growth of the leading consumer companies has taken a hit in the last few quarters, as they opted to lower grammage instead of hiking prices of smaller packs. But the companies are unable to take direct price hikes in lower-priced packs for the fear of hurting demand in this category, which is why they are looking at launching ‘bridge packs’ that would be priced higher.
Edelweiss too in their report highlights that Inflation is causing down-trading across categories and price points. Having SKUs between LUPs and large packs allows a company to capture some of this down-trading from larger packs, in case a consumer wants to do so.
Furthermore, Edelweiss highlights in its note that Bridge packs provide the right price-value equation to consumers while making sure products remain affordable and accessible. In LUP packs, which already have small volumes, it will be difficult to enforce further grammage cuts beyond an extent as it will impact the quality of usage. These SKUs form ~30% of revenue in many categories.
Volumes for FMCG companies have already seen a decline in Q4FY22 and margins of FMCG companies are expected to see continued pressure. Now with FMCG companies resorting to bridge packs will this be the saving grace or will companies need to find a new creative way to tackle inflation and revive margins and volumes?
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