Edible oil price slash will bring back rural consumers who downtraded to unpacked products

• Edible oil prices will now get cheaper by ₹10-15 after the centre asks manufacturers to slash sticker prices as global prices ease down.
• Oil manufacturers are optimistic that this consecutive reduction in edible oil prices will improve demand in rural India.
• Rural consumers have been downtrading to unpacked products and buying smaller packs more frequently to meet their actual needs.

Indian consumers, especially in rural areas, have been buying and using less of edible oil after it hit a historic high this April. Since then, however, global prices have cooled, duties have been cut and the government has requested the edible oil makers to slash their sticker prices – twice.

Yesterday, the central government asked oil manufacturers to slash pack prices by ₹10-15 per liter. The companies are evaluating the ‘macro factors’ before any moves.

“A major price reduction has already happened. However, after the ministry's request, we are evaluating it and will make the announcement once we have finalized it but it would not be a major price reduction. We are still observing the pricing trends carefully before taking any decision as the fundamental issues of war, supply chain and human resource are still intact,” Akshay Modi, MD of Modi Naturals’ told Business Insider India.

Ghanshyam Khandelwal, chairman, BL Agro-manufacturers of Bail Kolhu, a cold-pressed mustard oil brand however believes that the requested reduction is possible.

“The oil prices have gone down in the international market, thus there is an impact on the domestic market as well,” Khandelwal told Business Insider India.

FMCG companies now are optimistic that a consecutive price reduction will improve rural demand, that has been very tepid in the last few months. So much so, most of them even gave up hope of even the festivals to push up demand.

For BL Agro, rural India contributes up to 40% of their total consumption, and a boost in rural demand means better profits.

“The consumer demand is definitely going to see a hike especially in the rural segment and amongst the out-of-home consumers. This is a price-sensitive segment and their demand is dependent on the price fluctuation,” said Khandelwal.

Rural India has been downtrading to loose oil after the price hike. These products are more cost-effective than small packs, which tend to price in an additional packaging cost of 15-20%.

The oil that moves fast off the shelves now would be palm oil. “Palm oil is the cheapest amongst all oil categories and therefore it is widely consumed by the rural segment of society. It’s expected to get even cheaper in the coming months,” Khandelwal told Business Insider India.

Apart from households, the price drop will also improve demand from the out-of-home consumption segment which has already seen an uptick in the last few months. Now, bakeries, restaurants, street food and vendors, who rely on edible oil for their food items, will buy more edible oil as its prices simmer down.