A group of distributors has said that consumer goods behemoth Hindustan Unilever and Colgate-Palmolive are yet to respond to its demand for parity on margins offered to them and business-to-business entities.
Most of the 25 FMCG companies have responded to the All India Consumer Products Distributors Federation’s demand to offer equal margins to them and B2B platforms, Dhairyashil Patil, federation president, told Moneycontrol.
“HUL and Colgate-Palmolive are two companies that have not reached out to us for further discussions. I believe these companies don’t believe in playing fair,” said Patil.
Although Patil said Hindustan Unilever is in talks with its distributors, they are not satisfied with the company’s answers. For companies that have agreed to its demands and conditions, the federation wants a written compliance document.
“We want everything in writing,” stressed Patil.
Responding to Moneycontrol's query, HUL in an email response said, "General Trade (GT) continues to be our largest channel and our distributors (redistribution stockists) are our valued partners. We remain fully committed to enhancing capabilities in our GT network and have taken several actions such as deploying technology for order placements through India’s largest eB2B app, Shikhar, supporting our distributors to increase their direct reach and introduced specially tailored programmes with reputed academic institutions to help them hone their business skills and be future-ready. During the COVID-19 pandemic, we have extended support to ensure the safety and secure livelihoods of our distributor partners through several initiatives such as wide scale vaccination drives and special medical insurance coverage."
It further added, "Having said that, our arrangement with our distributor partners is not exclusive. We sell and distribute our products across all channels such as general trade, modern trade, e-commerce, cash and carry B2B etc. to make our brands available to shoppers and consumers. As the new channels evolve, we will continue to take up new initiatives with an objective to help scale up business for our distributors, strengthen our distribution network and to better service our consumers."
Distributors have been at loggerheads with FMCG companies since the start of December over the margins offered to new and emerging distribution channels such as Udaan, Elasticrun, Jumbotail, Walmart’s Best Price, and Metro Cash and Carry.
According to the federation, which represents about 400,000 distributors and stockists across India, the FMCG companies offer better margins to these platforms, which in turn grant discounts to retailers and eat into their business.
While distributors are given 3.5-5 percent margins by FMCG companies, new platforms negotiate 12-15 percent margins, given their bulk orders, and this is disrupting the market, said Patil.
Distributors from several locations also reported that retailers are buying products from cash-and-carry outlets and modern trade stores, which is hurting their business.
Unmoving companies and margins
Durgesh Shukla, 39, took up Hindustan Unilever’s distributorship in the Indore region about five years ago. However, the businessman, who also holds the distributorship of several other companies in the region, recently relinquished Hindustan Unilever’s distributorship.
“It used to be lucrative but since the pandemic, general trade has grown marginally,” he told Moneycontrol.
Hindustan Unilever used to clock about Rs 4 crore in sales from general trade and about Rs 5-6 crore from modern trade in Indore every month about five years ago, said Shukla. The Rs 45,000 crore company sells products including Lux and Lifebuoy soaps, Kwality Wall’s frozen desserts and Horlicks health food drinks.
“Though modern trade has now grown to Rs 16-17 crore, the general trade has inched to Rs 7 crore of sales and now these new channels are taking a share of the general trade pie,” he added.
Hindustan Unilever’s distributors are not making much money because the company has not increased margins in the past five years and is also making them pay transportation costs, they told Moneycontrol. About 10-15 of the company’s distributors in Madhya Pradesh recently gave up their distributorship citing these reasons, people aware of the matter said.
The situation is the same across FMCG companies. Patil of AICPDF said 15,000-20,000 distributors across the nation have quit distributorship or are in the process of doing so.
FMCG companies in India sell products to about 9-10 million general trade outlets in the country, out of which about 4-5 million are covered by their direct distributors. These outlets account for the majority share, in most cases about 90 percent, of their business.
‘Why should we collect the garbage?’
Meanwhile, as the distributor federation works on the fine print of margins with the FMCG companies, it has threatened to stop launching new products and stocking goods that are sold to the new platforms at higher margins, if their demands are not met.
“We will also stop collecting damaged and expired products of these FMCG companies from the market,” added Patil.
Authorised distributors, besides providing stocks to retailers in general trade stores, also collect damaged and expired products and return them to the FMCG companies.
“Since other channels too are selling the stocks now to general trade, then why should we be the ones collecting the garbage?” asked Patil. “If companies want us to collect expired products, then they will have to pay us a basic commission for it.”
FMCG companies may have a crisis brewing in their distributor channels as they try to pave a way out of this situation. While they have to ensure their traditional channels, which account for about 90 percent of their business, keep going, they cannot also ignore new emerging channels, which are growing at a fast pace.
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