FMCGs say can only tweak trade terms, but distributors demand margin parity

Several consumer goods companies said they could only slightly tweak their terms of trade with organised wholesalers, such as Reliance, Metro Cash & Carry, Udaan and Walmart, after the country's biggest distributors association threatened to halt supplies from the new year if their demands for product price-parity and equal margins are not met.

The All India Consumer Products Distributors Federation (AICPDF) has written a letter to over two dozen top consumer companies, including Hindustan Unilever, Procter & Gamble, Dabur, Marico, Godrej and Tata Consumers, urging them to not give preferential treatment to any channel on the basis of order volume, and instead offer equal margins to everyone. ET has reviewed the letter.

An executive of a fast-moving consumer goods (FMCG) company said the company will soon meet representatives of the distributors' forum to sort out the issues. "If required, we will see whether the terms of trade can be tweaked, since we value the partnership with the traditional channel, which is also the largest revenue source," he said. "We want a harmonious relationship with these channels and organised wholesale."


Companies, however, claim margins are given according to the cost of operations and sales volume across channels and will always differ.

"The dialogue with organised distributors, wholesalers and supermarket chains is a continuous process and we are planning to intervene if they undercut prices and sell products at lower than the buying price," said a senior executive with a top consumer firm. "But margins will always be different even within the same channel depending on sales."

A spokesperson for Nestle India said the company is in receipt of the letter issued to all FMCG companies. "Our focus has always been to maximise our channel coverage to ensure our products are easily accessible to our consumers. All our relationships across the value chain are based on fairness and respect," the spokesperson said.

AICPDF had first voiced its concerns in January 2019, and now claims that many members are staring at bankruptcy.

"In case our demands for a level playing field are not met, we will call for a non-cooperation movement against all FMCG companies from Jan 2022 and stop supplying or launching new products," Dhairyashil H Patil, president of AICPDF, told ET.

While a prolonged standoff could dent sales from its important trade channel which accounts for 85% of its overall business, companies said the showdown is not a rare one in the country's fledgling organised retail sector.

Industry executives are also watching for signs of which side will blink first. "It is very similar to a factory strike, which usually gets resolved after a few days. We also anticipate that not all distributors will participate formally during such a call for bandh," said a sales head of a large Indian consumer firm. "Distribution to local stores will not be impacted even as we expect operations in select pockets to be impacted temporarily."

Globally, consumer companies share a love-hate relationship with retailers, which use their bargaining power to beat down prices or introduce their own cut-price versions or private labels of these mass-produced products to squeeze their space. But in India, companies rely heavily on distributors to sell their wares and have a network of their own distributors as well as general ones that deal with brands of multiple companies.