HUL Distributors In Maharashtra Are Boycotting The FMCG Giant; Here's Why
According to distributors, the large sales volumes generated by new distributor channels imply that goods are sold to them at lower prices by FMCG companies.
As a result, traditional players are unable to compete with the new players.
Distributors of Hindustan Unilever’s products are 'on a strike' from January 1 after their demands were not met by the company. Since companies such as JioMart, Udaan, Metro, and others gained ground rapidly, distributors have been asking for price parity for themselves and modern B2B channels.
The strikes would occur in progressive steps as the Kissan brand would see no distribution. Unless the company initiates a talk with the distributors, the ban would be followed with HUL’s Glow and Lovely face cream.
Following this, if discussions are not initiated, the popular detergent brand Rin would see no distribution in the state. Ultimately, all of HUL’s products will not be supplied by February 1. The strike came after the All India Consumer Products Distributors Federation (AICPDF) has been trying to reach a favourable decision with FMCG companies.
These distributors have been the link between the manufacturer and the retailer for years. However, in recent years, several deep pocketed players have entered into the segment looking to replace traditional distributors.
These companies have large funds and distribution networks allowing them to generate large sales volumes.
According to distributors, the large sales volumes generated by these new channels imply that goods are sold at lower prices by FMCG companies. As a result, traditional players are unable to compete with the new players on the basis of price.
In addition, new players are large buyers from FMCG companies, allowing them to buy on credit as well. In contrast, traditional distributors must pay the entire money for the goods upfront before buying.
Therefore, their finances are under pressure as well. While the new B2B distributors and kirana store owners’ benefit from the new developments in the sectors, traditional distributors struggle to keep up with the disruption.
For store-owners, margins have increased by a large percentage after buying at lower prices from B2B companies.
Further, the larger players are leveraging technology to grow their customer base faster. On placing an order, a delivery by JioMart’s delivery platform to the kirana store is much quicker as compared to that of a traditional distributor.
Hence, one of the main demands from traditional distributors has been equalisation of prices irrespective of volumes. While fast moving consumer goods (FMCG) companies have been attempting to pacify the distributors, the issue still remains controversial.
General trade, controlled by traditional distributors, has been the largest contributor to FMCG sales. Hence, these companies cannot totally ignore distributors. So far, FMCG distributors’ bodies have sent letters to leading FMCG companies.
However, not much change has happened since.
Previously, Parle decided to stop selling to Udaan as they believed that the company was engaging in unfair practices. Udaan, however, alleged that Parle was using its dominance in the market by refusing to deal with Udaan.
Given Udaan’s losses, distributors allege that the company runs on external funding, and consequently can bear losses while affecting their business adversely.
Running a loss-making business is not a luxury traditional distributors have. While Udaan’s revenues have shot up from Rs 779 crore in financial year 2019 (FY19) to Rs 2,518 crores in FY21, losses jumped to Rs 3,009 crore.
According to the company, it has onboarded 30 lakh registered users and 18 lakh retailers.
While it is unlikely that traditional players would completely go out of business, how the industry dynamics change, remain to be seen.
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