FMCG distributors warn firms of ‘non-co-operation’, seek price parity

A group representing distributors of fast-moving consumer goods (FMCG) has written to companies, warning it will start a “non-co-operation movement” from Jan 1 if they don’t end price disparity between traditional businesses and newer organised business-to-business (B2B) companies.

The higher margins (or lower pricing of products) offered by FMCG companies to these other organised B2B players is allegedly hurting the business of traditional distributors.

The All India Consumer Products Distributors Federation (AICPDF), which claims to have more than 4,50,000 distributors as members, has written a letter to consumer companies asking for a meeting with companies to resolve pricing parity between traditional distributors and newer ones like Jiomart, Metro Cash and Carry, Booker and e-commerce B2B companies like Udaan and Elastic Run.

“Deep discounts offered by other players creates a monopoly and destroys the traditional trade causing unemployment which still handles the crucial supply chain for all FMCG companies,” Dhairyashil Patil, president of AICPDF, told Business Standard. “We don’t object to benefits given to the consumer, but at the trade level it is unethical cash burn by offering predatory pricing to retailers.”

The letter was sent amid retailers increasingly buying from new-age distributors, as margins offered to them than what traditional ones offer.

Traditional distributors offer retailers margins ranging between 8-12 per cent compared to 15-20 per cent offered by big-box B2B stores and online distributors.

AICPDF has it will start a “non-co-operation movement” against all FMCG companies from January 1 for its demands.

The group’s letter said all secondary schemes (schemes offered to the retailer) should be a financial credit note, and enterprise resource planning (ERP) should be defined as post tax and not pre-tax which it is at present as this will release its capital blocked in input tax.

Financial credit note is a scheme given by companies to retailers which is facilitated by the distributor. If done in the manner recommended by distributors, then the distributor can opt for input tax credit. With respect to ERP, explained a distributor, the company should pass on the scheme amount on the primary invoice given to the distributor which is currently done on the secondary invoice (which is the invoice to the retailer).

It has also asked companies to take back damaged, expired stock and launch failure at margins equivalent to the base margin (companies offer fixed and variable margins to the distributors, who are asking for stock to be taken back on the fixed margin of the product; Variable margins is a performance based incentive).

As part of its demands, it has asked for fresh agreements and a draft committee which should include representatives from all concerned parties and has also asked for a regulatory body with representatives from all concerned stakeholders in each state.

The letter said that every FMCG company should appoint an independent ombudsman to look into complaints from the entire trade channel consisting of clearing & forwarding agents, distributors, and dealers.

Consumer companies (Hindustan Unilever, Tata Consumer, ITC, Marico, Dabur, Britannia, Mondelez India, Godrej Consumer Products, Reckitt Benckiser and Colgate) are yet to respond to Business Standard’s email asking if they have received AICPDF’s letter and will they comply with the demands it makes.

Nestle India said in an emailed response it has received the letter issued to all FMCG companies. “Our focus has always been to maximize our channel coverage to ensure our products are easily accessible to our consumers,” a Nestle India spokesperson said. “All our relationships across the value chain are based on fairness and respect,” said the spokesperson.

Action planned by distributors

The group has said that if they are not given the same margins irrespective of its volume as new age distributors, they will not sell the same set of products or stock keeping units (SKUs) sold by the organised B2B channel.

“If the company is not able to give us a level playing field then we will drop the products sold by Jiomart/B2B companies from our portfolio,” the letter said. Traditional distributors will also not supply new launches by companies to retailers.

They will also refuse to meet the primary (sales) target set by companies (to distributors) but will continue to service retailers.

AICPDF also wrote that the traditional distribution channel will not pick-up expired stock from retailers.