Margin war: Nestle India, ITC agree on price parity with distributors

Nestle India and ITC executives have met members of the All India Consumer Products Distributors Federation (AICPDF) to sort out the price disparity issue between traditional distribution channels and organised business-2-business (B2B) distributors.

Both the companies are learnt to have told the apex body, which has over 450,000 distributors, that they will bring in price parity across both the distribution channels.

However, distributors have asked for a written confirmation on this. Both firms have also said that traditional distributors will not be at the losing end, according to people who were a part of the discussions.

This is the first set of meetings that fast-moving consumer goods (FMCG) companies have called for with the traditional trade to resolve the issue of price disparity. Nestle India and ITC are yet to respond to Business Standard’s email query on the issue.  

Currently, the organised trade, which includes players like JioMart, Booker, Metro Cash & Carry and e-commerce companies like Udaan and ElasticRun, offers products to retailers at higher margins compared to the traditional trade.

Traditional distributors offer retailers margins in the range of 8-12 per cent compared with 15-20 per cent offered by big-box B2B stores and online distributors.

In the last 20 days, AICPDF had written two letters to FMCG companies to resolve the issue of price disparity. It had called for meetings with FMCG companies.

The apex body of distributors had also said that if the issue is not resolved, they would start a “non-cooperation movement” against FMCG companies from January 1. In its list of demands, distributors have asked for uniform pricing and schemes across distribution channels in the country.

In the first letter, the distributors’ association had given FMCG companies a list of demands, which includes that all schemes be offered on a primary basis (sales at the distributor level rather than retailer level). It also wanted margins re-worked, taking into account all incremental costs or linked with the wholesale price index. Other demands are that all secondary schemes (offered to retailers) be in the form of financial credit notes and companies must take back damaged and expired stock. Lastly, they must provide base margins (minimum) for new product launches that have not done well in the market.