Tussle between traders, FMCG firms worsens over differential pricing

Federation of All India Distributors Association steps in to lend support

An ongoing stir involving fast-moving consumer goods (FMCG) companies and distributors in Gujarat over differential product pricing and low margins is threatening to go national. This comes as the Federation of All India Distributors Association (FAIDA), which comprises 24 member state bodies, steps in to lend support to the agitation, which has seen the Gujarat-based distributors boycott products of a few companies for the past few days.

Companies whose products have not been picked up for distribution in the state under a “non-cooperation movement” include Marico, Dabur, Emami, Britannia, Reckitt Benckiser (RB), and Godrej Consumer Products. These firms, distributors allege, have been supplying directly to modern trade and e-tailers, bypassing them. 

“For years, the authorised local distributor is the channel through which companies have been supplying to all retailers including kiranas, paan shops, and modern trade. However, as organised retail and e-commerce have grown in the past few years, companies now supply to them directly at lower prices. This impacts our business. Besides, the inventory we get from companies is priced higher and margins are lower,” said Arun Parikh, chairman, Federation of Gujarat FMCG Distributors Association, which is leading the stir.

The price differential between modern trade and traditional trade in some categories is as high as 25-35 per cent, driving traffic to the former, added Parikh. 

A distributor from Vadodara that Business Standard spoke to said small distributors had been exiting the business over the past few months, while others had to contend with shrinking margins across categories.

The Gujarat distributors association is also mulling legal options against a few firms and has received letters of support from the FAIDA as well as associations from other states.

FAIDA President CH Krishna said the body was also in the process of writing to more companies as it escalated the matter. 

“We are getting feedback from distributors across regions about companies practicing price discrimination. While we support what the Gujarat distributors association has done against the six firms, more companies will now have to reconsider how they do business with us. We will write to more firms, including top players in the sector, asking them to stop this price discrimination between modern trade, traditional trade, and e-tail," he said.

Companies that are likely to receive letters in the next few days include names such as Hindustan Unilever, ITC, Procter & Gamble, J&J, and Colgate-Palmolive.