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

The apex body of distributors of fast-moving consumer goods (FMCG) has written to companies against the price disparity between traditional distributors and other organised business-to-business (B2B) distribution firms, both online and offline, which have entered the sector in the last few years.

The higher margins (or lower pricing of products) offered by FMCG companies to players such as JioMart, Metro Cash & Carry, and Booker, and to e-commerce B2B companies like Udaan and ElasticRun, are hurting the business of traditional distributors, said the All India Consumer Products Distributors Federation (AICPDF), which has over 450,000 members. It has sought a meeting with FMCG firms to resolve the issue.

“Deep discounts offered by other players create a monopoly and destroy the traditional trade, which still handles the crucial supply chain for all FMCG companies,” Dhairyashil Patil, president of the Federation, told Business Standard, adding that the situation was pushing up unemployment. “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,” Patil said.

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.

The AICPDF has said if its demands are not met, then it will 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.

Distributors have demanded that all schemes be offered on a primary basis, and that margins be re-worked taking into account all incremental costs or linked with the wholesale price index. The letter states that all secondary schemes (offered to retailers) should be in the form of financial credit notes, and enterprise resource planning (ERP) should be defined as post tax and not pre-tax, as this would release its capital blocked in input tax.

A financial credit note is issued by companies on schemes offered to retailers and is facilitated by distributors. 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 (new product launches which have not done well in the market) equivalent to the base margin. The Federation has also asked for fresh agreements and a draft committee, with representatives from all parties concerned, besides a regulatory body in each state. 

The AICPDF letter states 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 Products, ITC, Marico, Dabur, Britannia Industries, Mondelez India, Godrej Consumer Products, Reckitt Benckiser (India), and Colgate Palmolive India were yet to respond to Business Standard’s email seeking comment.

Nestle India confirmed that it had received the letter. “Our focus has always been to maximize our channel coverage to ensure our products are easily accessible to our consumers," a spokesperson for Nestle India said, adding that “all our relationships across the value chain are based on fairness and respect.”

The distributors’ body has said if they are not given the same margins as new-age distributors, irrespective of volumes, they will not sell products or stock keeping units (SKUs) sold by organised B2B channels.

“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, it said. The AICPDF has also said the traditional distribution channel will not pick-up expired stock from retailers.