Discord escalates as packaged goods companies tightrope between trade channels

The move comes as talks between fast-growing consumer goods companies (FMCGs) and distributors are expected to extend into the new year, a distributor said on condition of anonymity.

Industry body All-India Consumer Products Distributors Federation (AICPDF) held meetings last week in Delhi with companies such as Nestlé India and ITC. At the meetings, FMCG companies reiterated their faith in traditional business channels, but added that they would continue to engage with new channels to drive growth.

Godrej Consumer Products Ltd, which sells Cinthol soaps, has stated its intention to work with traditional channels without neglecting emerging channels. “We are very clear that we will need to partner up and take care of our traditional channels without neglecting emerging channels,” said Sunil Kataria, Managing Director, India and SAARC. “We have been very careful and very particular not to disturb our general trading economy. At the same time, we will participate in modern commerce and e-commerce. As a company, we ensure price parity.”

Emails sent to spokespersons for Hindustan Unilever, ITC Ltd and Marico Ltd went unanswered. Dabur India declined to comment.

Nestlé said all of its relationships along the value chain are based on fairness and respect. “Our goal has always been to maximize the coverage of our channels to ensure that our products are easily accessible to our consumers,” said a spokesperson for Nestlé India.

In an interview in November, Saugata Gupta, chief executive of Marico, said online business-to-business platforms should be seen as distribution multipliers in markets where distribution is low or as a way to boost competing brands. “You can’t have a zero channel conflict, but you can minimize it,” he said.

Cookie maker Parle Products recently stopped providing inventory to the Udaan e-commerce platform, alleging that the platform was competing with its established network of distributors by offering products below retailers.

Krishnarao Buddha, senior category manager at Parle Products, said that while there are benefits to working with business-to-business (B2B) online platforms, he expects price parity and discipline in the market.

Udaan approached the antitrust regulator against Parle Products in September, alleging that Parle had abused its dominant position as a leader in the cookie category by refusing to supply directly to Udaan.

A spokesperson for Udaan declined to comment.

Up to 60% of the general trade market of FMCG products is served by authorized distributors, 35% by wholesalers, while the remaining 10% is served by large wholesalers and business-to-business distributors.

AICPDF alleged that FMCG companies have better deals for online and offline businesses such as JioMart, Walmart, Metro Cash and Carry, Booker, Elasticrun, and Udaan, which helps these platforms deliver cheaper products. to retailers. The organization sought a level playing field, asking consumer companies to maintain price parity between the two channels.

Earlier this month, the AICPDF gave FMCG companies until January 1 to resolve the price parity issue, failing which the organization threatened a “non-cooperation movement” against the FMCG companies. The federation also said it will delay the launch of new products if their demands remain unfulfilled. FMCG companies typically appoint thousands of distributors to maximize their retail reach. For example, Parle Products works with over 8,000 distributors.

In some pockets, however, business-to-business e-commerce (eB2B) platforms are gaining ground. In Gurugram, for example, JioMart has obtained more than 25% of the distribution shares in six months of operation, according to a recent report from Kotak Institutional Securities. The memo cited cheaper product prices as the reason the company quickly gained market share.

Several FMCG executives who spoke on condition of anonymity said many new-age platforms could use pricing as a tactic to gain market share. For example, a large carton of cookies that a company designated distributor sells for ??550 to the retailer could be sold at ??500, harming the businesses of distributors.

In its letter, the AICPDF stated that the prices offered by these platforms to the retailer are much lower than the landed price of the distributor. Distributors work on a margin of between 5 and 6%, while the margins of B2B companies greatly exceed 15% because fewer intermediaries are involved. As a result, B2B distributors can provide better deals to merchants.

The AICPDF demanded that companies ensure that no preferential treatment is granted to any company, regardless of their volumes. “Our demand is only one: we need price parity in the market. We are not afraid of any competition, ”said Dhairyashil Patil, AICDF National President. The meetings held so far have been “positive”, he said.

Others said such conflicts will continue to surface as India shifts from unorganized to organized commerce. “The new formats offer a clear advantage like convenience and transparency for retailers. For FMCG companies, that means more refined data, ”said Ullas Kamath, deputy managing director of Jyothy Labs.

To subscribe to Mint newsletters

* Enter a valid email address

* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our app now !!

Source link

About Donnie R. Losey

Check Also

The carbon footprint of aluminum production in North America has more than halved since 1991

A new life cycle assessment revised by a critical review shows a reduction of 49% …