Truce between HUL and FMCG distributors may not last long 

After threatening to boycott certain products from Hindustan Unilever on its network, the country’s thousands of sundry distributors have finally postponed the stringent measure by three months. But given the steady rise in share of organised retailers and distributors in the country, the battle for supremacy over control on millions of retailers have only just begun.

The margin disparity between organised retailers & distributors like Jio Mart, Metro Cash & Carry, Walmart and Udayan, among others, and standalone distributors, have kept the later on the edge in recent times. In line with large e-commerce players, the large-scale organised players are being given undue preference and are placed at an advantageous position as they are receiving fast moving consumer goods (FMCG) items in bulk at a lower rate from leading manufacturers like HUL, the smaller distributors have complained.

Yesterday, following a meeting between the HUL management and All India Consumer Products Distributors Federation (AICPDF) - a body representing sundry distributors - AICPDF decided to postpone the ban on HUL products. It had earlier announced that the ban on certain HUL products would come into effect from January 1.

While the postponement came after assurance from the management of the largest FMCG player in the country, the body has warned of resuming its protests after three months if the issue of margin disparity is not resolved. “If the company, does not improve its practices after three months, then we will start the campaign again”, it said in a statement, adding would keep a “close eye" on the developments.

HUL is not alone. The battle between smaller distributors and FMCG biggies now transcends far beyond. From Nestle, Dabur and P&G to Marico and Colgate-Palmolive - all in the same soup. While, many of them like Nestle and Dabur have already discussed the matter with the distributors’ body, its ban on key products under the brand Colgate Max Fresh from oral-care major Colgate-Palmolive continues.

According to industry experts, traditional distributors’ fight against organised retailer and distributors and the FMCG manufacturers is far from over. 

“These issues have happened earlier also, and we don’t expect a permanent resolution”, market analyst firm Edelweiss Securities noted. As per its analysis, as the share of traditional distributors continues to shrink, the organised players would gain further ground - leading to growing discontent among sundry distributors. “In coming years distributors will keep getting smaller and smaller. These kind of differences and tussles would further drive consolidation in favour of organised players and online players”, analysts from Edelweiss said.

Industry estimates suggests, the share of traditional, standalone distributors have come down considerably over the past five years. From over 95 per cent in 2015, its share now dwindles at around 75-78 per cent of total FMCG sales. Meanwhile, share of modern retail channel - that bypasses the general trade route altogether - grew to 10 per cent level for the first time by end-2019. Moreover, the rise of organised distributors like Jio Mart, Metro Cash & Carry and Walmart, who now together contribute to over 6 per cent of sales for leading FMCG players, have further pushed the traditional distributors towards the corner. 

Additionally, the rapid growth of the e-commerce channels, especially pos-pandemic, has snatched 6-8 per cent share from the sundry distributors in the last two years. From 1-1,5 per cent share in its kitty, the online channels now form 7-10 per cent of the sales for top FMCG players like HUL, ITC and Nestle.

The issue of margin disparity between organised distributors and retailers is not limited to the FMCG sector. In the consumer electronics space, led by categories like smartphones, lower margins offered to standalone dealers and retailers, in fact, have been a boiling point for over five years now. All India Mobile Retailers Association (AIMRA) - a body representing small handset retailers, have made several representations for commerce minister Piyush Goyal against the organised e-commerce players and handset manufacturers. 

However, with the share of online channel now continuing to surge - to over 50 per cent of the overall sales - the smaller retails are now also being deprived of latest models, apart from better margins, Arvinder Khurana, president of AIMRA told Business Today.

Khurana alleges, thousands of handset retailers had to shut shop during the COVID-19 pandemic and lockdowns due to a nexus between handset manufacturers and e-commerce players. “For example, most leading brands such as Xiaomi are launching new flagship models exclusively online. They never come anywhere near the shop shelves so customers stay away”, he said during an earlier conversation.

The traditional distributors in the FMCG channel sales are still better placed than their peers in the handsets industry. However, with their share in overall revenue of leading players shrinking fast, at the expense of large, organised distributors and retailers of late, have made them jittery. 

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