FMCG distributors in Maharashtra have called for a boycott of Hindustan Unilever Ltd’s products. They have also warned Colgate Palmolive India Ltd of taking strict action after the company failed to respond to their concerns. If the demands proposed by traditional FMCG distributors are not addressed, it could get difficult to buy essential products at our neighborhood stores. In this article, we discuss why distributors have clashed with fast-moving consumer goods (FMCG) firms.
Why are FMCG Distributors Revolting Against Manufacturers?
For decades, distributors have been the link between manufacturers and retailers. They deliver the milk, bread, eggs, biscuits, snacks, and other essential items to your neighborhood store. These traditional distributors get the products of FMCG companies featured on the shelves of general stores across India, and consumers have a wide variety to choose from. As per reports, they service nearly 90% of the overall retail market in our country.
The Rise of New-Age Wholesale Distributors:
Unfortunately, the Covid-19 pandemic caused a severe blow to their operations. Tens of thousands of distributors were unable to operate due to lockdown restrictions. At the same time, major FMCG companies such as Hindustan Unilever, ITC, Nestle India, Colgate Palmolive India, and others turned to tech-driven organised wholesale distributors. The businesses of JioMart, Udaan, Booker, Metro Cash & Carry, ElasticRun, and Jumbotail have flourished over the past year.
These firms are backed by global venture capital and private equity firms and thus, have a lot of cash at their disposal. While traditional distributors pay for the goods within 10-15 days (on a credit basis), companies like JioMart pay the manufacturers right away. As a result, FMCG companies prefer new networks and offer huge discounts on their products to wholesale distributors that operate online.
This ultimately means that new-age distributors can now offer significantly large margins to shop owners in the range of 15-20%. They are able to sell goods at much lower rates. The apps offered by Jiomart and Udaan allow shop owners to get products efficiently. Their margins have improved after buying at lower prices from these firms. Meanwhile, traditional distributors can only provide margins of 7-12%.
The All India Consumer Products Distributors Federation (AICPDF), which represents over 4 lakh distributors, is holding talks with FMCG firms on the price disparity of products between traditional and new-age distributors. They feel that the networks established by Jiomart and other such companies are destroying their businesses. The AICPDF had written to firms that new-age business-to-business (B2B) firms are offering products at lower rates to local shops than what they offer, and are now severely affecting their reputation and goodwill.
From January 1, traditional distributors have boycotted or stopped supplying popular FMCG products to Kirana stores. They have warned companies of holding strikes until they promise to give them similar prices and margins as that of the new-age distributors. As per reports, it is unlikely that traditional distributors would completely go out of business. However, the entire industry dynamics would change.
Let us look forward to seeing how the situation unfolds in the days to come.