The story so far: On January 11, the Maharashtra State Consumer Products Distributors Federation (MSCPDF) and the All-India Consumer Products Distributors Federation (AICPDF) called for a phased boycott of products manufactured by Hindustan Unilever Ltd (HUL). This was due to an upward revision in variable margins along with a downward revision in fixed margins to distributors. Opposing the move, AICPDF referred to it as a “double standard approach, seemingly driven by a draconian agenda to boost company profitability.” HUL, on the other hand, has stated that this would improve the overall service efficiency (of the network) and offer distributors a higher earning potential.
What is the contention about margins?
Distributors are usually offered two kinds of margins: variable and fixed. While the former depends on performance parameters, fixed margins is usually about 4-6%. Revision of this fixed margin is the current point of contention. The maker of brands such as Lux, Kissan jam and Surf Excel has reduced the fixed margin by 60 basis points and increased the variable margins by up to 100-130 basis points for its distributors, as per news agency PTI.
AICPDF has argued that the revision “suggests a shift in management strategy that may jeopardise the entire distribution network,” adding that distributors may be “pressured and blackmailed” into compromising their “rightful margins.”
In an earlier statement, the umbrella body of distributors alleged that HUL had a “significant gap.” 30% of areas lacked distributors and efforts to find distributors had proven futile, they stated. Distributors are particularly important in the supply chain for they ensure that the products are available on the market at all times (also ensuring visibility), especially at smaller stores with limited stocking capacity. It argued that the revision further intensified concerns, potentially forcing existing distributors out of business.
The collective also contended that the “demanding parameters” may push distributors towards unethical activities like undercutting (charging much less than competitors or retail prices to eliminate competition) and infiltration. This risks destabilising the entire ecosystem, it argued.
What are the demands?
The chief demand is the fixing of the distributors’ basic margin at a minimum of 5%. Additionally, it has sought that the proposed incentive parameters should not interfere with the distributors’ margin.
It has also sought immediate removal of closed or non-existent outlets/retailers from the company’s database and enhancements in the central database. In an earlier release outlining concerns about “effective coverage,” the AICPDF said that “25 to 30% of claimed outlets (were) either closed or non-existent in the company coverage database,” thus raising doubts about the accuracy of the company database.
What does the boycott look like?
Starting from January 11, it has sought that distributors boycott the FMCG company’s Taj Mahal tea brand as part of a non-cooperation movement.If a truce is not attained, next in line would be the Kissan brand – effective January 25.
Effective February 10, the collective plans to boycott RIN.
And finally, from March 1, the collective plans to launch “a complete non-cooperation movement” in all States, alongside a dharna with 1,000 distributors in front of the HUL head office in Mumbai.
“This movement will start from Maharashtra and spread to different parts of the country week after week. Similarly, by February, this non-cooperative movement will be started, by more than 1,500 to 2,000 distributors of India participating,” the distributors’ body said.
Further, the forum plans to inform retailers about alleged “dual policies” for modern trade and e-commerce companies. They allege that these entities are “given double the margin than retail shopkeepers.” Furthermore, certain schemes and offers are exclusively accorded to them, and not to retail shopkeepers.
How has Hindustan Unilever responded?
HUL has said that the latest model improves the overall efficiency of service and offers distributors a higher earning potential.
A spokesperson for HUL elaborated that the company is “always looking at commercial models to enhance the quality of service to general trade stores while giving our distributors an opportunity to earn healthy returns – hence, a win-win.” The spokesperson also added that the “progressive and distributor-inclusive model” is designed to better serve the needs of Kirana and other neighbourhood stories – the MSMEs, which “are the bedrock of the Indian FMCG industry in a fast-changing environment.”
The spokesperson also informed that the approach was favourably tested with their distributors over the past one year before its launch in more than 100 cities.
Lastly, the company spokesperson also observed that the press note being circulated contained “several errors and is misinformed”.
This is not the first instance the two entities have found themselves at loggerheads. An earlier standoff in 2022 (later resolved) was due to alleged price disparity between that accorded to traditional distributors and the larger organised B2B (business to business) distributors.
The company spokesperson also touched upon concerns emanating from the boycott call. “Our distributors have overwhelmingly conveyed to us that they would continue to meet the needs of our shoppers and consumers in an uninterrupted manner,” the statement read.
-With inputs from Aroosa Ahmed
