Hindustan Unilever (HUL), the country’s top fast-moving consumer goods (FMCG) company, is facing a likely boycott of its products by distributors over protests against its recent decision to reorganise the latter’s margins.
The company has reduced fixed margins by 0.6% to 3.3%, increased variable margins by 1.3% to 2% for general trade distributors, according to documents shared by some distributors with FE. The initiative, which was running as a pilot in some towns, was unveiled across 100-150 towns last month.
The drive will be taken nationwide in phases, distributors said, as HUL is seeking to rationalise distribution costs. A mail sent to HUL remained unanswered till the time of going to press.
Officials at the All India Consumer Products Distributors Federation (AICPDF), an apex body of distributors in the country, said it would write to HUL, seeking a reply on the restructuring of margins unveiled by it.
“A decision to boycott HUL products could be taken as early as next week, depending on the response of HUL,” Dhairyashil Patil, national president, AICPDF, said. “This is a serious matter since it could set a precedent in the industry at a time when sales offtake in general trade has been weak,” he said.
Constituting 80% of an FMCG company’s business, general trade has seen sluggish sales in the October-December (2023) period, traditionally the strongest quarter for the channel owing to the festive season.
Distributors as well as FMCG companies point to stress in rural and semi-urban areas for the poor sales offtake seen during the festive period this year. Patil says that general trade has been carrying nearly two months’ inventory, when it should have been not more than 15-20 days.
Distributors also indicate that clutter in the general trade pipeline has grown over the last few months as excess stock has flooded the market, necessitating heavy investment by distributors to manage this inventory.
FMCG analysts, however, say that the need to reorganise distributor margins by firms such as HUL is in keeping with market realities. “Traditional trade has been struggling for a few quarters now in terms of sales. In contrast, modern trade and e-commerce are performing better in terms of sales,” says Sachin Bobade, vice-president, research at Dolat Capital, a Mumbai-based brokerage.
Most FMCG firms, Bobade says, have also been increasing their direct distribution reach to kirana outlets, reducing their dependence on distributors. The cut in fixed distributor margins by HUL, for instance, is a result of these efforts, he says, since firms like HUL are now able to map out clearly where inventory is slow and fast-moving.
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This is due to digital programmes unveiled by HUL in recent years such as the Shikhar app where retailers are encouraged to place orders directly and make payments as well as D2C and multi-brand platforms (such as Ushop), where HUL is reaching out to consumers directly and putting more feet on the ground to service retail outlets directly.
