India's traditional distributors suspend brand boycotts

Fast moving consumer goods companies Colgate-Palmolive and Hindustan-Unilever have effectively been given three months by traditional FMCG distributors in India to address pricing issues amid concerns the companies are selling to digital B2B platforms at a lower price.

What’s happening

• Distributors want equal margins from the FMCG companies and had threatened to stop selling certain products in several states. 
• Brands have traditionally used third-party distributors to supply the nation’s many kirana (small grocery) stores, but new intermediaries, often mobile app-based and backed by investor capital, are offering products more cheaply. (Distributor prices give retailers a margin of 10%-12%; app prices offer margins as high as 20%.)
• The Economic Times points out that, in addition to stocking inventory and despatching small orders locally, distributors also offer retailers unsecured credit at zero interest (bypassing the complications of the “know-your-customer” checks demanded by the formal financial system) and, since they’re dealing directly with kirana stores, relieve the brands themselves of the need to comply with various rules and regulations. 
• One estimate puts the value of those additional services at 11.5% of the final price of the merchandise (compared to the 5% or 6% distributors will take) – a value addition that benefits other stakeholders.

Why it matters

One distributor explained: “If brands ignore general trade, and distributors’ sales people lose their jobs, apps and other bulk suppliers will inevitably use their market power to raise prices. That won’t be good for anyone.”

Sourced from The Economic Times