Distributors End Boycott of HUL, Continue for Colgate

In an interesting twist to the FMCG controversy, the All India Consumer Products Distribution Federation (AICPDF) decided to end the boycott of HUL after they were satisfied with the assurances given by Hindustan Unilever.

It has agreed to observe the actions of HUL for a period of 3 months and then take a final call. However, with little forthcoming from Colgate, the AICPDF has decided to continue its boycott of Colgate products.

What exactly is this tussle?

The genesis of the tussle lay in the fact that FMCG players like Hindustan Unilever and Colgate were offering fatter margins of 12-15% to the new age distributors while the traditional distributors were paid just 3-5% margins.

Since newer platforms like Reliance JioMart and Metro Cash and Carry could offer higher bulk order assurances, they get the advantage of higher margins.

The problems started in early December when the AICPDF wrote to around 25 leading FMCG companies in India to restore parity of commissions between the traditional distributors and the new age distributors.

Most of the FMCG companies engaged with the AICPDF, but there was no response from HUL and Colgate. This triggered the boycott. Now, the boycott will only be applicable to Colgate and not to Hindustan Unilever.

In the case of Colgate, the problems have got aggravated because the company has refused to engage with the AICPDF. Instead, Colgate has said it would prefer to directly engage with the distributors where they have had an established relationship for over 70 years.

That is what led to the AICPDF calling for a boycott of Colgate products. Select products like Colgate Fresh Max and Colgate Vedshakti are not being picked up by the traditional distributors.

The rise of established B2B players like Reliance JioMart and Metro Cash and Carry has led to a tough situation for the traditional distributors. Most of these distributors are entrepreneur driven businesses where they do not have the financial muscle of large corporates.

Hence they fear losing market share to B2B players who give bulk order assurances due to their economies of scale.

One thing is that retail dynamics are changing and with it the distribution dynamics will also have to change. Traditional distributors will have to take a relook at their existing models and check whether their current business model will be able to sustain standalone in the long run. Change in this space is unavoidable and is already happening at a rapid pace.