Distributors threaten to boycott FMCG companies over discriminatory pricing

The Federation of All India Distributors Associations has alleged that companies are discriminating between the price they give to distributors, and to B2B chains and e-tailers.
Distributors threaten to boycott FMCG companies over discriminatory pricing
Distributors threaten to boycott FMCG companies over discriminatory pricing
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It’s not just online sellers that are facing issues of discriminatory pricing and deep discounting, offline sellers have been facing the brunt of this as well. For months now, distributors of FMCG goods have been fighting with companies over issues of discriminatory pricing and discounting.

It’s been a long fight and with no resolution yet, the Federation of All India Distributors Associations (FAIDA) has said that it will not cooperate with companies from February onwards.

FMCG, or fast-moving consumer goods, are products that we consume on a daily basis such as groceries, packaged foods, biscuits, toiletries, etc. These products sell quickly and are relatively inexpensive and hence are called fast-moving consumer goods.

FAIDA said that it would not be cooperating with FMCG, telecom, mobile and beverage companies, and alleged that they were discriminating between the price they were giving distributors and the price they give modern trade (supermarkets), FDI-based business-to-business (B2B) chains (such as Metro and Walmart), corporate retailing and online trade (Flipkart and Amazon).

From an FMCG company, products go to the distributor, to supermarkets and to B2B chains. In this, the distributor has the largest network of stores from where a maximum number of customers are reached. 

A large section of India’s FMCG purchases is reliant on traditional kirana stores and small retail ones — who these distributors supply to. But with companies that make these products selling them cheaper to cash-and-carry stores and e-commerce players it has affected business. 

According to FAIDA Chairman CH Krishna, its network of distributors is spread over 23 states, and the network has over 4.5 lakh distributors who over 3 crore retail outlets. However, he alleges that many distributors have had to shut shop and some have even gone bankrupt as a result of these practices. “If things continue as they are, 40-50% of distributors will leave the business due to huge losses, and this will damage the banking system as they have availed loans,” Krishna told TNM. 

According to Krishna, business has been affected by 20-25%. 

In a letter to the Ministry of Commerce, FAIDA said that multiple rules were being broken and that they are in the “clutches of MNCs and Corporates because of their monopolistic policies, dominance and discrimination between the small and corporate outlets.”

The letter appealed to the Commerce Minister to intervene and take action. 

“Costs have only been going up. We have seen a big increase in service and network costs. Logistics costs have been escalating and several retailers are even asking for goods on credit,” a distributor told CNBC TV18.

Krishna alleged foreign FDI players in both retail and B2B are violating the norms of the Department for Promotion of Industry and Internal Trade (DPIIT) as companies are only supposed to sell to B2B outlets. 

“...it is found that in contravention of the law and rules, they have issued multiple membership cards without any legal compliance in the name of retailers and encouraging consumers to come and buy through such cards. In addition to this, their online service will affect in huge to normal and small retailers. Thus, huge amount of tax is getting evaded,” he said in his letter. 

FAIDA also further alleged that instead of selling B2B, products are being sold illegally to consumers using false names and urged the government to keep checks on such sellers and frame a stringent law. 

FAIDA isn’t the only distributor group troubled with FMCG companies. In November last year, four lakh distributors of the All India Consumer Products Distributions Federation (AICF) threatened to stop stocking products of companies. AICF also held talks with various FMCG companies over discriminatory pricing, and reportedly even met FMCG majors ITC, HUL, Marico, Dabur, Haldiram’s and Nestle over the issue. The companies reportedly promised to bring parity in pricing. AICF has told companies to bring parity in price by March 31, 2020

“Some of these B2B stores are selling at a price lower than the landing cost of the distributor and that is what we have asked all these companies to look into it,” Dhairyashil Patil, national president earlier said. The landing cost, in this case, is the total amount that has been paid, including transportation costs and other fees. 

Organisations such as FAIDA have been crying foul over unfair practices for over six months and have even made multiple representations to the government for accountability.

Fortunes for FMCG businesses have already taken a hit last year due to the economic slowdown, and according to BloombergQuint, the condition doesn’t look good for the third quarter of this financial year either.

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