During the previous week, the battle between the FMCG companies like HUL and Colgate with traditional distributors escalated and later fizzled out. However, this is a much bigger battle of attrition between old distribution and new and is not going to vanish any time soon.
What is the distribution dispute?
In the last quarter of 2021, the All-India Consumer Products Distributors had written to a list of FMCG companies about bringing parity in commissions paid. At that point of time, most of the FMCG companies were paying traditional distributors lower commissions than the new age B2B distributors by almost 50%. At that time, HUL and Colgate had refused to talk to the union and instead preferred to talk directly to the channel. That led to pulling them off the shelves.
However, there was a rapprochement in the previous week with both agreeing it was business as usual. HUL and Colgate have promised the distributors to look into their issues. From the side of the distributors, the Union has agreed to review the situation for 3 months before taking a final decision. In short, a truce has been called. For now, B2B players like Reliance JioMart and Metro Cash and Carry earn heftier margins from the FMCG companies because they assure higher volumes and bulk evacuation. They can do that with deep pockets. The point is that the distribution model is changing drastically and a lot more.
Big distribution shift
Today when food is ordered, customer is owned by Swiggy or Zomato and the restaurants only execute the order. In ecommerce sales, the portal owns the customer, not the retail outlet or even the FMCG company. New distribution model is based on digital platforms, micro level customization and rapid delivery. The quick delivery platforms like Dunzo and Instamart assure 30-minute delivery. The traditional model of pull is vanishing and the future of the distribution segment lies in push. It is all about how hard and customized the push is. That will be the key in future.
What is the mandate now?
The traditional distributors have to quickly read the writing on the wall. The pandemic may have fast-tracked the new model of distribution but this new model is here to stay. People want service, comfort and convenience at a very good price. That is the bottom line. In the evolution of the business, some models do become outdated. They don’t immediately go out of business but just that they gradually become irrelevant over time. In any evolution, the new model manages to corner most of the creamy business and the profits and leaves the traditional business with nothing on the table. Distributors of FMCG companies must see this writing on the wall and adapt quickly. Such arm twisting will only work up to a point.
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