Amul Will Not Favour Udaan, JioMart Over Distributors, Says RS Sodhi
A direct-to-consumer model costs two to three times Amul's traditional distribution channel.
Amul has no desire to take the road HUL, ITC and others have. It's simply not viable, says RS Sodhi, managing director of GCMMF, that markets Amul products—India's largest food brand.
Sodhi is talking about building a direct-to-consumer distribution channel like Hindustan Unilever Ltd. and ITC Ltd. have. Two of India's largest fast moving consumer goods makers have launched direct-to-consumer sales channels to boost sales during the Covid-19 pandemic as shoppers preferred the safety and convenience of online purchases and home delivery. The maker of Surf Excel sells its brands through the UShop platform, while ITC runs an e-store to sell everything from soaps to chocolate.
The Gujarat Cooperative Milk Marketing Federation Ltd. dabbled with this five years ago but came away disappointed. “We tried that [D2C] in Ahmedabad, but it is practically more costly,” Sodhi told BloombergQuint in an exclusive chat, adding the company didn’t find this channel “commercially viable” in the long run.
GCMMF entered into an agreement with Ahmedabad-based Infibeam Incorporation in 2016 to build an e-commerce portal and a mobile application, with integrated logistics framework for on-demand customer purchase of Amul Products.
While the Locate Amul app, which helps consumers find the nearest Amul store, is functional, the e-commerce portal isn't any more.
To be sure, this wasn't the first attempt to sell its milk products online.
“We started the online trade of Amul in the 90s where you could order online and get Amul products anywhere in India. We used to pass the orders over to our distributors to supply them but when the number becomes big, you can't do it. A D2C model costs two to three times more than my traditional distribution channel,” Sodhi said.
Our general distributors deliver products at a minimum cost.R S Sodhi, managing director, GCMMF
A quick Google search shows that the e-commerce portal still exists but all its products—paneer, lassi, cheese, ghee, chocolates, etc.—are out of stock.
But Amul products are widely available through other online retailers such as Amazon, BigBasket or Reliance JioMart.
Sodhi says e-commerce contributes 7-8% of total sales, same as modern trade. The hotel/restaurant//cafe channel brings in 10-11% and the rest is general trade and Amul parlours.
"We see, especially in the metros or in the bigger cities, that e-commerce or the modern trade is going to grow. We are ready for that and we are making our policy accordingly. But, in tier two or tier three cities, our traditional distribution system or our distributors and retailers are going to get priority."
That's the second point of departure from what many other FMCG companies are doing. Amul is guarded in doing business with any of the new digital-led business-to-business suppliers.
"It Will Harm The Farmers’ Interests"
Sodhi says the dairy major is wary of digital B2B distributors, that have been the source of much friction between distributors and FMCG companies. The backbone of India's retail trade, distributors complain they are being cut out by Udaan and JioMart, who are buying in bulk from manufacturers and supplying to retailers. In the case of the Reliance Industries Ltd.-owned JioMart that includes its own stores — India's largest retail chain now.
The All India Consumer Products Distributors Federation, which represents four lakh bulk dealers, threatened to boycott HUL and Colgate-Palmolive in December claiming they offer these digital companies better terms of trade. The association had written to at least 24 FMCG companies seeking price parity and equal margins. However, the protest was later suspended after representatives from each of the companies met them.
Sodhi is emphatic that Amul will continue to prioritise traditional distributors.
“We're not encouraging them (B2B channels like Udaan) as we know that ultimately, it will harm the farmers’ interests because once they get a reasonable or a good market share, like in the western countries, they’ll exploit us, they’ll negotiate with us and ask for more margins and more discounts and we will be at the mercy of these people,” he explained.
Amul's milk farmers keep a much higher percentage of revenue than farmers in western countries, Sodhi said. "Our farmers who are today getting 80-85%, they'll get only 36%, just like what European or American farmers are getting out of a litre of milk, when it is sold through modern trade. So, we are very careful, we do not want to be dependent on any of these new chains, but we are definitely supplying at our own commercial terms. Not giving any preference, not giving any extra discount to any of these modern traders or these e-commerce chains."