HUL Says It Will Ensure Uninterrupted Supply As Distributors Protest

Hindustan Unilever Ltd. said it remains “committed” to ensuring that distributors earn a fair return on investments after a section of bulk dealers and stockists warned of halting supply of the company's products over better terms offered to large and online peers.

“Our arrangements with our distributor partners are ‘not exclusive',” India's largest consumer goods company said in an exchange filing. “We sell and distribute our products across all channels such as general trade, modern trade, e-commerce, cash & carry, B2B (business-to-business), etc. to make it convenient for our shoppers and consumers to buy trusted brands."

"Based on shopper buying habits, channel structures and cost of operations, the assortment offered could be different," the company said. "HUL, however, has a long-standing relationship with its distributors, that's based on trust and mutuality of interest.”

The maker of Dove soap and shampoo also said it would “ensure that supply of its products remains uninterrupted” amid an ongoing protest. Distributors of fast-moving consumer goods companies in Maharashtra have been protesting against differential product pricing and low margins.

On Thursday, the Maharashtra Consumer Products Distributors Federation said it has decided to stop supplying HUL's Kissan range of products from Jan. 1. This decision, the association said, was taken due to the company's “refusal to engage with them on their concerns”.

Earlier this month, the All India Consumer Products Distributors Federation, the parent of MCPDF, had written to about 24 FMCG companies to look into the issues that are causing distress to offline distributors—that dominate India's retail supply chain with nearly 90% share.

HUL in its statement clarified that it had “no engagements with AICPDF thus far”.

Dhairyashil Patil, president at AICPDF, which till now has about 4 lakh distributors across the nation, told BloombergQuint that three companies—HUL, Colgate-Palmolive India Ltd. and Britannia Industries Ltd.—have not acknowledged their demands yet. “We will not withdraw the protest until demands are met”.

The parent association has been seeking a level-playing field. “We want B2B firms sell products at same prices and the distributors' are given equal margins as those offered to the ‘big boys': the B2B players.”

Here's a list of demand as stated by AICPDF

• No preferential treatment to a single enterprise, irrespective of volumes.

• Avoid different pricing schemes for new-age organised players and traditional distributors.

• Margins offered to be reworked so as to take all incremental costs into account.

• Margins equivalent to base margins should be given for taking back damage stocks.

• Regulatory body with representatives from all stakeholders should be formed.

AICPDF said it has also written to the Prime Minister's Office and Commerce and Industry Minister Piyush Goyal, seeking their intervention.

“The distributor fraternity is in danger as companies like JioMart, Metro Cash & Carry, Booker, Udaan, etc. are flouting the law and using unethical tactics and predatory pricing to establish monopoly and destroy age-old distribution networks, which will result in huge unemployment,” AICPDF said in the letter—reviewed by BloombergQuint.

They are seeking equal margin as offered to the new-age platforms. The traditional trade offers retailers margins in the range of 7-12% compared with 15-20% by B2B and online distributors.

According to analysts, both HUL and distributors are likely to come to an arrangement soon since both need each other. “This is a recurring issue, and is unlikely to have a significant impact on HUL as it now services 15% of its demand digitally to its advantage,” Abneesh Roy, executive director, institutional equities at Edelweiss Securities, said. “These kinds of tussles and differences would further drive consolidation in favour of online players. Consumers will also remain unaffected as they can buy online.”

Shares of HUL closed 1.52% higher on Friday compared with a 0.87% rise in the benchmark Nifty 50.

After HUL, distributors said they plan to take on Colgate-Palmolive.

“From Jan. 1, no distributor of Maharashtra will sell Colgate's Max Fresh brand in the market,” AICPDF said in a statement on Saturday. Distributors will also stop supplying Colgate Ved Shakti brand if the situation persists, the association said. “If the company still doesn't come forward to talk, the traditional distributors in the state will stop supplying its entire range of products.”

Colgate-Palmolive, in an emailed statement to BloombergQuint, said “our strong relationship with distributors developed over the past eight decades has been based on the foundation of mutual trust and transparency.”

“We continue to keep the best interest and growth of our partners as a key priority irrespective of their size or scale,” it said. “We engage with our distributor network regularly to discuss business challenges and opportunities and continue to do so and make sure our consumers continue to have access to their favourite and trusted brands.”

(Corrects an earlier version that misstated that HUL has offered to meet distributors' representatives on Friday.)