The cold chain distribution business is witnessing a paradigm shift. For years, fast moving consumer goods (FMCG) companies pampered the retailer by offering him a freezer machine free. The trade off was that the retailers will use the freezer for their products exclusively.
All this is set to change. Companies are now getting out of offering refrigerators as freebies to retailers and are instead tying up with refrigeration companies to offer large volume discounts to the retailer so that they buy their own cooling machines.
Says a spokesperson of Hindustan Lever which pioneered the new concept for its ice cream business, "The reality on the ground is clear. No retailer offered exclusivity even if you gave it to him free and signed such a contract. We then realised it was better that we help him in getting a better deal to buy the refrigerator on his own and create an asset."
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Lever, for instance, launched the "Merawalla Freezer Scheme" and tied up with Carrier Aircon amongst others which offered volume discounts to Lever retailers. Lever executives point out that it brought in a new dimension to the relationship between the retailer and the company.
Earlier, it was based on directions as the company owned the cooling machine, but now by promising to maintain the machine, the company has put its relationship with retailers on a different footing.
Carrier Aircon is not complaining either. The company has already sold as many as 5,000 refrigerators under the scheme to a host of ice cream companies. Says A P S Gandhi, the Bangalore-based all India sales manager of Carrier Refrigeration, "We offer at least over 10 per cent discount and the company assures us certain numbers. The other advantage to us that the retailers pay us in cash advances unlike the companies to which we had to give credit."
Of course, many companies such as Coke have been able to get large discounts to push through these schemes. Coke, for instance, introduced the "Own Your Asset" scheme under which it was able to get as much as 50 per cent discount on the fridges from manufacturers. Says a Coke spokesperson, "Had the retailer bought it directly, he had to pay Rs 10,000 but we were able to get a discount of Rs 5,000. Of course, we don't have any exclusivity clause with him anymore but he likes to maintain his asset properly now as it is his own."
So what has attracted companies to go for this scheme. One key reason is companies no longer have to bother about managing their assets which are with the retailers. Says R S Khanna, Delhi-based in charge of sales for Amul, "To maintain assets was cumbersome and took too much time. Sometimes retailers moved from one location to another so it was difficult to keep track of the asset."
As a result, Amul launched "Hamara Apna Deep Freezer" scheme in May this year and has already roped in 500 retailers. Amul, for instance, was able to provide retailers the cooling machines for only Rs 20,000 instead of their actual price of Rs 35,000. More still, it was able to convince both Carrier Aircon and Blue Star to give a three year warranty to the retailers instead of only two.
The other key reason, say companies, is the fact that retailers were able to maintain the asset much better than they would have in case it was given to them free and they did not own it. Says a FMCG company executive, "The life of the asset is prolonged in this case and the product stays better which is to our benefit." That apart, companies also save cash as they do not have to invest in a cold chain system on their own.
Of course, many companies are still not sure whether the new distribution strategy will work. Pepsi, which has tentatively entered this area, has still not gone full hog. Says a spokesperson of Pepsi, "The only benefit is that you don't have to make the investment in the cold storage, but losing exclusivity could have an adverse impact on product sales." But with the Lever experiment which is a success, the number of cautious movers may decline.