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Cooking gas distributors knocking at your doorstep to supply Mysore Sandal soap or Dabur basmati rice is becoming a more familiar sight. The platform helps the oil marketing companies (OMCs), which share the commission with their dealers and fast-moving consumer goods (FMCG) companies which use the vast network to directly sell products instead of stocking at shops.
Though this is helping the loss-burdened OMCs to boost their traditional non-fuel retail platform, the cap on subsidised cooking gas (LPG) cylinders and a crackdown on diversion is impacting sales through LPG dealers. Domestic LPG sales dropped 1.8 per cent between September 2012 and January 2013, against a growth of seven per cent in the same period the previous year.
Take the case of Karnataka Soaps & Detergents (KSDL), which sells Mysore Sandal soaps and agarbattis through Indian Oil Corporation's (IOC's) Indane network and Bharat Petroleum's gas distribution network. Sales through the platform have come down at least 20 per cent since September, when the cap on cylinders was imposed. The Karnataka government-owned company had posted additional revenue of Rs 2.5 crore during 2011-12 by selling through LPG dealers. Indian Oil, the largest fuel retailer in the country and its peer, Bharat Petroleum, have 8,000-odd LPG dealers.
According to KSDL, while the OMCs get an overriding commission of four per cent, dealers get a seven per cent commission through the platform. "For small players like us, this innovative platform has helped a lot. It is like adding 2,000-odd dealers who will do direct marketing for us. Though there is a slug since the cap on LPG cylinders, we are expecting our sales to double using the network," said C M Suvarna Kumar, deputy general manager (marketing). "We have 6,000 Indane LPG distributors, which offer value-added services beyond LPG cylinders to our customers, thus adding to our bottom line," said N Srikumar, executive director (corporate communications and branding) of IOC.
Its non-fuel product portfolio under the Indane network includes kitchen appliance brands such as Bajaj, Superflame, Butterfly, Ion Exchange water purifiers and Jai Bro home fire extinguishers.
IOC, which has developed a strong non-fuel retailing (NFR) presence, so as to cash on the 280 million sq ft of retail space across the nearly 22,000 fuel pumps it operates, was one of the first to go beyond the normal retail business. It recently tied-up with Cafe Coffee Day, McDonalds and Domino's Pizza. It had tie-ups with Hyundai, Maruti, TATAs, Exide, Dabur, Hindustan Unilever, ICICI Lombard and Ferns & Petals, and with Godfrey Philips for convenience stores.
While there were allegations of LPG distributors forcing customers to buy products through this channel, both distributors and companies deny it. "As per demand, our supply team provides these products at the doorsteps. The advantage for customers is that these products are sold below the market price and we never force people to buy it. Earlier, we used to sell even ITC brands," said Anup Ghosh of Agnishikha gas agency in North 24 Parganas of West Bengal, a Bharat Petroleum (BPCL) gas dealer. BPCL also sells branded kitchen appliances such as Butterfly and Hawkins, basmati rice by Dabur and Hello, edible oil brands like Fortune and Sun Flower, toiletries of HUL, tea brands such as Red Rose and Duncans and ayurvedic products by Dabur.
According to Srikumar of IOC, NFR revenue is going to improve rapidly in the coming years, as the companies aren't fully utilising the real estate space. Though NFR revenues from both retail outlets and LPG dealers as compared to the overall top line revenues* clocked by the company will always be small, there is potential to scale up in times to come, given the opportunities, he said. The company is currently using space at only 5,000 fuel pumps now for the NFR business.
The OMCs are, in fact, following a global model, where fuel pumps clock up to 40 per cent of their revenue from NFR. "In India, however, NFR is still at a nascent stage, but it certainly offers a humungous opportunity to increase the bottom lines for all stakeholders. NFR contributes about two per cent of the total revenue of OMCs," Srikumar added.
