The rift between fast moving consumer goods (FMCG) companies and modern trade retailers is widening with India's largest FMCG player Hindustan Unilever (HUL) now taking modern trade retailer Subhiksha to court for non-payment of dues.
"We have filed a petition with regard to objections to the proposed scheme of merger and winding up of Subhiksha, for non-payment of outstanding payments, before the High Court of Madras," said an HUL spokesperson who refused to comment further on the nature of the case and the amount of outstanding dues.
Modern trade retail accounts for 5-6 per cent of the overall sales revenues of FMCG companies. It has been reported in the past that FMCG players like Godrej Consumer Products and Dabur had taken a tough stance against defaulting modern trade retailers and had stopped supplying to them or supplying only in return for cash payment, a deviation from the practice of supplying against credit.
"Most FMCG companies had stopped supplying to these modern trade retailers by November 2008, when the global crisis had reached its peak. And now, if they do supply, it is against a demand draft instead of credit," says Anand Shah, FMCG sector analyst, Angel Broking.
"We experienced default in payments from some modern trade retailers," acknowledged Ramesh Vishwanathan, executive director, CavinKare. However, CavinKare has yet not planned any legal actions against the defaulting retailers.
H K Press, president and executive director, Godrej Consumer Products, told Business Standard, "We had stopped supplying to Subhiksha early in September 2008 as it failed to meet with the agreed terms and conditions. These kind of problems don't happen overnight and we made sure our credit exposure was limited to defaulting retailers."
