Distributors write to Hindustan Unilever, oppose margin structure

AICPDF asks HUL to restore old margin structure

After Hindustan Unilever (HUL) rolled out its new margin structure across its supply chain, the distributors’ association, All India Consumer Products Distributors Federation, or AICPDF, wrote to the company, stating its distributors strongly opposed any deduction from the basic margin and it was vital for their survival.

“We vehemently demand the reinstatement of the previous margin structure,” said the letter, a copy of which has been studied by Business Standard.

The letter further stated: “Given the challenging scenario of modest volume growth over the past decade, managing business operations has become exceedingly difficult. Hence, AICPDF strongly (advocates maintaining) stable basic margins to ensure the sustainability of our distributor community.” 

 

The federation has asked for a meeting with HUL. 

“We have received grievances about the operation of schemes and discounts being deducted in the invoice without GST (goods and services tax) and Basic distributors margin, leading to a substantial accumulation of ITC (input tax credit) in GST and blocking working capital.” 

It pointed to the charges for software usage, which tracks distributors’ inventory levels, ranging from Rs 4,000 to Rs 10,000 per month and has asked the company to reconsider them.

In an email response to Business Standard’s query, HUL said, “We are always looking at commercial models to enhance the quality of service to general trade stores while giving our distributors an opportunity to earn healthy returns -- hence, a win-win.”

It added: “This progressive and distributor-inclusive model is designed to better serve the needs of kirana and other neighbourhood stores -- the MSMEs (micro, small and medium enterprises), which are the bedrock of the Indian FMCG (fast-moving consumer goods) industry in a fast-changing environment. It improves overall service efficiency and offers our distributors a higher earning potential.”

It said the company had a longstanding relationship with its distributor partners.

This letter by the AICPDF comes on the back of HUL cutting the fixed margin to its distributors from 3.9 per cent to 3.3 per cent (or by 60 basis points) and increasing the variable margins in the range of 1-1.3 per cent (100-130 basis points).

This change has been made across categories the company operates in, and across its different sets of distributors.

FMCG companies typically give fixed margins of 4-6 per cent, while variable margins depend on milestones or performance parameters.

In the case of general trade distributors, HUL has increased the variable margin from 0.7 per cent to 2 per cent (130 basis points). For non-general trade distributors, the performance-based margin has increased from 0.4 per cent to 1.7 per cent (130 basis points).

The company has increased the variable pay for another set of distributors which fall within the category of non-general trade distributors from 1.1 per cent to 2.1 per cent (100 basis points).

The FMCG major ran a pilot earlier and then implemented it in over 100 towns. This cluster of towns has been named “Bharat ke Shehar”.

TUG OF WAR
 

 Distributors asked HUL to revert to previous margin structure after the recent change
 

 HUL reduced its fixed margin from 3.9 per cent to 3.3 per cent, and increased the variable margins across different sets of distributors by up to 130 bps
 

The company said it tested this approach over the past one year before launching it across more than 100 cities

The firm has increased variable pay for another set of distributors which fall in the category of non-general trade distributors