FMCG margin cuts bleed mom & pops

SEVERAL FMCG companies have begun slashing distributor and retail margins in the face of growing competition and consolidation of trade channels. Linking payouts to better sales and inventory management, companies have slashed margins on their product launches while retaining margins on some of the older brands to appease distributors. Sources said Britannia has cut retail (kirana) margins to 13% from 15%, Nestle 7% from 9%, Parle Products 9.5% from 10%, Reckitt & Benckiser 6% from 8%, Dabur 5.8% from 6.3% and Jyothy Labs 6% from 8%.
Dabur had earlier cut margins to 5% but was forced to hike it again after protests from traders. Price warriors and smaller companies are facing the heat and cutting trade margins too. Bombay Chemicals, makers of the Tortoise brand of insect repellants, has cut margins from 7% to 6% while Karamchand Appliances, makers of All-Out have reduced it to 10% from 12%. “Companies are forgetting that we are also operating under extreme competitive pressures including rising operating costs. Some of the companies are forcing us to clear old stocks and slashed reimbursements on uncleared close to expiry date inventory.
The salvage costs on uncleared inventory are now only 40% of the original costs” said Dhairyashil Patil, vice-president of Maharashtra State Consumer Products Federation. Top distributors (suppliers to kirana stores) met in Pune on Friday to discuss the issue and chart out a future course of action. No focus on service quality earlier THE situation has worsened in some cases with distributors of Britannia boycotting sales of its brands in Maharashtra over the changed terms. Earlier, companies only monitored the sales offtake in the designated area of a distributor, and did not focus on his service quality which has now come under the scanner.
Efficiency is measured on the frequency of distributor’s visits to shops, quantum of bills raised for the company’s power brands and the speed of response to rivals’ promotional schemes. Officials said companies are under pressure to divert margins to the booming modern trade which are demanding a bigger pound of flesh. FMCG companies insist business margins are not being cut and that they are for mutual benefit. “We need both the traditional trade and the modern trade for growth. Companies are only looking at better inventory management and sales efficiencies,” said H K Press, president of Godrej Consumer Products.