India’s FMCG Firms Caught In Crossfire Between Distributors And Udaan: Exclusive
More consumer goods makers face pushback from distributors of shampoos to staples to small retail stores, the dominant trade channel in India's $883-billion retail market.
ITC Ltd. and Nestle India Ltd. have been shying away from directly supplying goods to Udaan, an online marketplace for mom-and-pop stores, according to four distributors from different parts of India and aware of the matter. The two companies are looking at alternative ways to continue providing products to India's largest e-tailer for bulk buying, they said, speaking to BloombergQuint on the condition of anonymity out of business concerns.
That comes weeks after their protest against Hindustan Unilever Ltd. for tying up with JioMart, part of Mukesh Ambani's Reliance Retail Ltd., to supply to kirana outlets. The lobby of the sector's traders had urged companies to not sell to large business-to-business firms.
General trade, the traditional channel to deliver fast-moving consumer goods to millions of mom-and-pop stores in Asia's third-largest economy, dominates India’s retail supply chain with nearly 90% share. New players like JioMart and Udaan threaten this backbone of the nation's retail market that Forrester Research estimates to hit $1.3 trillion by 2024.
ITC and Nestle, a distributor from Tamil Nadu said, have realised that Udaan competes directly with the existing channel, hurting not just the backbone of the general trade but also the manufacturers.
E-tailers like Udaan can’t launch new products or induce buying behaviour in customers, and sell at rates lower than the authorised pricing, which is unethical, he said. Brands, according to him, are taking corrective action as they don’t want to disturb the existing infrastructure for small gains.
Three other consumer goods suppliers in Delhi, Assam and Maharashtra agreed.
The All India Consumer Products Distributors Federation, in its letter to companies, expressed concern over the “unethical and predatory” practice of new-age e-commerce platforms to establish monopoly and destroy an age-old network.
Udaan’s ongoing 'Mega Bharat Sale' that promises "big savings and discounts" for small retailers and kirana shops during the festive period is also making the traditional channel anxious.
While they face a liquidity crunch, players like Udaan buy in bulk and enjoy credit facilities from manufacturers, said a Delhi supplier of consumer goods to retail outlets. Distributors, however, are unable to pay back on time, he said.
A spokesperson for ITC said the maker of Aashirvaad wheat flour hasn't stopped selling to Udaan, but also added, “We’ll continue to invest in strengthening direct reach to more markets and outlets.”
A Nestle India spokesperson, without responding to specific queries, said in an emailed statement, “The supplies continue to be in line with the normal practice of the company.”
The distributors cited earlier, however, said these companies are unwilling to talk on the issue fearing litigation.
Tussle With Parle
Last month, Udaan filed a complaint with the Competition Commission of India against Parle Products Pvt., the maker of namesake biscuits, alleging the company is abusing its dominant position by refusing to supply directly to it, a small and medium-sized business-focused B2B trade platform, without objective justification.
Parle’s continued refusal to providing Parle-G stock-keeping units to Udaan makes it a clear case of refusal to deal and is an abuse of dominance under Section 4(2) of the Competition Act, the complaint said.
Parle said it's yet to receive any communication from the watchdog. "We haven't heard from the regulator yet. Usually, when the CCI receives such a complaint, they first do their due diligence," said Mayank Shah, senior category head, Parle Products. "Only if they find anything valid in the claims, they send a written communication to the company. Otherwise, it's simply discarded."
"We will not supply to any company that tries to eat into the business of smaller retailers," Shah said, when asked if Parle still sticks to its stance of not doing business with Udaan.
Bengaluru-based Udaan at present buys Parle goods from the open market to sell on its platform. Amul, too, has refused to sell on Udaan’s platform alleging the e-tailer was undercutting its product suppliers.
According to the distributors BloombergQuint spoke with, Udaan offers 3-4% higher margin and is luring retailers with incentives to buy inventory from them. Udaan, however says, its supply chain is much more economical for its partners.
“Our retailer partners benefit as they get a wide range of quality products at the most affordable prices from the manufacturers at the platform,” Udaan said in an emailed statement to BloombergQuint.
The issue may boil down to the last-mile reach, according to Bernstein. India has nearly 1.3 crore formal distribution outlets, with grocery and consumer goods dominating the mix, it said in a report. The network has multiple layers such that even prominent brands like HUL have only 15-20% direct retail reach, and in some categories, none, it said.
With companies unable to reach the last mile in a cost-efficient manner, it impacts their ability to influence market share, transmission of promotion schemes, ability to track inventory and support credit access to small retailers, the report said.
Impact On Udaan
Any reluctance by consumer goods firms is a setback to Udaan, which hopes to become the “Amazon for B2B e-commerce”. Its financials point to brisk growth but no profit.
The five-year-old company’s revenue rose over 2,000% year-on-year to Rs 978 crore in FY20, according to regulatory filings.
Losses, too, shot up from Rs 779.6 crore in FY19 to Rs 2,518.7 crore in FY20.
Outstanding losses stood at Rs 3,009.5 crore.
Udaan claims to have doubled its supplies with brands over the last year. “We continue to witness a healthy growth in our overall business and hope to achieve 100% growth this year also,” it said in a statement.
A company spokesperson highlighted its vast reach. “Udaan has over 30 lakh registered users and over 18 lakh retailers, kirana stores, HoReCa (hotels, restaurants and cafes), farmers, millers, pharmacies spread across over 900 cities and towns (over 12,000 pin codes) on its platform," the spokesperson said in an emailed response.
“While they (manufacturers) benefit from Udaan’s vast and deep retail network across Bharat, the small retailers/kirana shop owners benefit from transparent pricing, huge variety and quality of products made available to them at affordable prices by the Udaan platform,” the spokesperson said. “It's a win-win partnership for all.”
The distributors cited earlier dismissed the growth, saying it comes on a low base. Udaan is behaving like a typical online retailer that’s backed by funding even amid continuous losses, they said.
The channel's lobby wrote to the chiefs of consumer goods makers citing their concerns in a separate letter BloombergQuint has reviewed.
“B2B companies like JioMart, Walmart, Metro Cash-n-Carry, Booker, Elastricum and Udaan have come down to destroy this business,” Dhairyashil Patil, president at the lobby, said in the letter. “We’ll resist such supremacy with full strength.”