Fast-Moving Consumer Goods (FMCG) distributors are pushing back against Hindustan Unilever’s (HUL) recent adjustments to their margin structure, accusing the consumer goods giant of pursuing a “draconian agenda” to enhance profitability. HUL, the conglomerate behind renowned brands like Lux, Lifebuoy, Surf Excel, Rin, Pond’s, and Dove, has stirred controversy by reducing fixed margins by 60 basis points while concurrently increasing variable margins by 100 to 130 basis points for distributors.
The All-India Consumer Products Distributors Federation (AICPDF) has vehemently opposed this move, expressing concerns about the timing of the decision amidst challenging market conditions and sluggish volume growth. The federation, representing over 4 lakh distributors and stockists across India, has even contemplated actions such as halting purchases, a strategy employed in the past to protest against unfavourable industry changes.
In a statement released on Friday, AICPDF labelled HUL’s decision as a “double standard approach” that seemingly prioritizes boosting company profitability over the concerns of its distribution partners. The association questioned the company’s intentions, urging a reconsideration of the margin adjustments and the preservation of a 5% base margin while offering incentives separately.
Highlighting potential risks to the entire distribution network, AICPDF warned that the altered margin structure, combined with increased variable margins, could exert undue pressure on distributors, leading to compromises on their rightful margins. Drawing parallels with past instances, notably referencing Mondelez, the federation underscored the challenges distributors face in achieving promised variable margins due to complex structures and parameters.
As the conflict unfolds, HUL is yet to respond to queries and concerns raised by the All-India Consumer Products Distributors Federation, leaving the industry in anticipation of further developments.