Leading consumer goods companies Britannia, Dabur, Amul, and Parle are restricting sales to organized wholesalers such as Flipkart Wholesale, Udaan, and Reliance Cash and Carry. This decision aims to avoid margin issues with their traditional distributors or those who may cannibalize their sales.
“We do not want to actively participate in the B2B (business to business) because that gets us onto the wrong foot with our distribution agenda with our distributors and can disrupt through pricing actions our distribution chain in the country,” Britannia’s managing director Varun Berry told investors.
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In India, approximately 80% of fast-moving consumer goods sales are dominated by kirana stores, which are serviced by either distributors or wholesalers. Although organized retail and wholesalers only make up about 5% of FMCG sales, they wield significant influence over supplies and pricing due to their scale. However, companies have expressed anticipation of reaching unserviced kirana stores through these large organized B2B sales channels, a goal that has yet to materialize.
“We have suffered and opened floodgates as we thought it is an emerging channel, and, therefore, we need to leverage them because they all promised they will do distribution in hitherto not covered retail. But when we supplied them stock, they did an easy business by supplying to our wholesaler at a lower rate, which the distributor was supplying, because their terms of trade are better than the distributor’s terms. So, it undercut our business in general trade,” remarked Mohit Malhotra, Chief Executive of Dabur.
For companies, supplying products through conventional distributors typically incurs costs equivalent to 13-14% of sales, whereas with organized wholesalers, these costs are nearly halved. Previously, intense price competition in the grocery B2B sector, characterized by significant discounting, led traditional distributors to consider ceasing supplies from consumer product companies.
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“We are not curtailing our supplies to zero and will still sell at B2B outlets, but our strategy is to keep the overall percentage to low single digits and not go beyond it even if we can potentially get higher sales. This helps us bring margin parity with conventional distributors and avoid them from eating into their kirana network,” said Krishnarao Buddha, senior category head-marketing at Parle Products.
There are approximately 10 to 12 million kiranas, yet companies only directly engage with a fraction of them, relying heavily on the wholesale network instead. This significantly hampers their ability to influence market share, offer promotion schemes, and effectively track inventory, as well as support credit access for small retailers.
“India is a vast and diverse country, and the distribution and brand salience dynamics vary for each company in each geography. Hence, one size doesn’t fit all. Even the best brands serve anywhere between 25-35% of the outlets, even if they may account for almost half the sales,” said Dinkar Ayilavarapu, vice-president, head, Flipkart Wholesale.
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