Hindustan Unilever, the largest consumer goods company in the country, stated that its distributors now have the opportunity to earn an additional 70 basis points in margins, providing significantly increased returns on investments under its new margin structure, downplaying the friction between the company and dealers.
“They can potentially make 70 bps more with healthier RoI than what they were making in the erstwhile model that we had. It is the right thing to do to future-fit and protect the businesses in our small stores and distribution,” said Kedar Lele, executive director, customer development for HUL.
He said that in the past year, the company had met with all its distributors at least three times before introducing the new model three months ago, emphasizing the absence of any friction between them.
“We tested and learned after they participated and gave us feedback and over a period of time, we created a framework, which we have rolled out after seeing the success of it.”
‘Pay for Performance’ Principle by Hindustan Unilever
Under the ‘pay for performance’ principle, the criteria for additional variable incentive prioritize the quality of service to the stores. This encompasses servicing larger networks of stores, ensuring the availability of various new category packs, and providing next-day delivery.
The company has announced a reduction of up to 60 basis points in the fixed margin to promote fair competition between distributors specializing in wholesale and those choosing the higher-cost retail service with a broader range of availability. To offset this decrease in the fixed margin, the variable margin has been raised by up to 130 basis points.
In October, HUL rolled out the structure in 110 major cities, encompassing almost 400 distributors.
As a result, the All India Consumer Products Distributors Federation (AICPDF) raised concerns, stating that it will advocate for the restoration of margins and even issued a warning about a potential boycott of their products. In response, HUL emphasized that their terms of trade with distributors are bilateral, and they will address concerns when approached.
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“Our relationship with our distributors is one on one and I shall not discuss the policies of this relationship with anyone else but themselves. We are not asking people to sell more. We are asking people to service better. We do joint business plans and it is going absolutely as planned and as predicted,” said Lele, adding that their distributor attrition rate is in mid-single digits, nearly half compared to the industry average.