Gujarat: FMCG dealers won't buy from manufacturers or sell to malls

Distributors of fast moving consumer goods (FMCG) companies in many parts of the state have stopped buying from manufacturers as the companies have started direct selling to supermarkets. Soon, the players in the business said, they would stop selling to retailers as well.

They claim that recent tactics by the companies and organised retail have shrunk margins of dealers and distributors. If the situation does not improve, they will be out of their business, creating widespread and large scale joblessness, they warned.

The dissent with the organised retailers and manufacturers has been brewing for the past few months, but the trigger of selling directly to some of the malls has resulted in a sharp reaction from the dealers.

Talking to DNA, Jayendra Tanna, president of Gujarat Traders Federation, said that malls and supermarkets used to source products from the authorised dealers and distributors. But now they have started sourcing from manufacturers directly. This has dealt the dealers a severe blow.

FMCG dealers in Vadodara have stopped selling to the malls now. Associations of dealers from other parts of the state are coming out in their support. Soon, they are expected to stop selling to malls.

The sudden shift in the practice by manufacturers has hit the finances of authorised dealers and distributors. "Say a dealer is selling 60% to the malls and 40% to the unorganised retailers. If the company starts selling directly to the dealers midway through the year, the entire financial planning of the dealers gets upset. Say the same dealer had made investments in godown, transport and manpower accordingly. Now his capacities would be underutilised. He would be forced to lay off people," said Arun Parikh, chairman of the Federation of Gujarat FMCG Distributors Association (FGDA).

He lashed out at practices of manufacturers as well, saying that they are selling at lower prices to the organised retailers but at relatively higher prices to the dealers.

"Malls get up to 25% of the discount compared to about 10% to dealers. So while a mall may buy at a price of Rs 80, the same product costs Rs 91 to the dealer. Obviously, players in the organised retailers are able to sell cheaper. If this continues for any longer, traditional dealers and distributors will be out of their business," said Parikh.

Nimesh Mehta, president of the Grain and Oil Merchents Association in Vadodara, said that his association has expressed solidarity with the dealers since, sooner or later, they would also be affected by the tactics of organised retailers and FMCG manufacturers.

Parikh said that with the rise in organised retail and e-commerce, traditional wholesale and retail business has suffered a decline in business for the last four years now.

"Traders are shutting down shops. Some of them have sold shops as they are not finding enough demand for rental space. Our children are not interested in continuing the business and many of them are fleeing to other countries in search of better employment opportunities," he said.

Contrasting the socio-economic scenario of India with other countries, he said that the population is less in other countries and organised retail suits them. But India has a large population, particularly of young people who need jobs. Here, the traditional model of trade is required and if it is destroyed, a large number of people will be out of employment.

A series of meetings are lined up at the Gujarat Chamber of Commerce and Industry (GCCI) in teh coming week over the issue and it is likely that a unified representation would be made to the central and state governments.

Tanna and Parikh feel that their peers from other states are likely to join them as they are also hurt by the changing market dynamics.