FMCG distributors oppose Hindustan Unilever's decision to change margin structure

HUL, which owns brands such as -- Lux, Lifebuoy, Surf Excel, Rin, Pond's and Dove -- has reduced the fixed margin by 60 basis points and increased the variable margins up to 100 to 130 basis points for its distributors, media report said.

New Delhi: FMCG distributors have opposed the rejigging in their margin structure by HUL, alleging that the leading industry player is working on a 'draconian agenda' to boost its profitability.

"Hindustan Unilever's recent decision to reduce distributor margins amid challenging times and sluggish volume growth has raised concerns," umbrella body All India Consumer Products Distributors Federation (AICPDF) said in a statement on Friday.

AICPDF said it is also considering actions such as halting purchases, a strategy employed in the past.

"AICPDF strongly opposes this move, labelling it as a double standard approach, seemingly driven by a draconian agenda to boost company profitability," the association said.

HUL, which owns brands such as -- Lux, Lifebuoy, Surf Excel, Rin, Pond's and Dove -- has reduced the fixed margin by 60 basis points and increased the variable margins up to 100 to 130 basis points for its distributors, according to a news report.

An e-mail sent to HUL remained unanswered by the time of filing of the story.

'This decision, coupled with the offer of increased variable margins, suggests a shift in management strategy that may jeopardize the entire distribution network. Distributors fear being pressurized and blackmailed into compromising their rightful margins,' said AICPDF, which claims to represent over 4 lakh distributors and stockists pan India.

Generally, FMCG companies provide two kinds of incentives - fixed margins and variable margins. Most of the companies have fixed margins, which are around 450 to 600 bps and also give variable margins, which depend on factors such as performance.

"Drawing parallels with past instances, notably Mondelez, AICPDF highlights how similar structures and complex parameters can make it challenging for distributors to achieve the promised variable margins," said AICPDF.

It also questioned the company's intentions, 'urging them to reconsider and maintain a 5 per cent base margin while offering incentives separately.'