Retailers Accuse FMCGs Of 'Rigging Game', Demand Level Playing Field

Distributors say the game is rigged: Differential pricing, weight tweaks, and slick packaging by manufacturers create the illusion of better deals at big-format stores, drawing customers away.

Distributors of daily-use goods are now seeking a level playing field vis-à-vis large malls and e-commerce players. The use of personal vehicles instead of commercial ones by e-commerce delivery personnel has given online players an unfair advantage.

This has further shrunk the margins of wholesalers and retailers. Taken together, these factors have forced many distributors and shopkeepers to shut down operations. Industry players estimate that nearly seven lakh neighbourhood stores have closed since Covid-19, with over one lakh shutting shop in the past year alone.

Outcry For Level Playing Field

During a recent meeting in Rajkot, frustrations among FMCG distributors came to the fore. Close to 500 distributors of daily-use goods (FMCG) from across the country gathered to voice concerns that have been simmering for years. Their biggest worry is a market that no longer feels fair.

“We are entering an insecure zone. When companies want to promote their goods, they assign the task to us, but when it comes to benefits, they favour organised retail and e-commerce companies. They give us goods at higher prices. There is no level playing field for us to compete against the organised players,” said C H Krishna, president of the Federation of All India Distributors Association (FAIDA), in a conversation with The Secretariat. 

Participants also complained about how the weight and pricing of products sold in malls creates the impression of a better deal. However, the reality, they say, is very different. “In many categories, the weight of the product sold in malls is lower, resulting in lower prices. Unaware of this, buyers mistakenly feel that they are getting cheaper goods in malls. The reality could be, and is often, different,” pointed out Arun Parikh, chairman of Federation of Gujarat FMCG Distributors Association, representing close to 23,000 members across the state.

Small Differences That Add Up

He also drew attention to another loophole: Most online delivery agents use their own two-wheelers, instead of officially registered commercial vehicles. This helps companies avoid paying the higher taxes applicable to commercial vehicles. “Since these vehicles are used for commercial purposes, they should be classified, and companies should pay taxes accordingly. If taxed as commercial vehicles, the Gujarat government can gain up to Rs 6,500 crore in revenue,” Parikh remarked.

According to Jayesh Tanna, joint secretary of the Federation, the reason malls and e-commerce players are thriving isn’t superior service. It is the special discounts they receive from manufacturers.

“If they get cheaper goods, they can sell accordingly. If we get goods at same prices, we can also sell goods at lower prices. However, this is not happening. This is not a fair play,” said Tanna, adding that parity in rates could quickly level the playing field.

At the same time, Krishna explained that while a large chunk of consumers still rely on traditional kirana stores, companies push distributors to promote every new product launch without any real incentive.

“This benefit goes to the organised players. The return (of goods) practice is also leading to losses for the distributor. Companies force us to sell food products to sellers who are not authorised to sell them. In such cases, distributors have to bear the penalty of regulators. There is too much pressure on us,” he said.

Even Distributors Are Affected

Tanna explained that the customer base for organised players is far more diverse than for local stores. While malls can stock everything from premium to budget goods, traditional shops have to stay aligned with what the local crowd wants.

“Despite this, manufacturers force retailers to buy goods that are not in demand. These are loss-making proposition for the shopkeepers,” remarked Parikh. 

Krishna cautioned that distributors across the country are witnessing their profit margins shrink. Many of them have taken bank loans, and now repayments are becoming difficult.

Disparity in pricing and pack sizes is pulling down earnings and footfall for small, traditional mom-and-pop stores. If such practices don’t stop and the playing field isn’t evened out, wholesalers and retailers could go out of business, leading to large-scale unemployment.

Parikh said that an estimated seven lakh shops have closed their doors nationwide since the Covid-19 pandemic, with about one lakh shutting down in the last year alone. “On average, one shop typically employs three or four people. So, if one shopkeeper closes his shop, at least four families get affected,” he noted.