Margin Dispute: Hindustan Unilever vs Distributors

Hindustan Unilever faces distributors’ boycott over margin dispute

Hindustan Unilever Ltd (HUL), India’s largest consumer goods company, is facing a boycott from its distributors over a change in its margin structure. The distributors claim that the revision will reduce their earnings and jeopardize the distribution network. HUL says that the new model will improve service efficiency and offer higher earning potential for distributors.

What is the margin dispute?

Distributors are usually offered two kinds of margins: variable and fixed. Variable margins depend on performance parameters, while fixed margins are usually about 4-6%. HUL has reduced the fixed margin by 60 basis points and increased the variable margins by up to 100-130 basis points for its distributors . The distributors argue that this change suggests a shift in management strategy that may harm the entire distribution network and force them to compromise their rightful margins. They also allege that HUL has a significant gap with 30% of areas lacking distributors, and the margin revision may push existing distributors out of business.

What are the distributors’ demands?

The distributors, under the umbrella of All-India Consumer Products Distributors Federation (AICPDF), have demanded a minimum basic margin of 5% and assurance that proposed incentive parameters won’t interfere with their margin. They also want HUL to remove closed or non-existent outlets/retailers from its database and improve the central database. They claim that 25 to 30% of outlets in the company’s database are either closed or non-existent, casting doubt on its accuracy.

How are the distributors protesting?

The distributors have initiated a phased boycott of HUL products, starting with Taj Mahal tea on January 11, followed by Kissan products on January 25, and RIN detergent on February 10. They also plan to stage a demonstration involving 1,000 distributors at HUL’s Mumbai head office on March 1. They also plan to inform retailers about alleged dual policies for trade and e-commerce companies, which they claim receive double the margin and exclusive offers compared to retailers.

How has HUL responded?

HUL maintains that the revised model will boost service efficiency and offer higher earning potential for distributors. It says that the new model was tested with distributors in over 100 cities before launch. It also says that it has resolved the issue with some of its distributors and is in dialogue with others to address their concerns . HUL reported disappointing Q3 results with net profit rising a mere 0.6% year-on-year to Rs. 2,519 crore. Revenue from operations decreased 0.3% year-on-year to Rs. 15,188 crore, missing estimates.