HUL downplays rift over margins

HUL downplays rift over margins

Hindustan Unilever, the country’s biggest consumer goods firm, said its distributors have been given an opportunity to earn 70 basis points more margins with significantly higher return 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 the company over the past year met all its distributors at least thrice before rolling out the new model three months ago and that there is no 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.” Under the ‘pay for performance’ principle, the criteria for additional variable incentive is to prioritise the quality of service to the stores, such as servicing larger networks of stores, availability of several new category packs and next-day delivery.

The company said fixed margin has been reduced by up to 60 bps to ensure fair play between the distributors who focus only on wholesale and those who opt for higher cost retail service with wider range availability. And to compensate for this reduction in the fixed margin, the variable margin has been increased by up to 130 bps.

106739924HUL rolled out the structure across 110 top cities in October, which covered nearly 400 distributors.

This led to the All India Consumer Products Distributors Federation (AICPDF) flagging concerns, saying it will fight to reinstate the margins and even warned of a boycott of their products. HUL, however, said their terms of trade with distributors are bilateral and they will address concerns when they are approached.

“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.

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