The Margin War

Retailers are seething with unrest as FMCGs slash down margins.
At loggerheads

A few FMCGs have cut down the margins that the retailers enjoyed until now. As they have already stirred the hornet’s nest; retailers’ frustration that has stretched to the point of nadir is all set for a showdown. Where FMCG giants are quoting a genuine raise in input cost as the reason for their decision, retailers are refusing to buy the story. No wonder, the swords remain stoically crossed with both sticking to their own point of views.

 

FMCG in India versus in abroad

FMCG in India has 60-65 per cent fill rate (the proportion of orders that can be immediately met with stock in hand) in comparison to US and Europe that has 90-95 per cent.

 

Opposing the move

As Reckitt Benckiser cuts their margin by 2 more per cent due to increase in the cost of input, Future Group in protest boycotted its products while setting precedent for others to follow suit. They are replacing the products with competitions and their own labels.

 

The right course

Retail chains mostly get a margin of 10 to 20 per cent and out of which they actually get only 3 per cent after paying for various costs. So, the best recourse for the FMCGs in question is to increase the price of the products instead of cutting the margin according to most of the retailers. While some argue that if a price hike is inevitable, then do it.

 

FMCG’s take

FMCGs refuse to get taken in by the hyperbole of the retailers believing that there is no harm in taking harsh measures in case the other party is unreasonable although price rise is never in interest of any body.

 

They also say that traditional trade still exercises a control over the supply chain and margins and this is not the case with organized retail.

 

Reaching a common consensus

Well, a retailer and a company are like a married couple that can’t function without each other. The hurt retailers has to understand that their grumble is temporary as the end buyers will soon start missing the products they have been used to for long and too much of private labels may not go down well with them. More over, the consumer may mistrust the intention of the retailers for trying to force their private labels on them.

 

Lop sided decision doesn’t go down well

Now, there are two types of customers: One is loyal to the store and the other is loyal to the company. While the former will not mind taking replacements, the latter will shy away from the store.

 

Moreover,  it is easier said than done to replace a popular brand on grounds of hurt and anger caused due to a disagreement on margins. But the truth is that boycott of  a popular brand may not be feasible as its aftermath will haunt the retailer on face of  thousand voices that will echo to get it back on the racks. Let us agree that at times a price rise is inevitable.

 

Big fish weigh heavy on the small fry

Well, in my opinion, Future Group is in a position to negotiate and pull wind in his direction most of the time but what about the others. Unlike Biyani, who is famous for being pushy of his opinions and ideas and can well afford to be a game changer, they may not appreciate stocking the racks with the private labels of these big fishes? As small retailers do not have much to offer to retain loyalty except for the brands it keeps, he will lose customers sooner than his bigger counterparts. Moreover, he may not have anything handy like the private labels to offer to his customers immediately. At the same time, let’s not forget that retail is the game of these biggies as they set example for others to follow.

 

Well, the argument will go on and the problem will persist. And in keeping with the saying- it takes two to clap, the need of the hour is to sort it out amicably and soon as a further delay will cause more damage to both.

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