[T.S.R:17411] FMCG Distributors Are Getting Wiped Out; The Last Of The Defensives To Collapse

We met distributors of a few consumer companies in West Mumbai. Though most are upbeat about improving volumes and, thereby, rising distribution income, they see rising costs eroding their profit margins. Also, most indicated that modern trade is not as huge a concern as perceived by the market.

n       Strong volume growth and uptrading driving revenue. Distributors are upbeat about consumer companies' volume growth, which would, in turn, result in higher distribution commission. Suburb areas in Mumbai are witnessing uptrading, which too is driving up commissions.

n       Modern trade not a huge concern. Distributors opined that modern trade is not a huge concern. They do not see higher debtor days as a worry, except from 1-2 modern trade outlets. They said modern trade is boosting consumption to some extent.

n       Rising costs impacting margins. Commission levels have ranged over 4-5% in the past decade. Distributors believe that the rising inflation would erode margins if distribution margins remain at such high levels. Increase in warehousing costs, diesel prices and staff salaries as well as higher technology costs are eroding distributors' margins.

n       Lower grammage affects distributors. Though reduction in grammage leads to cost savings for consumer companies, distributor commission does not improve as it is based on the MRP Hence, the recent trend to maintain the MRP with lower grammage restrains any hike in distributor commissions.
 

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Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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