Distributors of household goods of major companies have threatened to disrupt supplies to kirana stores if the companies continue to provide products at lower prices to Reliance’s JioMart, a letter sent by the All India Consumer Products Distributors Federation (AICPDF) to Hindustan Unilever, Colgate, ITC, Reckitt, and other FMCG companies revealed.
Kirana stores currently account for over 80 percent of India’s retail market and they are increasingly turning away from traditional company salesmen and towards Reliance to buy their stock due to the low prices offered by JioMart.
JioMart is intent on disrupting the e-commerce market by taking on Amazon and Walmart-owned Flipkart, but the threat the company poses to distributors sheds light on the new set of challenges that the traditional retail model faces.
Why are distributors frustrated?
In November, Reuters published a report shedding light on the challenges faced by distributors because of JioMart’s entry:
- Lower prices on JioMart: Kirana stores that were once-loyal customers of distributors were now buying from Reliance because the JioMart Partner app offers prices up to 15 percent lower, one distributor told Reuters. In one example, a retailer was able to buy a two-tube combo of Colgate MaxFresh toothpaste for about ₹115 from JioMart whereas the traditional distributor paid ₹145 for the same product from the company and offered it to the retailer at ₹154, which is nearly 34 percent higher than what JioMart offered. Reliance is able to offer these low prices because of the bulk buying power and the negotiating power it has due to long-standing relationships with companies through its retail supermarket network.
- Sales drop by 20 to 25 percent: Many of the distributors contacted by Reuters reported that they scaled down their workforce and vehicle fleet because sales dropped by 20 to 25 percent last year because of stores partnering with JioMart.
- Personal losses: Some distributors complained that they had to suffer personal losses to match the price given by JioMart and to continue selling to kirana stores.
- Faster delivery through JioMart: While traditional distributors typically take orders once a week and make deliveries within a couple of days, JioMart promises delivery within 24 hours and also provides benefits like credit facilities and free product samples.
This JioMart model is problematic because of the services provided that will cause existential threats to small salesmen representing various consumer brands. The mom-and pop stores accounts for fourth-fifth of the retail market earning 3-5% on the products prices. […] Small salesmen and businesses will face the brunt due to the direct services provided by Reliance by cutting out on their margins and hampering the supply chains. – Ananya Gupta, Associate, Victoriam Legalis – Advocates & Solicitors
What are distributors demanding?
Referring to the Reuters report, AICPDF is calling for a “non-cooperation movement” from January 1 unless the following demands are met by FMCG companies:
- Level playing field: Distributors should be given the same price as JioMart and other business-to-business (B2B) companies like Walmart, Metro Cash n Carry, Booker, Udaan, etc. If not, the distributors will drop products sold by JioMart from their portfolios.
- No launch of new products: Distributors will not launch any new products of the companies unless they get an undertaking that the said products will not be made available to JioMart and other B2B companies.
- No primary targets: Distributors will not be in a position to take primary targets because of the competition from JioMart, but will continue to give the same service levels that they are currently giving to kirana stores.
- No picking up of expiry products from retailers: Distributors will not take expired or damaged products back from stores because they cannot differentiate between the stock sold by them and that sold by JioMart and others.
Distributors have previously also launched physical confrontations to make their demands. For example, in Maharashtra and Tamil Nadu, they blocked JioMart delivery vehicles, Reuters reported.
“We will employ guerrilla tactics. We will continue to agitate […] we want companies to realise our value.” – Dhairyashil Patil, president of AICPDF, told Reuters.
Commenting on the demands, Utsav Trivedi, Partner at TAS Law, told MediaNama:
“Partnerships of FMCG companies with big giants would definitely throw the individual salesman out of business as more and more mom and pop stores will now prefer to buy retail products from these big giants. The only way this problem can be cured is by proper checks and balances where the consumer companies provide the goods at competing prices to both the e-commerce websites as well as these individual salesmen and leaving the mom-and-pop stores with a choice to buy from either of these two. Price Parity=Satisfied Salesman=Happy Customers= Balanced Economy.”
Reliance will cater to the diverse needs of a modern-day shopper for household items like home utility products beyond just groceries. It is all set to build an online-to-offline business model where it will source orders from the nearest retail stores and deliver it to customers with deliveries promised within 24 hours, instead of the traditional warehousing model. Reliance is also offering training on ordering, credit facilities and free product samples for affiliated customers.
Why does this matter?
In India, e-commerce giants Amazon and Flipkart have been at the receiving end of complaints made by traditional retailers who have long maintained that Amazon and Flipkart are engaging in anticompetitive conduct by deep discounting, entering into exclusive agreements with sellers, and offering preferential treatment to certain preferred sellers. In light of these allegations, the Competition Commission of India (CCI) launched an investigation into Amazon and Flipkart in January 2020 and the Indian government in June this year proposed amendments to the E-Commerce Rules that appear to specifically target the practices of these two companies.
Against this backdrop, JioMart’s entry into e-commerce was seen as a welcome move as its unique business model connected neighbourhood kirana stores to customers through its app. This meant, unlike Amazon and Flipkart, traditional retailers could participate and benefit from the growing e-commerce market rather than be replaced by it. However, the issues highlighted by traditional distributors bring to light the challenges that such a model poses and once again highlights how a big player like Reliance might benefit at the expense of smaller retailers.
Update (6 Dec, 6:15 pm): Added comments from Utsav Trivedi and Ananya Gupta.
Also read:
- Reliance AGM 2021: Google Cloud Partnership, Updates On 5G And JioMart, New 4G Smartphone, And Other Key Announcements
- JioMart Goes Live, Marking A Huge Step On Reliance’s Digital Ambitions
- Summary: Proposed Amendments To E-Commerce Rules 2020
- Amazon’s Involvement In Marijuana Smuggling Case Gets Murkier After Company Denies Executives Were Charged
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