The boycott by fast-moving consumer goods companies was a blow to Udaan because its business model was designed to reduce middlemen and directly connect small traders with manufacturers.
A week ago, business-to-business (B2B) startup Udaan filed a complaint against Parle Products Private Limited with the Competition Commission of India (CCI).
Parle is a manufacturer of iconic Parle-G biscuits and several other popular foods. According to Udaan, Parle abused its strong position in the fast-moving consumer goods (FMCG) field to engage in anti-competitive behavior.
According to Udaan, Parle has stopped supplying goods to Udaan without any objective reason. Currently, Udaan is buying Parle products from the open market and selling them on its platform.
A week later, Amul, Parle and several other players refused to sell on Udaan’s platform. These companies claimed that Udaan monopolized the distribution business and weakened the distributors.
The boycott by fast-moving consumer goods companies was a blow to Udaan because its business model was designed to reduce middlemen and directly connect small traders with manufacturers.
The company hopes to become the Flipkart of B2B e-commerce, allowing smaller traders to buy directly from manufacturers. Unlike existing B2B platforms such as IndiaMart, Udaan focuses on building a complete ecosystem-covering discovery, logistics, credit and payment.
“Amul has 10,000 exclusive distributors or small entrepreneurs. If a platform like Udaan distributes on its own, they will compete with our existing exclusive distribution partners and directly hurt them,” said RS Sodhi, managing director of Amul. Other employees of FMCG companies also confirmed that platforms like Udaan are weakening distributors and gaining greater market share.
Allegations of monopolistic distribution by FMCG companies may indicate that the dynamics in this field are changing.
For decades, FMCG companies have enjoyed high profit margins and high returns on capital. Continuously obtaining high capital returns for many years is a difficult task, but successful FMCG companies focus on brand building and development of distribution networks.
The distribution of products is carried out through general trade, modern trade and e-commerce channels. General trade refers to the traditional channels through which FMCG companies sell products-distributors, stockists, retailers, etc. Modern trade refers to retail chains and similar outlets. E-commerce refers to platforms such as Reliance Jio, Flipkart Grocery and Udaan.
Although general trade has always accounted for a large proportion of FMCG sales, modern trade and e-commerce channels have grown rapidly. Companies like Reliance, Future group, and DMart have established large distribution networks that allow them to buy from fast-moving consumer goods companies and sell directly to customers.
Unlike other platforms that purchase goods from manufacturers and sell products in their own name, Udaan’s main customers are small traders who want to buy directly from manufacturers, thus making Udaan various distributors. Udaan has a huge distribution network, allowing customers on its platform to easily purchase goods.
Udaan’s strategy of cutting middlemen and supplying goods at lower prices has angered distributors who supply wholesalers and retailers. Small traders flock to Udaan, Jio and other B2B platforms to avoid distributors and earn higher profits.
Fast-moving consumer goods companies that stopped supplying goods on the Udaan platform accused Udaan of monopolizing distribution to retailers. In the past, Udaan was known for subsidizing logistics and other expenses to attract more users. In view of its huge capital and continuous losses, industry stakeholders believe that it has been using similar strategies under the current circumstances.
The dispersed distributor base allows these companies to maintain profit margins, but integration among customers may result in lower profit margins. Modern trade and e-commerce channels receive goods at lower prices and longer credit periods, which obviously means that larger customers have better bargaining power compared to a dispersed distributor base.
Boycotting Udaan may be a step to curb Udaan’s power while pleasing distributors who contribute to high profits and a large percentage of sales.
For distributors, the rise of digital platforms combined with the pandemic constitutes an existential threat. Supply chain barriers during the lockdown forced fast-moving consumer goods companies to enter direct distribution or cooperate with larger players.
For example, HUL cooperated with Jio for direct B2B distribution from manufacturer to retailer-a move that was strongly opposed by distributors. With the rise of well-funded platforms such as Jio and Udaan in the B2B space, distributors feel that they may be squeezed out of business.
Funding for these platforms helped them expand their operations in a short period of time. Udaan reached unicorn status two years after its launch.
Similarly, Jio raised approximately Rs. It will reach Rs 150,000 crore in 2020, and it has been expanding. Its sister company Reliance Retail acquired JustDial, which already runs a listing and B2B platform.
The platform has been adopted by traders in more than 100 cities. The transaction with HUL further strengthened its position in this field. These platforms also run their own private label products, which may take precedence over third-party products.
Despite the move to boycott Udaan, fast-moving consumer goods companies and distributors are unlikely to prevent disruption in this area for a longer period of time. Although FMCG companies may bear the brunt of lower returns, increased customer concentration and increased working capital requirements, distributors will have to deal with the existential threats facing their businesses.
However, the introduction of new government e-commerce regulations and open networks for digital commerce may bring some hope. Nevertheless, this incident undoubtedly proves Udaan’s influence on the industry.
Without a doubt, you know that Swarajya is a media product that directly relies on the support provided by readers in the form of subscriptions. We do not have the strength and support of a large media group, nor are we fighting for a large advertising lottery.
Our business model is you and your subscription. In such challenging times, we now need your support more than ever.
We provide more than 10-15 high-quality articles with expert insights and opinions. We are operating from 7 in the morning to 10 in the evening to ensure that you, the reader, can see what is correct.
Becoming a sponsor or subscriber at a fee as low as Rs 1,200/year is the best way for you to support our efforts.
Swarajya-a big tent with the right to speak for the freedom center, which can contact, contact and cater to the new India.