As production capacities are dropping and the market gets saturated with excess products, cement companies are trying to scoop orders by sidestepping dealers and distributors and then, offering discounts to contractors. This will affect the network in the long run says Degala Ramesh, Managing Partner of Degala Veerabhadra Rao & Brothers. Excerpts from the interview.
Do you see yourself as a dealer or as a distributor?
We are basically cement distributors for the Andhra region. If you look at it coverage wise, a distributor has a much wider coverage than a dealer. We cater to dealers and sub-dealers. A dealer sells cement in a localised area, which is very small compared to a distributor´s reach. However, the network dynamics are now changing since now most big companies are integrating more dealers and fewer distributors into their network. Earlier cement would be supplied by manufacturers to distributors, who in turn would forward it to dealers. Now major companies are selling cement through large number of dealers rather than few distributors. Only mini cement companies are appointing distributors in their network.
How wide is your network?
We cover the Andhra Pradesh region, especially the east Godavari district. We have at least 20 - 25 dealers in our network. Andhra is a wide market with nearly 8, 000 dealers in the field. Our monthly cement dispatch is around 4000 tonnes.
How much is the total margin allotted to the distribution network?
The margin varies according to the market conditions. It is approximately between 2 - 3 per cent. This is quite decent as compared to the past where we were allotted only 1 per cent margin. Lower margin forces us to have high turnovers to collect sufficient profits. That is tough in today´s market.
What dictates your selection of brands?
We look at the target quantity allotted by the company; that is all that matters. There are no targets fixed for dealer networks. Besides this, we look at the potential of the company, its brand strength, etc.
What are the challenges in front of you?
One is companies bypassing distributors and dealers and supplying material directly to contactors. While we understand that companies are free to do so, this affects our business. There has to be some agreed consensus on the volume that could be supplied directly. Earlier companies would dispatch cement directly to the consumer only if the volume exceeded 200 tonnes. This was fine with us since huge volumes are involved and major consumers would like to take advantage of discounts gathered by dealing directly with company. However, of late, companies have started selling volumes as low as 50 tonnes and that too, through direct billing. Our demand is that companies should leave at least the small volumes to us. Economic slowdown too, is affecting the business. Government policies are not exactly helping the cement industry; production capacities have gone down by 30 to 40 per cent. There are no new projects coming up and the market seems a little dull. There is a situation of having surplus cement and diminishing demand. Everybody right from manufacturers to dealers and retailers are affected by this.