Handling cost in cement distribution is very high as compared to FMCG

Handling cost in cement distribution is very high as compared to FMCG

Nikhil Phadke
Partner, Vaidya & Co
Vaidya & Co has been a dealer of ACC Cement since controled days. The company is also dealers for RMC. In a tete-a-tete with the
ICR
team,
Nikhil Phadke, Patner, Vaidya & Co
, shares his idea on non-trade business and the concept of exclusive dealership.

How successful is the concept of exclusive dealership?
Under the exclusivity of dealership, we have to deal with only products of one particular company. There is one fixed area allotted to us and there are a fixed number of retailers to the service.

There are certain schemes and a number of restrictions with exclusive dealership. I am not treated as a retailer for the retail sale that is happening at my shop counter. In that case, I tend to loose business. It has become extremely difficult for the retailer [whom I am serving] to replace and also for the retailer who does not want my service to have alternative. This is one of the negatives of exclusive dealership. Even our margins are squeezed and volume of business is going down. The situation is not much different even with other exclusive dealers. The other flip side of the business is that the officers of the manufacturers do not take much interest once you become their exclusive dealer. The top officers of the company totally depend on their juniors to get a glimpse of the business.

What is the legal sanctity behind exclusive dealership?
The concept of exclusive dealership [in the cement industry] does not have any legal support. Companies are forcing the dealer community to become exclusive, which can be challenged. Under pressure, the concept is accepted but the ´so-called´ exclusive dealer deals with other brands under different names and business goes on smoothly. This is a known fact to everyone in the industry. In short, we pretend that my dealer is exclusive and is given the benefits of exclusivity.

What is typical of a cement distributorship? How it is different from that of FMCG business?
It is very much different than that of FMCG business. Cement is high volume and low margin business.

The handling cost in cement distribution is very high as compared to the FMCG business. A small mistake during the pricing can wipe-out the profit of the entire month. You have to be extra vigilant about the price you commit. In FMCG, there is replacement of product which has gone beyond expiry date. However there is no such provision in the cement business.

Give us some idea on non-trade business.
Non-trade business is sale of cement in large quantities to institutional buyers where price is the dominant factor and credit becomes the next consideration. Today the buyer is very selective and well informed. Here many a times you need to compete with manufacturers directly. The bottomline of the product you assume may go wrong. Occasionally the customers are poached and taken by the manufacturers or other dealers which is not in good taste of business.

When poaching takes place, the customer losses his faith on us. There is one commercial angle of business which is not very positive from the distribution side. Nowadays, the clearing and forwarding agents (CFA) are being given distributorship. A majority of the companies today are appointing CFAs as distributors of cement and I as a dealer have to compete with them. As a CFA, he has all my customers´ information with him and it is used by him to grab business. Therefore his appointment as a distributor is clashing with my business interest. I do not say that CFA should not be a cement distributor but he can operate under certain conditions where my business interest is also protected.

Do you also deal in ready mix concrete (RMC) business?
Yes, as a cement distributor, I am allowed to do business in RMC also. Because of this, my volume of business increases, but the nature of business is not the same. While dealing with cement my contribution in the construction per se is only 30 per cent. When we deliver concrete that goes up to 100 per cent. Therefore the responsibility is also 100 per cent. We need to understand the business dynamics precisely and must know about concrete quality, because disputes arise only on quality.

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