Tata Consumer Products terminates Tata Tea, Tata Salt distributor agreements

Months after the merger of the Tata Chemicals consumer business with Tata Global Beverages, the new entity Tata Consumer Products Ltd (TCPL) has embarked on a simplification of its trade channel structure.

In an effort to bring about cost efficiencies and to scale up business opportunities, the company has taken a decision to terminate agreements with the Tata Tea and Tata Salt distributors. The company has given its distributors one month to wind up business and return any assets they may have to the company.

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Estimates indicate that Tata Consumer Products has about 40-50 distributors who help supply goods to the multiple stockists and dealers. These distributors get a margin of about 1-1.25 percent.

In the present scenario, distributors procure orders from stockists and place these orders with the packaging centre. Payments, invoice generation etc is taken care of by the distributors.

The reason Tata Consumer Products has taken this decision to terminate distributor agreements is because it wants to build in efficiencies and scale up business processes through digitisation. This move will enable TCPL to deal directly with stockists and dealers.

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"This is essential for us to accelerate growth and fulfill the market opportunity in India for Tata Consumer Products. As part of the integration, when we reviewed our sales and distribution structures, we realised that it was critical for us to leverage digital technology and work with our stockist and dealer network directly, to increase our distribution footprint and in store-execution in the market. This resulted the termination of a very small number of CAs and distributors of the Company, making TCPL more in line with the way most FMCG companies in India operate. There is currently no change in our stockist and dealer network," said Tata Consumer Products in a statement to CNBC-TV18.

However, the move has not gone down very well with distributors as it will result in loss of business for many in these challenging times. "There are so many distributors who have been working with the Tata Group for the last 2-3 decades. This decision will be a big blow for us as we have no other mode of livelihood," said a distributor who received a termination letter last evening.

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In view of these concerns, distributors have written to TCPL seeking reasons for the same and asking for an extension in the timeframe for the termination in order to collect outstanding dues from stockists.

The move by Tata Consumer Products is in line with what most FMCG companies have been doing. Digitisation of trade channels is allowing companies to cut out intermediaries and build stronger direct distribution channels.