Tata Consumer Products (TCPL), the new entity formed by the merger of Tata Global Beverages and the consumer products division of Tata Chemicals, has terminated contracts with most of its distributors and dealers to make way for digital distribution of its products including Tata Salt, Tata Sampann, Tata Tea, Tetley, Eight O’clock Coffee and Himalayan water. According to sources, TCPL severed its long standing contract with 40 nationwide distributors and 5,000 dealers to try the direct dealership strategy, at which the FMCG giant Hindustan Unilever (HUL) excels.
“The company has cancelled the contracts with its entire network of distributors, which will come to 40 in number, and there are at least 2,000 small dealers working under them. Besides, they terminated the services of another 3,000 dealers. With this, the overall dealer network strength will come down to 4,000 from earlier 9,000,” said a distributor from Assam.
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.
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.
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.
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.
TCPL aims to emerge as a full-fledged FMCG firm and scouts for new opportunities in the international markets, Tata group chairman N Chandrasekaran recently told shareholders of TCPL in its virtual annual general meeting. The company will strengthen distribution and marketing channels so that its products are available nationwide, he said. It will also bolster presence in the US, UK and Canada.
“We took a conscious call to broaden the focus to make it an integrated food and beverages company,” he said. The merger took effect from February this year.