What Happens If You Merge Brooke Bond And Crocin Trade Channels? Ask HUL.

Hindustan Unilever Ltd. has started integrating its distribution system with that of Glaxosmithkline Consumer Healthcare Ltd. as India’s largest consumer goods maker seeks to attain synergy and cut costs after completing the acquisition of Horlicks.One makes Brooke Bond tea to Dove soap and Surf Excel detergent, while the other produces malted drink Horlicks to antacid Eno and pain relief medicine Crocin. The marriage of distribution networks involves everything from getting the drug regulator’s approval to identifying where each company has a better reach and onboarding distributors. And more.The maker of Dove soaps and Brooke Bond tea has started with Pune and then plans to expand to select districts before a nationwide integration, a person privy to the development told BloombergQuint on the condition of anonymity as details aren’t public yet.HUL acquired Horlicks from GSK. It also agreed to a five-year consignment selling agreement that can be mutually renewed for distribution of products including Sensodyne toothpaste, Crocin paracetamol tablets, Otrivin nasal spray and Eno acidity reliever in India.HUL didn’t respond to BloombergQuint’s emailed queries citing silent period ahead of earnings for the quarter ended December.One of the key differences in how the two companies operate is offering credit to distributors.GSK Consumer would typically extend credit of 14-17 days to the distributor to make payments, according to two people in the know who didn’t want to be identified out of business concerns. HUL gets paid as soon as its products are billed, one of the people said.If GSK Consumer Healthcare has a better distribution channel in a particular region and HUL decides to integrate the network, the distributor in that region will have to submit account statements. That will help in smooth transition if HUL also decides to extend credit and ensure that there's no default on existing repayments, the person said.HUL will also use the GSK Consumer network to sell its products wherever the maker of Horlicks is strong. GSK Consumer has better reach in the eastern and southern parts of the country.HUL’s distributors will also have to obtain a mandatory drug license before selling GSK Consumer’s products. “The process to apply for a drug license is online, it takes approximately a month for a distributor to get the licence,” Jagannath Shinde, president of All India Chemist and Druggists Association, told BloombergQuint. “However, the distributor will have to bring in a pharmacist to get approval.”Vishal Gutka, vice president of consumer and retail at Philip Capital India, told BloombergQuint, that GSK Consumer is strong across channels—chemists, kirana or mom-and-pop stores, modern trade and e-commerce—in South and East India. But in Central India in particular, he said, it derives a significant portion of revenue from the chemist channel.And this dependence on the chemist channel comes with its own challenges for HUL.Chemists prefer to place orders for medicines and consumer goods (including those from HUL’s nutrition portfolio) through semi-wholesalers—or those who deal with multiple companies and multiple brands, according to Gutka.That’s because:Of availability of higher credit period along with higher working capital requirements, as medicines are more expensive than FMCG products.Chemists’ inclination in selling high margin medicines than FMCG goods, whose margins are lower and occupy relatively more space.HUL, however, wants to sell GSK Consumer’s nutrition portfolio products through direct distribution to increase engagement instead of relying on semi-wholesalers, Gutka said.HUL is worried that a sudden shift to a newer model of distribution can hamper its existing business in central India, he said. As a result, India’s largest consumer goods maker is cautiously merging the distribution infrastructure.

What Happens If You Merge Brooke Bond And Crocin Trade Channels? Ask HUL.

One sells soaps to tea and coffee. The other sells Crocin to Iodex and Eno. How are their channels being merged...

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