Supply Chain Fractures Create Trade Credit Problems 

India’s consumer goods supply chain is slowly recovering from the shock of a nationwide lockdown. But even as essential goods’ factories up production and more trucks return to the road, one essential link is holding back a more robust restocking: supply chain credit.

One reason is shorter shopping lists. A couple of other factors are also responsible. The availability of fewer goods in some cases. Conservation of cash in others. Also, when consumers visit stores they are often tempted into buying more than what they need. That has changed. During the lockdown, most people have limited their purchases to essential goods.

Another reason is cutback in distributor credit. Ordinarily, some, not all, consumer goods companies extend stock on credit to distributors and they in turn do the same to retailers. And while some parts of the payment supply chain have been digitised, transactions still happen in cash. For instance, when the distributor sends his sales staff to the retailer to take restocking orders, the salesperson also settles previous dues. This gives the retailer a week or two between delivery of goods and payment time. Not anymore.

Distributors that BloombergQuint spoke to said sales staff have either returned to their hometowns or simply can’t visit the stores due to the lockdown. Instead, retailers have had to send their staff to warehouses to collect goods and pay upfront.

Nielsen India stated in a recent report that sales force visits to retailers for replenishment were down by 80 percent, and 65 percent of grocers had been sourcing goods from retailers at higher rates.

Retailers that BloombergQuint spoke to confirmed this. They said they have been picking up stock from distributors only after making an upfront payment. Lower sales and lack of credit have forced several retailers, especially the smaller kirana stores, to stock fewer SKUs or goods.

Some consumer goods companies are stepping in to fill these gaps in trade finance. For instance, Hindustan Unilever Ltd. ordinarily does not sell goods on credit, but has done so in this emergent period.

“We’re also protecting the interest of our distributors and partner, with selective and targeted flexibility in managing credit terms and judiciously extending credit,” Srinivas Phatak, chief financial officer at HUL, told investors after the fourth-quarter earnings.

Marico Ltd. is also extending credit selectively, it told investors in a conference call after the January-March earnings.

Dabur India Ltd. is offering seven-day credit, a distributor told BloombergQuint. The company didn’t respond to queries.

For others, such as a leading biscuit manufacturer, a surge in demand even as factories run at half capacity has meant that distributors themselves are blocking orders by paying upfront, according to a company executive who preferred to remain unnamed.

FMCG firms also trying to ensure that distributors are able to deliver goods to retailers. HUL is encouraging retailers to place orders through its Humarashop and Shikar apps, and also making sure that deliveries are managed during the lockdown, Phatak told investors.

Mohit Malhotra, chief executive officer at Dabur, said in a statement to BloombergQuint that the company has tied up with online delivery service providers, besides establishing direct contact with retailers.

Marico, the maker of Parachute coconut oil, introduced a tele-servicing service app for retailers to place orders. It also partnered with Delhivery, Shadowfax, Lalamove and Zoomcar to ensure products are delivered from factories to distributors.

The app was rolled out within 48-72 hours of distributors and retailers facing issues, said Sanjay Mishra, chief operating officer, India sales and Bangladesh business at Marico. That not only resolved problems at different levels but also helped multiple distributors across regions to restart their business, he said.