Ranbaxy Laboratories Ltd is expected to hold talks with leaders of pharma stockists to sort out the dispute involving the company's plan to slowly replace pharma stockists with fast moving consumer goods (FMCG) stockists for the sales of its new Rs 50 crore over-the-counter division's products, it is learnt.
RLL has appointed around 100 FMCG stockists as against its current stockists numbering 2000, an industry source said. When contacted, Jagannath S Shinde, AIOCD honorary general secretary and MSCDA president, said that the company could not take such decisions on its own.
Ranbaxy Laboratories Limited had announced on September 30, 2002 the launch of the "Ranbaxy Global Consumer Healthcare" (RGCH) business. RGCH will enter the Indian market with four key OTC (Over-the-counter) brands - Revital, Pepfiz, Gesdyp and Garlic Pearls. Sales commenced on October 1, 2002.
The distribution coverage of the OTC division envisaged doubling chemist coverage and extending distribution to other outlets across India, it was the plan to replace pharma stockists with FMCG stockists that drove a wedge between the company and the trader community which has so far not lost any battle with the corporates.
The traders want their distribution channel to remain untouched whereas the company wants to expand its OTC reach through FMCG stockists, in a bid to emulate the success of FMCG multinationals like HLL and P&G. "We told them that as far as the distribution channel is concerned, there should be no change, a leading wholesaler said here today."
When the pharma stockists took a tough stand in the face of Ranbaxy deciding to rely just on fast moving consumer goods (FMCG) stockists for the sales of its Rs 50 crore OTC products, mainly Revital, the company beat a hasty retreat.
The head of a multinational OTC division said it was surprising that a sound company as RLL took such a decision to expand stockists without ascertaining the demand. "There was no need to think of discontinuing pharma stockists and go in for FMCG stockists as medicines are essentially purchased only from medical shops."
Atul Malhotra, Head, Ranbaxy Global Consumer Healthcare and Regional Director, Middle-East, did not offer any comments when contacted on Thursday.
"The company is in negotiations with us, another leading wholesaler said here yesterday. The chance of a resolution of the dispute is 50:50. If the issue is not resolved, then RLL products will stand boycotted," he warned.
A trader hoped that the company would not be foolish as to risk the sales of its Rs 900 crore formulations just to grow the sales of an OTC division worth Rs 50 crore.
Says a senior analyst, "With Rs 50 crore of existing sales at stake, this shift is not possible. Ranbaxy wanted to slowly shift from pharma to FMCG stockists. Knowing that a backlash would come, they devised this aggressive strategy and then came to the negotiating table giving in to some of the demands of the pharma stockists."
According to the analyst, RLL would never have got any FMCG stockist if it initially stated so. Now it gets some FMCG stockists and as its starts advertising and pushing sales from non-chemists shops, it will add more FMCG stockists.
"This is a fine way of negotiating with the strong chemists' unions. In the past, companies like Johnson & Johnson had chemists boycott their products for months demanding higher cuts. Ranbaxy is achieving the same over the longer term in OTC products without any boycott," says the analyst.
The development has come as a blow on the face for RLL for what has become a stupid step in business strategy. Had it continued with the 2000-odd pharma stockists and kept on adding the FMCG stockists without annoying the former, the company could have had the cake and eaten it too. However, such a suggestion from within the company was ignored, leading to the current situation where any compromise formula would just be a face-saving exercise, the source said.
It is learnt that the company is rushing to Mumbai a senior official who enjoys close ties with the trade to solve the problem.
Interestingly, the traders are not averse to the company taking the help of the FMCG stockists, but want this to be discussed with the pharma stockists. "We want to encourage Indian companies," Shinde added.