Mamaearth's distributors say company is burdening them with excessive inventory, delaying replacement of unsold stock

Goods worth ₹50 crore to ₹100 crore are stuck, according to the All India Consumer Products Distributors Federation (AICPDF). The inventory pile-up comes as Honasa, which started out as an online personal care company, builds a greater presence offline. Honasa gets a third of its business from offline channels.

Honasa refuted the association’s claims. The company sells beauty and personal care products branded Mamaearth, Dr. Sheth's, Aqualogica, and BBlunt. However, the issue of excessive stocks is restricted to Mamaearth, its largest brand.

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The federation claimed distributors are saddled with 90 days worth of stocks or goods. Fast moving consumer goods (FMCG) companies typically supply stocks for 20-30 days or 45 days at the most. Fresh orders are placed in response to how quickly products move from retail stores. Distributors then replenish the stock with retail outlets.

The issue has been on for several months, said an executive at the federation.

“Once goods have been billed to the distributor, the liability is of the distributor. Distributors have done their job of product placement. However, off-take of products has not matched expectations," Dhairyashil Patil, national president of the AICPDF, told Mint. 

Close to expiry

In a statement Monday, the federation highlighted the “high-risk" of stock expiry at warehouses and retail outlets, along with "substantial" volumes of unsold inventory returned by retailers. It claimed Honasa has delayed replacing damaged, unsold, and expired stock. Patil said some products have been lying with them for over a year and could be nearing expiry.

In response to a query by Mint, a company spokesperson refuted the federation’s claims, asserting that the statement contained errors and discrepancies. 

“Honasa Consumer Ltd is dedicated to building distribution as a core strength for its business. We aim to achieve this by establishing enduring relationships with the right distribution partners, built on trust and mutual benefit," the spokesperson said. “We have been leveraging technology solutions for tracking inventory, sales, promotions, etc., to ensure transparent and efficient processes across the value chain. We are committed to fostering strong, long-term partnerships with all our distributors and will keep working on addressing any concerns which come in the way."

Patil said the federation has raised the issue with the company several times. 

“We have asked them to replace old stock with fresh stock. A lot of inventory is still sitting with retailers," he said. About 200-300-plus distributors are affected by the issue, said Patil.

To be sure, Honasa has stepped up efforts to reach more offline outlets--a major sales channel for companies in the FMCG space. Small mom-and-pop stores still account for the bulk of FMCG sales in India.

As of March 2024, its products were available in 1,88,377 retail outlets. Honasa, which listed on the stock exchanges last year, started selling goods offline four years ago. Last quarter, the company said it plans to overhaul its offline distribution.

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Honasa Consumer shares closed at ₹473.60 on the BSE on Monday, and have gained 4.89% year to date. The company posted a profit of ₹111.7 crore in FY24 compared with a loss of ₹142.8 crore, with operating revenue rising 28% to ₹1,919.9 crore.

Honasa has moved to a direct distribution model in the top 50 cities, phasing out its previous reliance on super stockists—citing the “critical" role offline trade will play in expanding its product range and market share. This transition was implemented in the third quarter of FY24.

“There are three pillars that we have been executing. One is a transition from super stockists to direct distributors, especially in top 50 cities; onboarding high-quality FMCG distributors with strong direct distribution reach, as well as implementing a customised version of distributor management system and sales force automation that we have built over the last one year along with our partners across all of these distributors," Varun Alagh, co-founder, chairman and CEO of Honasa Consumer, said during an earnings call in May.

Mint spoke to others in the trade who also said distributors in the general trade have struggled with a situation of over-stocking.