There is more to the boycott of Hindustan Lever products by the Kerala Vyapari Vyavasayi Ekopana Samithi (KVVES) than meets the eye.

For one thing, the boycott, effective June 1, does not necessarily represent consumer resistance. Here is a small group of people claiming to represent the apex body of traders and retailers in Kerala flexing its muscle to extract bigger margins from the company's products. Second, the credentials of this very body are suspect. One office bearer is a textile merchant, another is a copra trader -- neither has much to do with grocery retailers.

The issue at stake is not whether there is any justification for or against raising the trade margin being offered by this consumer goods giant. Either way, this is debatable. But, what seems clear is thus far it has been possible for a body of individuals to arm twist stockists and retailers to enforce a boycott of consumer items. And, the disease is spreading.

KVVES has a self-image of being a representative body of retailers. It is estimated that Kerala has over 40,000 to 50,000 grocery type retailers. On the face of it, one is not clear whether KVVES has such clout as to bring a large number of retailers under one umbrella. If that were the case, there ought to have been no question of resorting to physical coercion or violence as it happened in a couple of instances.

There is a nagging doubt that KVVES officials are using the agitation as a smokescreen to gain some mileage for themselves in a state which is politically extremely sensitive. This is to be seen against the backdrop of the claims made by this body, that it has brought many a multinational company to its knees and even successfully made the Kerala government reconsider sales tax proposals a couple of years ago.

Having said that, the main grouse of KVVES centres round two areas, viz., that HLL margins are inadequate and that HLL officials refused to recognise them.

First, a look at the margins. HLL top brass maintains that the margins they offer on their products are uniform throughout the country so that there could be no question of meting out a special treatment to Kerala. They point out that if they buckle then it will be a matter of time before similar bodies elsewhere take up cudgels against companies and keep demanding higher trader margins. This, HLL top officials assert, is highly untenable and will lead to distorting the price structure of their umpteen products.

In fact KVVES has gone on record to say that HLL margins have remained unchanged over the years, and that this is unfair in a country where the cost of living is on the rise. But what KVVES has conveniently ignored is the fact that even though the particular margin as a percentage is fixed, with every price increase of the product there is an automatic increase in real terms that the stockists and retailer derive. To illustrate: this is something akin to ad valorem duty applicable in the case of imports. Since the margin is computed as a percentage of the value of the product, the stockists and retailers stand to gain for the simple fact that as the product prices go up they tend to gain.

It is a different story altogether if such prices had come down over the years, in which case the stockists and retailers would certainly have been at the receiving end with shrinking margins in real terms. That of course, does not preclude the possibility of a dialogue with the stockists since they are few in number as opposed to thousands of retailers. According to HLL officials, they are against any discussion with KVVES. However, since the stockists themselves numbering some 200 have not come forward either individually or severally, there is no sign of a dialogue at this juncture. And as KVVES has also taken an extreme posture, the stand off continues.

Even though soaps and detergents are not items of acute necessity, a legitimate question could always be asked: why should the consumer be deprived of products, just because a motley crowd of merchants and traders decides to take the law into their own hands? What is to be remembered is, even if HLL or for that matter any other company were to succumb to pressures of this kind, the end loser will be the customer who will have to cough up more for the products. In other words, an increase in trade margins even if it is justified will not mean that it will be passed on to the consumer. Far from it. Therefore, the ongoing agitation should not in any way be construed as consumer resistance.

There are also certain inherent dangers in the claims raised by KVVES: if companies start falling over each other to appease such bodies it not only distorts a company's exclusive right to run its business, but gives an opportunity to encroach on the corporate freedom in general. This could also give birth to claim the right to negotiate -- in short a recipe for corporate anarchy. The approach of the KVVES is thus anti-consumer and must be treated as such. The actions of KVVES also mean a revenue loss to the Kerala government. A company like HLL (1996 sales Rs 6,600 crore) must be deriving sales worth Rs 350-400 crore from Kerala. At an average seven to eight per cent sales tax this means a loss of Rs 2 crore per month to the exchequer.

It is well known that profit in trading is derived through two parameters - the margin per sales transaction and the number of such transactions per year. The multiplication of these will show whether the business is profitable. Indeed HLL's products are generally very fast moving so the idea of a lower percentage margin is not at all out of court. Finally, it will be interesting to know how HLL itself is managing its margins.

The 1996 report and accounts show that in the last decade the company has increased sales by 8.1 times from Rs 815 crore in 1987 to Rs 6,600 crore in 1996, but the profits before tax have increased only 7.7 times. In other words, the profit margin has not exactly increased in line with turnover. But by better management of taxes, profit after tax has increased 8.9 times, from Rs 46 crore in 1987 to Rs 413 crore in 1996.

Significantly, the net current assets have increased only 2.1 times, and this is a reflection of managing a business in the most efficient manner.There is a lurking fear that if bodies like KVVES keep isolating and picking on companies to extract better margins and facilities, the consumers will have to foot the bill. it is time that major companies like Britannia, Nestle, Procter & Gamble, Parle, Cadbury, Tata Tea, Colgate etc., sat up and took notice. The government cannot also be a passive spectator in such a situation.

Perhaps, there is need for a debate at this point of time on how best to make use of available capital. HLL, either alone or in association with a few major companies, could explore the possibilities of setting up a retailer training institute, say in Kochi, to train talented retailers in better merchandising, fund flow etc. That would be a significant victory for KVVES in meeting the skills and capabilities of the retailers with long-term benefits.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.