PremiumThe tie-up between FMCG major Dabur India Ltd and Indian Oil Corp. to sell the former’s products through the fuel retailer’s more than 12,750-strong cooking gas distributor network highlights the hidden monetization potential of India’s ponderous state-owned enterprises.
According to the deal announced on Thursday, IOC’s cooking gas distributors will become retail business partners for Dabur, leveraging their network of more than 90,000 mobile delivery personnel to reach Dabur’s range of products to 143 million customers across the country.
If the two partners successfully implement the scheme, the deal may well turn out to be that often talked about but seldom achieved phenomenon in business – a genuine win-win for both.
For Dabur, the gains are obvious. For starters, the company gets access to a massive customer base that is growing rapidly in rural and urban markets. The PM Ujjwala Scheme, which distributes free LPG connections, plus an annual subsidy of ₹1,600 per beneficiary to women in below poverty line (BPL) households, alone has added 100 million customers since it kicked off in 2016.
India is already the world’s second-largest consumer of LPG in the world, with a bulk of it being used as domestic cooking fuel. Consumption is rising at an average annual pace of 8.4%. More than 70% of Indian households use LPG as their primary cooking fuel, and 85% have LPG connections, according to a study by the Council on Energy, Environment and Water.
Dabur, like all FMCG companies, is under pressure from the changing pattern of consumption, particularly in the post-pandemic era. With the rise of e-commerce and 10-minute grocery delivery apps, urban consumption is shifting to online purchase and home-delivery mode, putting pressure on its traditional wholesaler-distributor-stockist-retailer chain. At the same time, with agriculture having been the only sector to register growth throughout the covid years, rural consumption is high. Rural markets are also those least served by brick-and-mortar and e-commerce systems.
For IOC, too, the deal provides a potential means of augmenting the income of its LPG distributors, leveraging their storage and distribution infrastructure, and access to and knowledge of customers. However, while LPG connections have leapfrogged, most Ujjwala consumers are low-value consumers, which means that the earnings through LPG sales commissions are thin. And in metros like Delhi, Mumbai and elsewhere, the rising penetration of piped natural gas (PNG) is stripping IOC and other oil PSUs of high-value urban consumers.
The deal also highlights how some creative thinking and flexibility can help our largely moribund PSUs to leverage their hidden strengths. India Post is a shining example. It is already a successful delivery partner with many e-commerce giants and has expanded its financial services offering into a payments bank.
So far, the government has looked at the monetization of PSU assets solely through the lens of disinvestment or asset sales. However, asset stripping is a one-time play. Many PSUs have other assets, ranging from warehousing to distribution networks. India’s 56 state transport undertakings, with more than half a million staff, offer unprecedented potential for low-cost retail freight carriage and distribution, given their penetration into virtually every motorable corner of India. This can help generate revenues, save jobs, and sustain socially vital services.
All it takes is a little lateral thinking. And the flexibility to try new ideas.
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