Distributor vs Direct: The Real Margin Stack

Every brand that outgrows online asks the same question. Do we appoint distributors, or do we sell direct to retailers and platforms ourselves? The honest answer is that you are choosing which costs to carry, not whether to carry them. Distribution is never free. It is either a margin line or a headcount line.

The margin stack, step by step

Work backwards from the maximum retail price. A typical packaged goods stack in Indian general trade looks like this on an MRP of Rs 100.

• Retailer margin: Rs 8 to Rs 20 depending on category. Staples sit at the bottom, personal care and impulse at the top.
• Distributor margin: Rs 8 to Rs 12 in most categories. Dairy and fresh run higher, commodity staples lower.
• Super stockist, where used: Rs 3 to Rs 5.
• Schemes, damages, expiry and claims: Rs 3 to Rs 8. This is the line brands forget when they build the model.
• GST, charged on top or backed out depending on your slab and pricing convention.

What lands with the brand, before logistics and before the sales team, is usually 60 to 70 percent of MRP in general trade. Modern trade is a different shape. Distributor margin often disappears because you supply the chain directly or through one appointed partner, but the chain’s own margin runs 20 to 35 percent, and listing fees, visibility charges and a shrinkage deduction sit on top of that.

Direct to retailer looks better on that arithmetic. You keep the eight to twelve points the distributor took. Then you pay for what the distributor was doing: a godown, delivery vehicles, a sales officer at roughly Rs 25,000 to Rs 45,000 a month plus incentives, collections, damaged stock, and the working capital tied up in credit you now extend yourself. In a single city with high route density that maths can work. Across four states it rarely does.

Who carries the risk

This is the part the margin table hides. Three risks move with the model.

• Credit risk. The distributor buys from you, usually against 7 to 21 days of credit, or cash and carry for a new appointment. He then extends credit to hundreds of retailers. Those retailer defaults are his problem. Go direct and every one of them becomes yours.
• Inventory risk. Stock in a distributor’s godown is sold. Stock in your own depot is not. Selling direct means you carry city level inventory, near expiry exposure and the full cost of a wrong forecast.
• Coverage cost. A distributor’s salesman services 30 to 50 outlets a day across a fixed beat. That route is already built and already paid for by other brands sharing the same feet.

That last point is the real economics of distribution. You are renting a shared cost base. A distributor carrying fifteen brands spreads the same van, the same salary and the same godown rent across all of them. Your eight to twelve points buy a fraction of a route, not a whole one. Recreating that route for one brand is why direct models fail on cost even when they win on margin.

Reach you cannot buy directly

India has roughly 12 to 13 million retail outlets. No brand builds direct coverage of that. The distributor network is the only mechanism that reaches a kirana in a district town, and it carries things that are not purchasable: the retailer’s trust in that specific salesman, a credit relationship built over years, and the ability to place a new SKU because of who is asking.

Quick commerce and modern trade tempt brands into thinking this no longer matters. It matters if your category has an impulse component, a low ticket, or a repeat purchase that happens close to home. General trade still carries the majority of packaged goods volume in India, and it is not addressable any other way.

What you give up

Control, mostly. Working through distributors, you lose direct sight of secondary sales unless you invest in a distributor management system and enforce data submission. You lose control over which SKUs get pushed, because a salesman with a bag sells what earns him most that month. You lose price discipline, because a distributor under pressure will dump stock into a neighbouring market or into an online seller, and that is how your marketplace price breaks.

You can buy some of it back. Distributor management software, a fixed beat plan, monthly secondary claim reconciliation and a brand-employed area sales manager over the distributor’s team all restore visibility. They cost money, and past a certain size they are not optional.

When brands switch

Most Indian brands run direct at the start because their volumes are too small for anyone to want. The pattern from there is fairly consistent.

• Under roughly Rs 25 lakh a month of offline revenue, direct in one or two home cities is usually cheaper and teaches you the category.
• Between Rs 25 lakh and Rs 1 crore a month, a super stockist plus a handful of appointed distributors in your strongest state, with your own area sales manager riding the beat.
• Above Rs 1 crore a month, or the moment you enter a third state, a full distributor structure. Direct coverage beyond your home region will cost more in salary and stock than the margin you saved.

The trigger is not revenue alone. It is route density. If your salesman cannot bill 25 productive outlets a day inside a defined beat, the direct model is subsidising empty travel. Measure that number before you decide anything. It answers the question faster than a margin spreadsheet does.