Somewhere in your deck is a slide comparing gross margin selling direct against gross margin through the trade. Forty-two percent against twenty-eight, or something like it, with the conclusion sitting right there on the slide.
That slide is arithmetic about the wrong thing.
The fourteen points are not a toll you pay for access. They are the price of a job that somebody else is currently doing, and the only useful question is whether you want to do that job. If you go direct, the margin does not appear in your pocket. The work appears in your week.
So the real question is not which model is more profitable. It is who holds the relationship with the point of purchase, and what the holding costs.
What the distributor’s margin is actually buying
General trade in India is not a legacy channel that survives out of habit. It is a credit business with logistics attached, and the credit part is the bit founders consistently miss.
Your distributor buys stock from you, frequently on tighter terms than they give out, and then extends credit to hundreds of retailers. Published figures on how long vary quite a bit: some sources put retailer credit at seven to twenty-one days, others at fifteen to thirty stretching past forty-five, and one analysis of the distributor layer describes thirty to sixty days. They are all secondary and the spread tells you this is negotiated shop by shop rather than set by a rule.
Take the middle of it anyway. Somebody is financing a month or more of your product sitting on shelves across a few hundred shops, and they are absorbing the ones who do not pay.
On top of the financing, that margin covers a godown near the retailers, a van, a salesman walking into shops on a route, replacement of damaged stock, and the scheme paperwork. Reported distributor gross margins run roughly three to fifteen percent depending on category, with net figures commonly put at one and a half to five after spoilage, defaults and the interest on all that working capital.
Read that as a price list for services rather than as a cut being taken off you. Every line on it is something you would otherwise do.
The people doing that job say it no longer pays
This is the part that makes the decision a 2026 decision rather than a timeless one.
In June, the All India Consumer Products Distributors’ Federation, which says it represents over 4.5 lakh distributors across 25 states, publicly told major FMCG companies that distributor margins of 3.5 to 5% were no longer sufficient. It listed fuel, transport, manpower, warehousing rentals, electricity, banking fees, compliance, technology and working capital interest. It set a deadline of 30 July for meaningful corrective measures and said distributors might consider collective protest action in August.
I went looking for what happened next and could not find reporting on the outcome either way, so I am not going to tell you it was resolved or that it escalated. The deadline has passed and the dispute has not been loud since.
What matters for your decision is not the outcome. It is the disclosure. The layer you would be buying into has said in public that its economics are strained, and this is a recurring argument rather than a one-off. A founder signing distributors in 2026 should expect margin conversations, expect the better distributors to be selective about which brands they carry, and expect to be asked for more support than the rate card suggests.
That is not a reason to avoid the channel. It is a reason to stop treating distributor margin as a fixed input in a model.
Going direct does not remove the cost, it relocates it
Here is the inversion, and it is the whole argument.
When you sell direct you do not delete the distributor’s four percent. You inherit the distributor’s job, and your version of it is more expensive. It simply arrives in different line items, which is why the slide looks so good.
You now pay to acquire each customer individually, forever, which is a cost the trade channel does not have at all, because the shelf does the acquiring. You pay forward and reverse shipping on every failed delivery, and I went through why cash on delivery returns cost more than the freight suggests separately. You hold inventory yourself with no credit partner between you and demand. And your cash is tied up on the other side too, since cash orders sit with the courier until remittance.
Add those and the honest comparison is not 42 against 28. It is contribution margin after acquisition, returns and the cost of your own working capital, against a distributor price that includes all three bundled.
Plenty of categories still come out ahead direct on that comparison. The point is that you have to run it, and almost nobody does, because the gross margin slide feels like it already answered the question.
Who holds the shelf
Now the part the margin framing cannot see at all.
Through distribution, the person with the customer relationship is the shopkeeper. He decides what to recommend when somebody asks, what to stock when space is tight, and what to push when two brands pay the same margin. You are renting a position in his judgement, and you have no direct line to the buyer.
Direct, you hold everything: the name, the number, the order history, the ability to sell again without paying for the privilege. That is genuinely valuable and it is the real case for D2C, far more than margin.
What you lose is the local vouching, which matters more outside the metros than founders expect. I went through why a person rather than a brand does the reassuring in a smaller city, and that mechanism does not have a direct-to-consumer equivalent at any budget.
So state it plainly rather than as a margin trade. Distribution buys you presence and borrowed trust and costs you the customer. Direct buys you the customer and costs you presence.
The hybrid, and the policy it needs
Most brands end up doing both, and most of them manage the resulting conflict with hope.
The conflict is specific and predictable. Your website runs a festive discount, the retailer’s customer checks the price on his phone in the shop, and your distributor hears about it within a day. Do that twice and the better retailers stop giving you shelf space, because you have made their store a showroom for your website.
The fix is a policy decided before it happens rather than an apology afterwards. Hold the same price everywhere, and differentiate by something other than money: pack sizes that exist only online, bundles and subscriptions the trade cannot assemble, early access to new variants, replenishment convenience. Those give the website a reason to exist that does not undercut the shop.
And if you are going to discount online, discount what the trade does not carry.
Where I come out
By category, briefly, because the answer genuinely differs.
Go direct first where the purchase is considered, the margin is fat, the product needs explaining and repeat is the whole business. Skincare with an ingredient story, supplements, anything with a subscription logic, premium anything.
Go to the trade first where the purchase is impulsive or habitual, the ticket is small, and the decision happens in front of a shelf. Snacks, beverages, everyday personal care. Spending Rs 400 to acquire a customer who will buy a Rs 60 packet is a hobby.
And for most brands in the middle, the sequence is the answer rather than the choice: prove the product direct where you can see every complaint, then take the proven product into the trade, where you will not be able to see anything.
If you’d like to run the honest version of that comparison for your own numbers, drop me a line on email, WhatsApp, phone or LinkedIn and we can have a quick chat, and my notes on how I work cover the rest. I’m taking on a small number of contracts at the moment, so I’ll tell you straight whether it’s something I could help with.