Distributors Dilemma & the Conflict
market is rapidly growing, expected to reach USD 1.55 trillion ($1555 Billion)
by the end of FY 2023. however, 80%
market is still traditionally driven but supported somehow by technology. No
doubt transformation in terms of Infra and technology is going on at a keen
pace, which will take this to the next level of growth.
FMCG Industry in India, Just for more clarity I
extracted from it : https://www.ibef.org/industry/fmcg.aspx
As per the Apex Retail body IBEF,
the Indian retail FMCG market will touch 2.20 trillion markets by 2025 almost
double of existing market size, out of which 60% is the grocery market i.e.USD
1.2 Trillion. Currently, the market is around $883bn. India's $883 billion
retail landscape is dominated by Kiranawalas.
The market is
growing due to changes in customer preference, increase in disposable income
inflated the consumption too, more technology-driven distribution is underway,
retailers are also benefiting from the new age disruption by eB2B players, but
there is an important member of this ecosystem who is suffering the most and is
currently his existence is going through a dilemma. They are the
Distributors who are in great dilemma and struggling to sustain their business.
Why is such an
important member not taken care of by Brands? In a real sense, they are
the real connector and bonds. Distributors are connecting retailers with
brands. Without its existence, we cannot think of reaching the retailer and
ultimately end consumers. But, this community is now in great danger as they
struggle to protect their business from stiff competition from supply chain
aggregators.
Why I am keen
to write on this topic? Because I am
from this ecosystem and working closely 1998 and understand the pain of an
existing distribution channel partners. I
have been witnessing growth in grocery retail since 1998 when we introduced
pulses in consumer packaging and find ways to make it a brand. At that time
retail was in the development phase and retailers were at the forefront of
moving a product through its placement cycle to the stage of making it brand.
There is no doubt that retailers still have that power and are at the base of the
retail pyramid, although the penetration of technology has provided new
workspaces and room for developing technology-driven supply chain aggregators
that will eventually lead to FMCG companies. provide wings in terms of more
sale verticals but with conflicts.
But, my
concern is more about the distributors because my way of thinking is that we
should empower the existing ecosystem and not disturb them in any way.
Let’s put to
light a few important things about Distributors.
With an ample size i.e. about USD 1.2 trillion markets
catered by 14 million small retail stores i.e. Mom & Pop shops serviced by 0.45
million distribution channel partners ( C&F, Distributors &
Stockist) still we are talking about opportunities in this segment.
New Developments in retail,
especially in the Kirana
segment
Venture
capital-funded technology-driven supply chain aggregators are the new
wholesalers and taking the pie of distribution channels. As per the estimates, funded
eB2B players are contributing USD 2.5 billion out of USD 800 billion of grocery
retail. It is negligible if we talk about the intensity of trading volume in
terms of GMV. According to me, the calculated GMV refers to the net revenue. I
am not talking about organized retail trade. Organize retail consists of
physical stores of retail giants like D-mart, Reliance, Big Bazar, Vishal, etc.
This article is about all the problems faced by distributors and how they are
affected by eB2B players.
Retailers are
in the centre of all activities, no doubt they will be benefited from such
developments but the same is happening with them as online commerce is taking
their share and getting the big bite from the pie. Social Commerce, Q-commerce,
and D2C platforms are going to take 30% of business from the Kirana Retailers
by end of 2023 but they will have more choice to fill their inventory but he
will be part of the conflict that is arising with Brands and Distributors very
soon.
eB2B players
are in process of reaching directly to Retailers so they are among the
change-maker who has money power, the influence of technology, and some great
risk-taking appetite disrupting the ecosystem. Disruption is a humble word for
disturbing the system. Let’s continue
with it.
First of all,
we have to understand the role of distributors in the retail ecosystem and how
they are impacting the process.
Distributors
are wholesale agents who connect manufacturers and retailers. Distributors
purchase large quantities of goods from the producer and supply these to
individual retailers, thereby eliminating the need for the manufacturer to
contact a large number of retailers one by one. They provide large coverage and
penetration in terms of selling line items of the product line, ensuring proper
placement and through promotional activities by the brands creating a
breakthrough.
Typically, distribution approaches support company-level objectives
related to growth.
- Transactional functions: buying,
selling, and risk assumption - Logistical functions: assembly,
storage, sorting, and transportation - Facilitating functions: post-purchase
service and maintenance, financing, information dissemination, and channel
coordination or leadership, Expiry Management and providing replacement and
services to retailers related to any queries arising due to quality of products
and delivery timing etc.
refined way, they are providing:- Delivery
of satisfaction i.e. providing freshness - Standard
of Living i.e. providing latest items on time and convenient availability - Value
Addition i.e. Providing goods at the right quantity, at the right place, and the
right time. - Communication
i.e. Information flow from Brands to Consumer through retailers - Employment
- Efficiencies
i.e. Distributor is an entrepreneur so he has to work on the scale of the
economy by way of keeping efficiencies in their deliverables. - Logistics
- Financing
i.e. provide on-demand credit to retailers and keeping good relations with
them
- ·
Greater
efficiency in making goods available to target markets. - ·
Intermediaries
provide – Contacts – Experience – Specialization – Scale of operation - ·
Match
supply and demand.
-------------
Based on the
above information which tells us about their important role in the ecosystem we
should mend our knowledge that they really contribute a lot. Now the question
comes if they are so important part of the market so they must be gaining a lot
i.e. earning good profit from the business.
During my twenty years of experience in Retail, I got a chance to visit
hundreds of distributors and could see them closely. They are still operating from a pitiable
infra and driving their business in a very economic style.
Route to
market should go through a proper channel. But, despite such an important role
in the ecosystem, there are many challenges which distributors are facing.
Let’s put a light on these issues and see how we can add value to their
business and empower them in the best way.
SLL is
done by the Distributors
Challenges faced by the Distributors
- Most of the
challenges are external to them, however, they have some of the internal ones
which are generally related to their infra, mindset, and IT prospects, but for
them, it is manageable amidst the low margins offered by the brands and somehow
indifference from the brand side like isolation and lack of training mechanism.
Distributors and semi wholesalers are catering to small retailers, truly they
reach the last mile and reach out to the masses. With the advent of eB2B
startups, distributors lost a significant portion of their revenue as
small-scale retailers started placing orders with eB2B players using their IT
tools. - Challenges
from D2C - On-demand
delivery by the Retailers - Last-mile
delivery affected by the Supply Chain aggregations i.e eB2B startup - Emergences
of social commerce, Q-Commerce, and consumer-driven B2C platform - Shrinking
margins. - Territory
bangs - Inventory
Management & assortment management - Demanding
Customers and prospects - Less
penetration of IT tools - Sales return & RTV issues from the brands for new
product lines.
There
is a lot to find out if we talk about the problem side of distributors but the
issue is why are they moving out from the stream and what is the solution, and
how can they be empowered?
The conflict
between brands and distributors is now visible in the ecosystem, recently All
India Consumer Products Distributors Federation (AICPDF) warned nationalized
brands not to be met by distributors if they did not find any solution for
them. The problem is with horizontal
distribution i.e. eB2B supply chain aggregators and other big bang retailers
who are giving or burning their money in terms of giving 15-18% margin and
sponsored promotions to retailers through technology intervention, whether FMCG
brand through traditional distribution system spread margin from 10- 12% then.
Why this discrepancy?
Here we have
to expand on the word "disruption", I'm not convinced by the
terminology that one segment of the ecosystem is burning money like crazy,
offering huge discounts to build a bigger network, regardless of the bottom
line. Creating the word “Disruption” exhibits an aura of disturbance in the
ecosystem. The only good thing in this kind of development is the emergence of
technology promising of that scale which is a huge parameter to
"evaluate" in the start-up ecosystem. But, before they were fired
from the ecosystem, we need to understand the fundamentals of the business.
Why
distributors are disturbed and losing the charm, interest, and business
opportunities? This is not what we are
not able to figure out but the thing is that we are a part of this ecosystem
and are engaged somewhere and our selfishness is keeping us on hold that’s why
we are not speaking aloud.
With the
advent of Modern Trade from 2005 to 2014:
FMCG companies started focusing on Modern trade, this
has brought another line of consideration for them and they start giving low
preference to the General trade market.
This has happened in every segment of retail, but yes grocery is the
most affected. Undoubtedly, Modern Trade has greeted them with good visibility
and stretched their product range beyond expectations. But, the landscape
started in a different direction when modern business outlets started offering
their own private label. The disillusionment of the FMCG company started in
2012 and onward. However, later some companies started introducing new pack
sizes with different MRPs to avoid the conflict with GT market. Still, Modern
Trade is a great platform for FMCG companies. But here the struggle has started
for the distributors, the same FMCG company is giving more margin to MT outlets
than GT. Somewhere the demand imbalance and consumer dissatisfaction made GT
retailers less preferred resulting in turmoil in the sales of GT backfire
distributors severe. Things will go in
the same directions, as per the market trend of MT market size, it will grow in
double digits and will reach above USD 150 Billion by 2023, positively will
be in the range of 18-20% of total retail market size. I completely agree and I believe this will
upset the existing distributors in a big way.
Ecommerce is
on the other hand made a heavy noise: B2C
players, started entering B2B in one or another way. This is something cannibalizing the
opportunity for distributors. The advent of technology-driven marketplaces and
diversion of the business model of b2c into b2b is something that is creating
panic in the distribution ecosystem. Everyone wants to each to retailers so
they are offloading their products and making the scale of the economy.
Something fabricated and fascinated way of practice is going in B2C startups. Many
startups are there to disrupt the ecosystem in their way. They were getting heavy funds, some of them
got Unicorn status and again burned more money in terms of discounts,
promotions, and adoption. This advent in E-commerce will reach $111 bn size market
by 2024 and maybe more.
It would not
be wised to create a conflict, it will be a big setback for the FMCG companies
irrespective of status they have i.e. national, regional, or local. All are going to suffer if this would happen
and distributors start a conflict with the brands. Distributors can’t be let in the middle of
technology-driven b2b supply chain aggregators and the traditional method of
distribution. All stakeholders of this ecosystem should get a better solution
so that distributors should not suffer.
According to
my sources, the AICPDF and FMCG companies have agreed to suspend the agitation
for time being, but the struggle is not showing any signs of abating. If we are
talking about any solution that FMCG companies will provide to them, honestly
nothing will happen. I have an argument to prove that if FMCG companies find a
way to resolve this conflict, it must go through a basic fundamental. As a
retail professional, I am curious to know the outcome of this conflict. How
FMCG companies will distribute lollypop among the distributors?
Things need to
be discussed with the retail giants and amicable solutions need to be brought
into the retail ecosystem so that there is better consistency across all layers
of distribution.
I am working
to deliver some strategic solutions to the ecosystem so that such things can be
avoided with brands and distributors.
Your valuable
comments and suggestions are welcome to share with the stakeholders of this
ecosystem.
Post written by : Balwant Singh Rana /23.12.2021
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