FMCG Distributor - Dilemma - Conflict to Survival

 

Distributors Dilemma & the Conflict 

Indian Retail
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.

1.  In a more
   refined way, they are providing:
2. Delivery
   of satisfaction i.e. providing freshness
3. Standard
   of Living i.e. providing latest items on time and convenient availability
4. Value
   Addition i.e. Providing goods at the right quantity, at the right place, and the
   right time.
5. Communication
   i.e. Information flow from Brands to Consumer through retailers
6. Employment
   
7. 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.
8. Logistics
   
9. Financing
   i.e. provide on-demand credit to retailers and keeping good relations with
   them

In Net shell:

1. ·        
   Greater
   efficiency in making goods available to target markets.
2. ·        
   Intermediaries
   provide – Contacts – Experience – Specialization – Scale of operation
3. ·        
   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

1. 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.
2. Challenges
   from D2C
3. On-demand
   delivery by the Retailers
4. Last-mile
   delivery affected by the Supply Chain aggregations i.e eB2B startup
5. Emergences
   of social commerce, Q-Commerce, and consumer-driven B2C platform
6. Shrinking
   margins.
7. Territory
   bangs
8. Inventory
   Management & assortment management
9. Demanding
   Customers and prospects
10. Less
    penetration of IT tools
11. 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

Entrepreneurs are not made in Heaven; they are Man-made

D2C’s Dilemma- My way of Interpretation.

 

Communication is very dynamic nowadays; many new



things are evolving differently. Technology is making it dynamic and playing an
important role in our day-to-day life. The pieces of information which once
were secret and were handy with few people in the market, now it is one finger
click on our mobile. Helping businesses to think beyond the peripheral and
time. The same way consumers are getting market updates every second and AI on
social media is capturing every move of their thoughts and trying to get the
inside of our minds. Especially when we are searching grocery, home appliances,
electronics or any other products on a website, means we are exposing our
interest to the world.  They are forcing us to think about their products
and trying to change or judge our preferences, interests, and even hobbies.  Changes
in e-commerce take place when customers’ preferences change. Exactly
technology companies through a social platform, Application or information
through other means trying to change our preference and interest.

Let's validate this thought of change in consumer
preference. 

Let’s move to the year 2000  and try to memorize the market scenario
especially in Retail. you will find products that are approached to consumers
that such a brand is best for health etc and promotions were done through
Newspaper, Radio, and Television. Few standalone supermarkets were there in
metro cities which were showcasing the merchandise in the best way. In the
modern world, retail was evolved 3 decades ago so consumers are aware of brand
and branding. 

Indian retail is vast in terms of size and rise so
opportunities are there in a very ample way.  $500 billion grocery retail
size is huge for an unorganised sector here in India. Covid brought new
synergies and opened a new line of business for companies or start-ups who are
willing to use this ecosystem for more fields to plough.  Yes, change is
unavoidable but persistent so things move on for new dynamics and new heights
to touch. A consumer must have felt the touch during the covid wave, how
e-commerce companies facilitated them and fulfilled their daily needs
unorganized. Also, numerous new products have been seen and tasted.  I am
very close to this ecosystem of retail so I can feel that things are going in
the right and disruptive way. Startups and organizations started introducing
FMCG products across categories and getting huge investments. 

Terminologies have been changed significantly,
dramatically, Consumer and logically but products remain the same but the way
new products are introduced in the market is changed. What are those
terminologies?  Let's figure it out and explain how it is forcing us to
think and adapt.

Consumer’s preference is changing towards hygiene,
sanitation, convenience, quality, and health and welcoming brands entering
these segments. Well, now directly come to the article about D2C ( Direct to
consumer).  This is new terminology for brands reaching directly to
consumers via e-commerce platform or direct distribution like direct marketing
but still, we can find lots of change in way of working and making its market
fit.  Old terminologies are used by the company to consumers i.e. C2C,
Private label for standalone supermarkets, and consumer brands in the
fast-moving segment.  Let’s jump to the names which got fame and name
during the last two or three years, most brands got earmarks only after
2015. 

Below is the list of a few known startups in D2C
brands,  let’s figure out how many are available near your Kirana
stores.  Stand-alone stores of a few D2C startups are now there in tier I
& Tier-II cities like Lenskart, firstcry are very visible and consumers
footfall is there in these physical stores. They are asset-heavy startups, yes
but still brands like mama earth and beardo are very much on the b2c commerce
platform and doing great. 

Startups	Starting	Segment	Life Cycle as on date
Lenskart	2010	Eyewear	11
Firstcry	2010	Baby Care	11
Healthkart	2011	Fitness Products	10
Pepperfry	2012	Home Furnishing	9
Bewakoof	2012	Clothing	9
Plum	2014	Organic Beauty Products	7
Noise	2014	Electronic Lifestyle	7
MyGlamm	2015	Beauty Products	6
Sugar Cosmetics	2015	Beauty Products	6
Licious	2015	Non-Veg Segment	6
Country Delight	2015	Dairy	6
Melorra	2015	Jewellery	6
Candes	2015	Home Appliances	6
Bombay Shaving Company	2016	Men's Grooming	5
Mamaearth	2016	Personal Care	5
The Moms Co.	2016	Healthcare	5
Wakefit	2016	Home Furnishing	5
Wow Skin Science	2016	Skin Care	5
BoAt	2016	Electronic Lifestyle	5
Sleepy Owl	2016	Beverages ( Coffee)	5
Flatheads	2018	Footwear	3
Indus valley	2016	Kitchenwear	5
Mcaffeine	2015	Personal Care	6
Vahdam	2015	Beverages ( Tea )	6
Nyumi	2019	Nutraceutical	2
Onlife	2019	Healthcare	2
Mensa	2021	Fashion & Apparel	Unicorn
Monrow	2016	Footwear	5
True Elements	2014	Plant Based Food	7
Juicy Chemistry	2014	Skin Care	7
Oziva	2016	Plant Based Food	5

Do we think that these all are newly invented concepts or ideas or they
were not in existence before or have we never seen such products at physical
stores?  They were there but we hardly know the name not because we are
not using them but we are treating those brands just as a product or
commodity.  We know them by the name Private Label, mark, brand. 
Status etc. but now it is the era of start-ups with new ideas and with speed to
grow in a short period.

Human psychology is unpredictable and hard to understand. You must have
heard a famous sentence mostly used by a politician “ that, the memory of
general people is very weak so remind them at the very start of election
otherwise they will forget the gold you have given them during your
term”.  This same saying seems to fit with the end consumer, but not every
time.  The brand is a brand that is inherent sometimes in our memories.
Things are changing very fast which further pressurizes individuals to think
about the communication which is done by the brands, by the advertisers, by the
social media platform, and by word of mouth. The continuous hammering of events
is activating the subconscious mind to be addicted to those things which we
should not try but buy.

So far D2C brands that are selling their products through eB2B are in good
shape but if they want to grow what will be their strategy. Till they are
asset-light, must have positive EBITDA but tomorrow when they think to expand
in other territories?  Will e-commerce help them to reach there?  Or
they will come with an asset-heavy model of physical stores. 

 Questions are in Queue? 

 Let's surf with me with a few questions and will find the answer near to
your thoughts.

·         Startups have plenty of
commitments owed to their investors & other stakeholders which

         they need to fulfil within five years
i.e. short time frame,  do or die situation.

·         Scale to the tune of the top line
is a must – big accelerator of valuation

·         Burning money is unavoidable

·         Every time present in the market
to raise money

·         Market expansion is a must 
-  a milestone to achieve for greater valuation: But where to

         expand?

So far the presence of D2C brands are on the eB2C platform, I am okay
with their performance and agree that they are purely D2C and directly reaching
consumers without many market intermediaries or existing distribution channels.

But, further, if I think that they will expand the business to other
verticals or want to join the traditional distribution then what will
happen?  Again differentiation between GT and MT will happen, the same way
we need to change the margin structure. Finally, they will come to Retailers.
This would be done for sure because without the help or mediation of retailers
they will not reach to masses.   I must say, welcome to the Retail
network of Kirana Retailers. 

Problems start from now which they will feel starting from onboarding Super
Stockist, C&F,  distributors, Sales & Marketing staff, and backend
staff heavily. City-wise and state-wise distribution networks need to be
developed, stock will move from hand to hand adding cost at every stage. 
Challenges will come when the brand will start communication with consumers
i.e. demand creation.  Without proper distribution and availability at
every Kirana store, things of ATL/BTL marketing will not work, this will be a
failure and the brand will be out of sight, out of mind immediately. 
Dealing with a traditional mindset is not an easy task.  Kirana Retailer
and distributors both are business people, they have their own way of working
and dealings. The mere use of technology will not change their way of working.
They are masters, running businesses at low operating costs.  “penny wise
pound foolish” will change the mind of the brand owner. So, beware of this
mindset.

This is a long story of the brand’s journey through a traditional
system.  We can make this journey short & sweet. 

 “ Placement of new products on the  Grocery Retail shelf is a mammoth
task & hard to deal with a traditional mindset, Journey of the brand can go
long” ……… by Bhardari

No Worry,  here in Jaipur, we are making things easy by way of our
unique Kirana retailer’s network. This is a confluence of traditional and
innovative distribution systems, techniques, and best use of technology. 
A network of uniform retail stores across Jaipur city will help new D2C brands
to place their products and trigger a call for action for customer footfall at
these stores.  On a single click, the entire retail network is available
for distribution and will be available for centralized marketing activities.
The brand will have large coverage and penetration.  In a shorter period
of exploration, we will make the product /brand market fit in the
territory.   The power of empowering the existing ecosystem is more
energetic, economic, scalable & profitable than creating a new competition
so we believe in empowering them and connecting them with our technology stack.
I believe in connecting and empowering rather than disrupting.  Disruption
is a kind of disturbance in the ecosystem which can not be fruitful for the
system and finally the economy. 

Come to us to become part of our journey and introduce your D2C brands to
retailers through our platform. We are an offline- platform driven by
technology.

D2C is not a dream but again it will take time to come to reality i.e. on
the retailer’s platform. We are there to make it market fit.

Writer :: Balwant Singh Rana,

Written on 18.11.2021

Jaipur, Rajasthan

India,