Reinventing Distribution

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Indian retail market is expected to become world’s fastest growing developing market in the world, in a few years. As per 2015 Global Retail Development Index shared by AT Kearney, India’s retail market is expected to expand to USD 1.3 trillion by 2020. The estimated retail sale in India, in 2015, was about 925 billion USD. According to retail pundits, India’s retailing sector is at an inflexion point. However, the country’s retail growth story would be incomplete without the inclusion of the huge unorganized retail sector.

The number of Kirana stores in India is estimated to be around 10 million. It essentially translates into about 1 store for every 120 consumers. The penetration and reach these stores enjoy is huge and is giving the bigger e-tail brands a significant competition. However, since the traditional retail sector in India is highly fragmented, with over 90% of from unorganised retailers, the connect between the brand, consumer and the retailer is negligible. Furthermore, 90% of the products have no visibility in store. Most current media only build brand equity with no call to action in store. But most purchases need a call to action, hence the value of “Jo Dikhta Hai, Woh Biktha Hai”. Brand’s connect to retailer too is layered with many distributors / intermediaries, which make the distribution and supply chain network a complicated system.

The existing retail distribution networks in India are often forced to work with several small and often unreliable players. With layers of distributors and wholesalers, problems around control on credit and distribution are endemic. As thousands of small vendors handle the last mile of the delivery chain, most entrepreneurs find it hard to reach Indian consumers making distribution a crippling bottleneck.

There is an urgent need to update existing distribution models to keep pace with today’s competitive, connected market. As many organisations, manufacturers and channel partners are vying for better returns and faster growth, revamping the distribution model could well be the ticket for improved sales and growth in market share. Technology can here help bridge the wide gap between retailers, distributors and consumers, while adding value to individual stakeholders.

A typical distribution model in the FMCG space includes manufacturers, sales-distribution-17-728bigger distributors, sub distributors, wholesalers and finally the retailers. The distribution channel offers a system to push the sale, in form of promotions, schemes or offers. However, often this sales communication gets lost mid-way and may not reach as effectively as wanted, to the end consumer. Moreover, there is very limited and often delayed feedback on the product or promotion that a manufacturer can expect from a wholesaler or distributor. A retailer, on the other hand, has a finger on the pulse of the consumer. Conveying the promotions, offers and schemes to the consumer is also in his own direct interest. Consequently, it is quite prudent for brands to have direct relationship with these traditional retailers instead of relying solely on the long and tedious distribution channel.  Technology can provide the much needed connect.

Ironically, the technology interface usually ends almost as soon as the product enters the market. From channel partners to larger distributors, then to smaller distributors, wholesaler, the product finally lands at a retail shop physically closest to the consumer. The entire distribution chain runs almost in a silo, for a segment that accounts for the maximum sales for FMCG retail sector. The irony doesn’t end here. The two most important and crucial connects for a brand – viz. the shopkeeper and his shoppers are farthest away from the brand or the manufacturer. The bigger the brand, the larger the distance.

What happens when technology is placed at the center of this ecosystem? Consider this – A shopper makes a purchase at a local kirana store. The items purchased and other relevant details get clocked into a digitized system. A database of numerous such purchases can be accessed directly by the brands on a real time basis. It would give the manufacturer an on-ground reality check on how his products, promotions and offers and converting into sales, at the point of sale. While technology has always known to create transparent communication mechanism, this one will also change the dynamics of traditional retail. Though the distribution chain and process will remain the same, the real time insights can make the entire process proactive and data driven.  From minute to minute details of out-of-stock data to best performing promotional offers, the entire distribution network soon becomes an active participant of the sales process instead of operating in a silo.

The Indian FMCG sector operates with a complex distribution network. To increase the market penetration and leverage the existing network, brands need to reach out to consumers at lower end of the economic pyramid, without increasing the logistics cost. Technology is a perfect answer to this puzzle.

10 thoughts on “Reinventing Distribution”

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