Why FMCG companies need distribution aggregators to scale

The FMCG sector is large and relatively unorganised. Following a traditional distribution network is hampering its growth. Here’s how one can bridge the gap.

20th Nov 2019
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India’s FMCG unit is a culmination of tiny outlets spread across the country in every nook and cranny. The industry might look small from the outside but is home to more than 10 million stores doing multitudes of transactions every minute.


There is a strong network of distributors that these FMCG companies utilise to connect themselves with every paan wala, kirana store, chemist, and the likes in a certain region. In order to become their clients, the companies deploy regional executives, merchandisers, and distributors who in turn become the face of these companies for them. These representatives are responsible for taking orders and delivering them in a said tat-period (turnaround period). On a given day, an average order to delivery period is two to five days depending upon the nature of the product, in order to maintain the harmony in the market.


FMCG

Then, why is it now painful to have a traditional distributional channel?

Increasing costs

Distribution models dominatingly incorporate the expenses of the warehouses, labour loading material, drivers, and distribution centre supervisor and owning or leasing of trucks.


Now, a majority of the distributors take vehicles on lease and pay the drivers with daily wages. This results in the increase of the overall cost of the product by five to 10 percent while the profit margin is not even closer.

Cheap labour = poor performance

Since the drivers are primarily uneducated, they work on daily wages and some make Rs 8,000 – Rs 10,000 a month, in case they are directly appointed by distributors. It is understandable how unhappy and underpaid labour show productivity, leading to increased absenteeism and incomplete deliverables. Even the working conditions are a disappointment since the nature of the job is such that the drivers are supposed to stay in the trucks for prolonged periods, the surroundings are unhygienic and depleted.

Inefficiency

Wholesaler warehouses are mostly ignored. Often, there are items stacked over one another with no association, and some are inadequately kept leading to more harm than good.


Since the number of drivers are not very attractive, it becomes difficult for the ones available to fulfill deliveries out of their comfort zones. Also, as there is no way to streamline the processes digitally, most of the stock maintained is wasted before it reaches the retailers.


These are some of the most disturbing issues of adopting a traditional distribution chain. Wholesalers are often tied deep down in chains that they find it impossible to adapt and change.

What could be done?

From what it seems, FMCG companies are investing in new distribution models. Distributors with the help of third-party companies, are now providing end-to-end solutions to the grocery stores or kirana shops. They are offering “express delivery for a basket of products,” sales and training to the owner, introducing them to the technology and its know-hows, and more. This kind of distribution network can remove one of the most challenging roadblocks in the supply chain, credit and financing options, for these micro-retailers who otherwise suffer due to lack of credit facilities or its predatory rates, if there is one.


This model is likely to be better as they can continue focusing on sales without being required to pay attention to stock-shortages, order-delays, stressed payments, and broken product discovery. Balancing technology and distribution could be difficult, mostly because of the nature of the trade. But web-based tracking systems, instant credit at lower rate of interests, and best prices ensure that the micro-retailers are satisfied.


Currently, the express delivery industry has risen up by five to 10 percent, where only a handful of companies are offering “express delivery” forever which means it’s time to bring in new data and technology so that it enables and sustains new players.


(Edited by Suruchi Kapur-Gomes)



(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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