Much has been said lately about India’s burgeoning FMCG market, about how it has bucked the global slowdown and domestic shocks like demonetization and the GST rollout to continue to grow at over 20% CAGR. However, in the midst of the celebrations, little attention has been paid to the strange paradox that exists within the industry: the sad reality that while the FMCG industry continues to grow and thrive, the guy who is the face of the industry to most Indians – the kirana store owner – is trapped in a generations-old vicious cycle of low profitability, uncertainty, and debt.
What makes the paradox even more puzzling is the fact that all studies are unanimous in finding that traditional retail still makes up more than 90% of India’s $600 billion retail industry and that the figure is unlikely to change in a hurry despite increasing competition from modern trade (supermarkets) and e-commerce.
However, the reasons for the paradox quickly become obvious when you take a closer look at the retail environment. At Bizom, our work – automating retail supply networks for FMCG manufacturers – gives us an insider view of small retailers’ lives and businesses.
What we have found is that the average shopkeeper in India – let’s call him Kumar – faces a staggering number of obstacles every day. Kumar is constantly hit with new challenges such as a changing retail ecosystem (supermarkets and e-commerce), new regulations like GST, and rising rents and wages, while also grappling with long-standing challenges such as low margins, understocking/overstocking, dependence on credit from distributors, the need to extend credit to customers… the list is endless.
All these challenges have effectively locked Kumar into a never-ending loop of low profits and debt from which there seems to be no escape.
But as we got deeper into the FMCG retail vertical with Bizom, we began to see something that wasn’t apparent to us when we started working in the industry: that the transformative power of technology could extend beyond our direct users (brands, their sales force, and distributors) and actually have a significant positive impact on the small retailer.
We realized that in the process of helping brands make their retail supply networks more efficient and accurate through automation and analytics, Bizom also helps shopkeepers like Kumar break the cycle of debt and uncertainty and increase profits. And given that there are estimated to be nearly 15 million Kumars in India, that is a huge social impact.
So huge, in fact, that sustaining and growing this impact has become a key motivation for us to keep working towards our billion-dollar dream.
But why is supply chain efficiency and accuracy so crucial to a shopkeeper?
“Overstocking and understocking can kill a retail business” – this is a line that I use often. It’s not a particularly ingenious line as it’s just stating the obvious – something that everyone in the FMCG retail business recognizes as true. But before I had entered this industry, I wasn’t aware of the extent of socio-economic impact sub-optimal stocking has.
Here’s one example of how a vicious cycle can perpetuate: A company with incomplete visibility over its market makes products and stocks its central warehouses inaccurately. The warehouses then send incorrect quantities of goods to distributors, effectively offloading inventory and capital risk to them. The distributors then try to push this stock onto retailers.
Now, this is a business where small retailers and distributors bet their life savings (which are as low as a few thousand dollars in a majority of cases) to order stock that they hope to sell. Most retailers order stock on credit from distributors, who in turn get it on credit from upstream players.
So when retailers get push products or incorrect order quantities, it sets them up for a never-ending cycle of taking credit from distributors for these push products, not being able to sell them, and then defaulting on payments. This results in distributors themselves sitting on a huge amount of account receivables, and, don’t forget, debt from an upstream creditor. This cycle of debt makes it difficult for both parties to exit the business even if they wish to do so. Distributors and retailers end up endlessly spinning their wheels for meager earnings to take home to their families.
But what if:
1) …brands started off with a good understanding of their market, knew exactly what to produce and how much.
2) …brands had access to accurate, up-to-date zone-wise consumption trends to figure out exactly what products to send to a central warehouse that serves a particular zone?
3) …the distributors received data on what to stock, how much to stock, and when to replenish stock?
4) …the salesmen serving the retail networks knew exactly what, where, and how much to sell?
5) …the retailers knew exactly what and how much to order?
6) …brands could intelligently set up schemes/trade promotions based on dynamic business goals and track/measure efficacy on these at the level of each zone/region/ area/retailer?
7) …and (most importantly) there was no wastage anywhere in the supply chain? That everyone carried optimal stock.
The answer to all the above rhetorical questions is, of course, that if the entire downstream supply chain had access to high-quality data and analytics, the health of the entire industry (and, arguably, the economy) will improve. Good data can empower stakeholders down the supply chain to make the best decisions for their business. We could then envision a future where retailers are free of the perpetual working capital, credit, and collection challenges and actually take home a good income.
The happy news is that the “what if” situations above are already a reality for many FMCG brands that have digitized their supply chain networks with solutions like Bizom.
Their retail frontline workers are now armed with simple, easy-to-use mobile applications to capture real time data around orders, stock positionings, market data, brand visibility etc that provide brands with real market and supply chain visibility and end-to-end operational visibility.
The data captured this way is crunched by powerful cloud-based analytics engines and fed back to the tools that these workers use and to middle and upper management. With these analytics, brands can get an accurate estimate of what to produce and how much to produce. Additionally, downstream entities – sales managers, frontline workers, distributors, and retailers – can each make intelligent decisions on stocking and selling.
To sum up the impact on our friend, Kumar, the kirana shop owner:
As we saw above, brands empowered with the right analytics can accurately predict what will sell and stock distributors accordingly. Brands can also suggest accurate order quantities to Kumar, which means that he no longer ties up his working capital in products that will not move. Kumar can now serve customers better by always having on hand the products they ask for. What’s more, the improved accuracy in ordering results in more efficient capital rotation (better usage of the available capital, more efficient sales throughput) and a better return on investment. This reduces Kumar’s dependence on credit and increases his take home income.
Digitization thus sets off a virtuous cycle that improves the lives of small retailers, their families and the communities that they are such an important part of.
These are the solutions that we’re building at Mobisy. Our mission is to take the power of technology to people who are on the wrong side of the digital divide and impact them positively.
In the next article, I will talk about Distiman, our newest product, and how it impacts retailers’ lives by helping them use their working capital more efficiently and earn significantly higher incomes. Watch this space!