FMCG distribution is being taken over by them

FMCG distribution is being taken over by them…

Distributors can be the lifeline of a business. A healthy distributor in turn leads to a healthy business. Yet, India has among the most complex distribution systems compared to any other place in the world. It’s also very inefficient. Why? 

A kirana store gets its supply from 100s of distributors and therein lie the inefficiencies. Why can’t they be served by say 10 distributors or even just 1 maybe? This would save time, cost and improve efficiency tremendously. 

Here’s how I see the future distribution models unveiling for FMCG products from Kirana.

So while kiranas contribute ~85% of FMCG sales today , it is estimated that this will remain a high 65-70% over the next decade. Which means that the friendly mom & pop, kirana stores will continue to remain the key channels of distribution for convenience. 

Distribution to these kiranas though, is going through change. Rapid change!

Traditionally, distribution has been a family business passed down generations in the post independence era of India. With the emergence of multiple channels of distribution, the margins and control exerted by this fragmented distributor community is dwindling.  

Also, the priorities of a generation born in modern India are changing rapidly, leading to high attrition of distributors who are getting increasingly difficult to replace. 

These are some of the big changes we’re seeing happen

  1. There is a transition happening to 1000s of larger geo distribution companies vs current lakhs of small micro distributors

Many small distributors are moving out of the business at a rapid pace & at the same time we’re seeing multi-brand distribution is coming of age. There’s the emergence of many, large multi-brand distributors handling distribution for a number of brands. A number of such companies already leverage tech (from Bizom) such as OrangeTag, Khimji Ramdas and GAG. Over the next decade, we do see this as a lasting shift as businesses look to simplify their distribution model and focus on driving brand impact with consumers and product development. 

  1. Connected Vending Machines companies become the NEW DISTRIBUTORS

Picture this, India with ~10Mn kiranas ~ serves 120-130 people per outlet. Countries like Japan with ~3Mn vending machines serve ~ 43 people per machine. We will see an increase in the number of new supply points in the form of these vending machines.

I also imagine these vending machine manufacturers and distributors to evolve to a model of becoming an end-to-end distributor supplying products & restocking as well as maintaining the machine itself. This change is happening across categories and we will see rapid evolution in this space beyond beverages.

Mobile phones & accessories

Fertilizer vending machines

FMCG products 

Sanitary Pads 

Mask Vending Machines

Food Vending machines

It’s all happening, now & it’s coming together very fast. This decade’s gonna be one where machines take over a significant share of distribution in India and emerging economies. 

3. B2B aggregator platforms are stepping in to offer a comprehensive availability of a large number of products

Currently, kirana stores are challenged in managing supply

  • They spend hours ,daily, trying to stock products from the many salesmen who come to take orders from them for a given company product. This takes their focus away from consumers, which should be their primary business focus. 
  • With a single brand distributor, Kiranas often need to buy products they don’t want in exchange for getting stock of pull products.
  • Kiranas can order products from a company only when their salesman visits them either twice a week, once a week, fortnightly or even monthly. This often causes loss of customers who prefer to move to the next outlet to get their favorite products. 

Numerous B2B companies are now offering capability of anytime ordering of 100s of products from a single source. There are brick & mortar players such as Metro,Best price modern wholesale etc to online players such as Bizom, Jumbotail, ShopKirana, Udaan etc.

So while the future’s evolving, one thing that’s certain is that distribution in the current form is going to be as extinct in this decade as maybe this…

And like in all evolution, information and technology will have a very big role to play.

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