November 9, 2020 | 02 min read
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 lies 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 unveiled 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. This 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 are 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.
2. 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.
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 the supply
Numerous B2B companies are now offering the capability of time ordering 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.