There’s bound to be big action in distribution
The sector is the second largest source of employment generation and livelihood in India. The entry and growth of JioMart, Walmart, etc., is ruffling feathers of every hue.
If there is one thing all of us take for granted, it is distribution.
Think about it. Distribution exists. It happens. But seldom do we as consumers ever wonder how something gets to us. The toothpaste that kicks off many of our mornings, the coffee that follows and literally everything that we use as a product or service every day, they all reach our doorsteps through the intricate and planned back-end system called distribution. Oftentimes, this is forgotten and pushed to the background with more exciting things standing out, such as the brands and their advertising executions.
Big companies have big factories. These factories send their stocks out to their C&F (Consignment and Forwarding) agents. These agents then process the stock down the chain of distribution that takes the tube of toothpaste through redistribution stockists and wholesalers to retailers, who will display the product on their shelves to sell. The consumer then reaches out to the store and makes the buy.
Distribution is therefore a top-down push process till the product reaches the retail point. And from there on, it is a process of pull, which has the consumer going to the store to buy it. This entire top-down push process is intermediated by middlemen of every kind. At every point, there is a margin that is depleted and fed into the system of distribution. A lot of businesses therefore thrive. Income is generated at every level.
India is a classic nation of shopkeepers. We have a total of 14.6 million retailers in the country (if I am to count the ‘paan-beeda’ shops as well). Each retail point serves a nation of 1.4 billion consumers eagerly waiting for the product to reach their nearest store at arms length and indeed desire’s length. The ratio of store to human in the country is therefore a rather healthy one.
Distribution is therefore an important part of the economy we live in, thrive and help create every single day. Distribution as a service at play helps feed millions directly and possibly a multiple of that indirectly. Look around at your own extended family of relatives and friends. How many of them are involved in some form of distribution or the other? In that answer lies the ubiquity of distribution in our lives and the impact it creates in income generation within the nation of shopkeepers we live in.
Every product and service has the need to reach consumers. These consumers live all over the country and are distanced from the point of production. Companies therefore invest deeply into distribution systems that ensure a wide, deep and consistent supply of its products and services week after week. And into it goes a deep degree of planning, logistics, investment and nurturing.
If one is to look at the many types of distribution, there are the basic and rustic ones, and then there are the sophisticated and the new. There are physical systems that operate efficiently at the grassroots level of the country as well as newer ones that use technology as a play to efficiently deliver results.
The first basic distribution system is what I would call 1:1 distribution. The village home with six cows has plenty of milk to spare. It then decides to distribute and sell this excess milk daily to houses in the village that don’t own their own cows. That is 1:1. In many cases, the cow is brought to the home and milked in front of the buyer to ensure a completely fresh udder delivery, if you may call it that.
There are systems of distribution that deliver items through tubes and pipes and wires. Electricity distribution is one such. The water and gas supply direct to your home is another. And then there is the distribution system that reaches products to retailers through intermediaries.
The distribution system in India is really an old one. A basic one that utilises multi-level movement of goods and services through multiple layers of middlemen. The year is 2022 and the current effort by the big names in the world of distribution is to disrupt the process itself. While the effort to do this has been one in thought for decades, the key action at attempting it is just about happening. And as it does, expect turmoil and tumult.
The current distribution tumult is over a set of actions taken by some big FMCG companies, wanting to disintermediate. The idea is to save money by cutting the length of the chain and thinking of quick ways to reach the consumer more directly. HUL and Colgate Palmolive have, in recent weeks, faced threats of product blockage by the All India Consumer Product Distributors Federation (AICPDF). The FMCG distributors are essentially protesting against the price disparity they seem to witness between traditional and B2B retailers. The entry and growth of JioMart, Walmart, METRO Cash and Carry, and Udaan is ruffling feathers of every hue.
Even as this movement continues, there is a tussle in the space of distribution and distributors. This itself is omni-channel. The battle is between intermediation and direct. The battle is equally between online and offline. Many battles then, all vying to preserve the status quo, just as FMCG companies try to implement the new and the efficient in terms of money, speed and reach.
Though these battles continue, the big war has not begun yet. Even as I close this piece, Jio Platforms is not here yet. The Tata and Reliance apps are due. Amazon and Walmart-Flipkart own 92% of the ecommerce market in India today. Distribution on the metaverse is still a fantasy. WhatsApp digital distribution is not here yet, just as D2C (Direct to consumer) is just about taking baby steps.
The future is more interesting than the past. More volatile as well. Let’s remember, we have a large heritage ecosystem of distributors in this country. The retail sector, as per a Bain & Company report, is estimated to touch $1.3 trillion (`98.3 lakh crore) by 2025–26. The sector is the second largest source of employment generation and livelihood in India, and accounts for more than 10% of the country’s GDP. And that’s big. There’s bound to be big noise and big action.
Brand Guru & Founder, Harish Bijoor Consults