Posted on : 2023-02-10 00:27:29
Article : Good evening, Friday Management TASK 229- Proper execution of Product distribution is the nerve of industry for better market captivity and consumer affiliation.
While modern trade continues to be a big retail channel for selling FMCG products for most of the brands across the globe, India is a consumption story. It is one of the biggest markets in the world for many global brands outside their home country. A population of 1.38 bn serves as a huge consumer base that has varied needs, wants, and demands. Thereby, FMCG Distribution in India has been a case study across the globe. Right from the days of liberalization to today, this distribution system has evolved and has also stood the test of time. However, lately, the entrance of deep-pocketed and heavily funded players into retail has shaken the entire Traditional FMCG distribution system in India.
The credit of establishing a robust FMCG distribution in India goes to HUL (Hindustan Unilever). HUL has not only shaped the distribution system in the country but has also laid rules of the game which directly or indirectly many FMCG companies in the country have followed. There are approx 12 mn FMCG shops in the country and there would be hardly any that would not be selling an HUL product. Traditional FMCG Distribution System in India is not so linear and easy. Many times, the roles are overlap and the flow of products also may skip a stage or two depending on the purchasing power of the retailer. Organized retail (Modern trade) get served directly by the manufacturer or manufacturer’s central depots.
There are many stake holders who play important roles in distribution system and in building the FMCG Distribution in India. Like Manufacturers who produce the goods having units and warehouse from where the goods are pushed down in the hierarchy. Manufacturers, in the initial days, used to have their own company depots where they used to store their goods. With time it has been outsourced to Carry and Forwarding agents who primarily provide warehousing services for the company’s goods. They have almost no role in demand and supply forecasting. Redistribution Stockists OR Super Stockists: Different companies call this level in the hierarchy with different names. One may call them redistribution stockists, super stockists, stockists, etc- Their role is to stock the company’s products basis demand in their region. They are expected to stock goods, say, worth 60 days of rolling demand commonly referred to as STRs (Stock Turnover Ratio). This period varies from company to company also on the nature (perishable/non-perishable) and movement of the product. The Redistribution Stockists / Super Stockists operate at a margin.
Distributors pick up stock from Redistribution Stockists/Super Stockists/Stockists and serve the retailers in their area. They ensure wide coverage of Mom & Pop stores in the country and try to serve as many as possible depending on their business. They also supply goods to wholesalers to cater to small retailers to whom they cannot serve directly. Many unorganized small retailers and street vendors which are difficult to be served by the distributor directly are served via wholesalers. The small vendors might procure items from wholesalers on a weekly basis and keep their cash flow rolling. Wholesalers operate at a very low margin. Retailers is the final customer touchpoint from where an end consumer picks the product. This is varied from large, small, street vendors and now organized players in the trade.
Amongst all this distribution network, FMCG companies place their different cadres’ sales personnel who ensure fair trade as per their hierarchal level in the ecosystem, availability of stock, and its smooth movement to meet consumer demand. They monitor ROIs of stockists and cab suggest cost-cutting or investment opportunities in the business basis low or high ROI.
Different companies have churned this hierarchy basis their business priorities. For example, a company that focuses heavily on the rural market can resort to different distribution solutions in the rural arena via differentiated strategy for the rural market. In practical terms, it is unlikely to find such a simple linear distribution system in any organization. In reality, there could be small retailers being served directly by the distributor, OR stockist & distributor’s role being overlapped by a single entity. So one should be ready to come across various variations of the mentioned structure on the field.
Post your related suggestive comments on product distribution. Our management solution will be posted on our Good morning, Management solution for TASK 229 on 13th Feb 2023 with a brand distribution example.
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