From Unilever Plc to Colgate-Palmolive Co., consumer goods companies in India are experiencing distribution problems that are unrelated to pandemic-related shortages and delays.
Brands have historically depended on trusted intermediaries to reach millions of tiny neighbourhood retailers in 8,000 cities and 660,000 villages.
It’s a revolt that international corporations have instigated. About 90% of what is consumed in the continent’s economy passes through a pipeline known as “general trade,” in which brands appoint third-party distributors to stock bulk inventory, despatch goods in small quantities to shops in their area, collect cash, and offer retailers unsecured credit at zero interest (without the time-consuming “know-your-customer” or KYC) checks required by the formal financial system.
Because they deal directly with the last-mile outlet, known as “kirana,” distributors also take responsibility for brand compliance with current norms and regulations. Each of these functions is vital in and of itself. Sumit Aggarwal, a US-trained engineer who returned to oversee his family’s consumer products distribution firm in north India, thinks they’re worth at least 11.5 per cent of the final retail price.
Despite this, the distributors’ slice of the pie is only about 5% to 6%. Other stakeholders, especially customers, profit from the rest of their value addition. It’s because a new generation of competitors has arisen that the pipe is just now bubbling with displeasure.
Walmart Inc., Mukesh Ambani’s JioMart, and Germany’s Metro AG, as well as business-to-business e-commerce enterprises like Udaan and Big Basket, are stretching their financial might to win over the small shopkeeper.
Retailers can only make 10 per cent to 12 per cent margins because of the price at which wholesalers receive items from brands. Apps are providing discounts of up to 20%. Because none of the new-age intermediates is profitable, the substantial discounts are very certainly supported by investor cash, which is plentiful at the moment.
Retailers are migrating to more contemporary suppliers, and the conventional distribution system is on the verge of collapsing. Rather than abandoning their long-term partners in the nation, companies must assist the direct trade channel embrace technology to become more efficient and lucrative.
It won’t require much in the way of assistance. Distributors can obtain verified client KYC, analyse and underwrite credit risks, and offer a clear account of their services in a manner that financiers can comprehend using simple digital tools.
The intermediaries will become more bankable, lowering their capital costs. Some of these advances are being implemented by Aggarwal’s Mumbai-based fintech ePayLater.
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