Is FMCG Distribution at the Cusp of a Technological Revolution?

Googling the Reliance Jio Mart app throws up 1,37,00,000 searches in 0.76 secs!  Launched barely a few months ago, this app has created deep disruptions in the FMCG trade dynamics. The All-India Consumer Products’ Distributors’ Federation (AICPDF) has sent out a letter to the manufacturer raising concerns over the market price disparity and instability that this app is causing. 

The issue here is that the app enables direct stock ordering by the retailers with the manufacturers, thus bypassing the traditional distributor setup. With FMCG being the fourth largest industry in the country with retail sales upward of $1 trillion in 2020, distributional disputes are not new. They have ranged from warring over margins to geographical territory, but this technology angle is a new one. The launches of Reliance Jio Mart and Udaan apps offer a severe blow to the traditional distributors. The app enables stock ordering across geographical boundaries, and that too directly from the company warehouse. There are several implications to this, as we will see later. 

The Covid pandemic has affected many industries unimaginably and technology has come to the rescue in a big way. From the consumer angle, e-commerce touched a new high. Modern tech-savvy distributors reached out to retailers through WhatsApp when the traditional distribution workforce could not (due to social distancing). This accelerated the advent of an omnichannel system like never before. The explosion of ‘data-enabled smartphones’ (420 million in the country) led numerous retailers to embrace apps and use them for multiple purposes. The availability of real-time data enabled better and faster decision-making across the supply chain. 

READ MORE: FMCG Firms Should Increase Margins for Kirana Stores: METRO Cash & Carry India MD

Issues

This specific situation of Jio Mart app has brought to the fore a larger picture of how ‘technology’ can sharply divide the distributor fraternity and can affect them in a fragmented manner. 

Leveraging Technology - Modern distributors (tech-savvy) use WhatsApp, big data, AI, and machine learning to facilitate smooth and automated functioning for both their customers (retailers) as well as the manufacturers. Traditional distributors on the other hand use software platforms provided by the FMCG companies; many of these distributor salesmen are still not comfortable with the same. This overall technology adeptness among some versus others causes rifts in the short term by way of business ease and earnings.

Working Capital Discrepancy - Over 90 percent of FMCG trade in India is still unorganized and any technology intervention results in its differential adoption across urban and rural, thus leading to working capital variances. Those with access to the apps, benefit by way of more frequent stock supplies and hence can afford to service their customers (retailers) without stockouts. Their lower inventory levels also mean less working capital, leading to better ROI (return on investment). The scenario is quite the opposite for those who are not tech-savvy and hence unable to download the app. They hold larger inventory to make up for the less frequent supplies, thus leading to fewer returns on their investment. So, in this case, there is a steep difference in the returns gained by the two sets of distributors and this creates discontent.

Last Mile Coverage - There has always been a problem with last-mile coverage for the traditional distributors. Given the heterogeneity of our country and the difficult access to many parts, numerous geographical locations are out of the coverage zone.  But technology has somewhat leveled this. 31 percent of rural people use the internet; 61 percent of them have smartphones (2021 data). This has been well tapped by the modern distributors. They now get orders from smaller Kirana stores that otherwise had to go to nearby cities or to the big bazaars to buy the goods for their shops. Direct last mile coverage also improves brand visibility and better retail control and communication. Overall, the consumer benefits through regular stock availability and service.

Conclusion

While technology is a great enabler, it has provided mixed results, as evident above. The relationship between a supplier and a distributor is very complex and symbiotic. Companies have to look at them as extended family and support them through these tough times when traditional distributors are facing threats due to the pandemic as well due to the modern apps. Similarly, distributors have to understand that their existence in the capitalist market is dependent on up-gradation and the adoption of new trends. Constant waivers and support from FMCG companies are not going to help in the long run. The present distribution infrastructure in the country is the result of a constant improvement that FMCG companies have made in line with the distributor demands so as to serve the retailers and consumers without compromise. The response and feedback provided by distributor salesmen give the organization the much-needed ground-level insight to develop and launch relevant products in the marketplace. While adopting new technology that alienates a certain section of the channel, this perspective should not be lost. 

Technology is an unstoppable evolutionary process and a short-sighted approach to select ‘app-based’ distribution may cause divisions in the trade structure, that will be very difficult to erase, if not handled carefully.
 

(The article is written by - Dr K Rajeshwari, Senior Associate Professor (Marketing), Great Lakes Institute of Management, Chennai; Ramasubramanian, MBA student, Great Lakes Institute of Management, Chennai and Anisha S, MBA student, Great Lakes Institute of Management, Chennai)