Only Distribution Disruptions Can Save FMCG Enterprises from B2B E-Commerce Threat

Like Nokia did in 2007, to face the looming threat of smartphone technology, HUL and its peers may be preparing for the onslaught of Just In Time distribution.
FMCG

In 2008, while speaking at a conference, the then VP of Forum Nokia, Tom Libretto dismissed the iPhone as a competitor. When asked to comment on the growing sales of the iPhone - 6 million shipped since its launch in the summer of 2007, he said, "We've done that [volume] since we've had dinner on Friday."

 

In retrospect, Nokia’s reaction seems like arrogance. But in 2008, it was the classic response of a market leader which believed its customers’ loyalty couldn’t change. It was also the misplaced confidence that investments in their smartphone operating systems - Symbian and MeeGo would pay rich dividends.

 

Nokia had misread the speed of change. So badly that in less than five year from 2007 to 2012, its market cap shrunk by 85 percent from $102 billion to $14.2 billion. Following years of abysmal performance, Microsoft acquired them in a fire sale in 2013.

 

A telling of the histories of global corporates is rife with such examples. Today, technological disruptions are only increasing and they are challenging the status quo of market leaders. Could India’s FMCG market leaders like Hindustan Unilever Limited (HUL) meet a similar fate? They could. Unless they can avoid making the same mistakes that Nokia did more than a decade ago.

 

HUL is the King of the Jungle

Today, almost 90% of India’s FMCG operates in unorganised channels. These channels consist of approximately a million individual distributors, wholesalers who reach over 15 million mom and pop kirana stores in India, which in turn serve millions of Indian consumers.

 

HUL and its peers lead this unorganised supply chain. Their competitive advantage created through channel-friendly initiatives and consumer awareness has helped maintain their leadership position over the last few decades.

 

In the case of HUL, there have been many onslaughts on its pole position. The most recent one came from Patanjali, but HUL warded it off with better distribution.

 

HUL has also relied on a fully digital supply chain and distribution mechanism to maintain market leadership. All sales executives at HUL are connected and use data to identify and maximise opportunities in the market. HUL itself uses data and insights to optimise its trade promotion and route to market. For the most part, it has seemed invincible. But that’s about to change.

 

Just In Time Distribution is the Game-changer

While India’s retail is set to be driven by mom and pop stores, the distribution itself is going through a tectonic shift. And it starts with consumers. With the advent of smartphones, cheap data plans and the Internet, India’s consumers have become savvy. They know what they want, and they want it at a specific price and location.

 

Traditional distribution’s modus operandi has been to overstock retailers with weekly/ fortnightly replenishments. With consumers demanding a variety of products, shopkeepers have no choice but to keep fewer products but more product lines. Often, such shopkeepers labour within the constraints of limited capital and shelf space.

 

Just In Time (JIT) Distribution is the solution to such unsustainable practices. JIT distribution ensures daily replenishments of limited quantities of SKUs rather than dumping large numbers in weekly or fortnightly cycles. Since traditional single brand distributors cannot do daily cycles, there’s a real need for multiple brands to adopt Just in Time distribution in India.

 

The Lurid Call of B2B E-commerce

Everyone and their dog seems to be hunting for the B2B E-commerce gold. No wonder, a plethora of startups has sprung up, trying to address multi-brand distribution, including Storeking, NumberMall, Shopx, Shopkirana and Udaan. In Udaan’s case, it has struck gold. Its valuation recently soared to $2.8 Billion after raising $585 Million in funding.

 

Then, there is the 1000-pound gorilla called Jio Retail. Earlier this year, they announced a “new commerce” initiative which works entirely through mom and pop retail channels.

 

HUL is aware of these developments. They were first of the FMCG leaders to support experiments in the consumer products space, including investing in the likes of Peel-Works. It seems as if they have understood the threat to their decade-old competitive advantage and have been actively investing in it. But is it enough?

 

The Quick or The Dead

Like Nokia did in 2007, to face the looming threat of smartphone technology, HUL and its peers may be preparing for the onslaught of Just In Time distribution. But they have not taken any bold steps to disrupt their current distribution ecosystem. They have to build the infrastructure to deploy JIT distribution. It has to be deliberate and strategic. So, what is it that these FMCG leaders can do?

 

  1. Invest in real-time multi-brand technology

Technologies like Bizom can help FMCG enterprises to understand consumer behaviour in mom and pop retail across the FMCG ecosystem in real-time. Nielson and Kantar can provide the survey data for consumers but, in a fast-changing ecosystem, real-time data which is agile and nimble is a must.

 

  1. Strike partnerships with smaller innovative brands

Enterprises should go after synergetic smaller brands with great products and consumer recall like Epigamia, iD Fresh and Popicorn. Such brands can deliver to the consumer needs in stores.

 

  1. Convert to JIT distribution

With partnerships in place, use technologies like Distiman to do “just in time” multi-brand distribution across India. This way, retailers and consumers can gain access to products and brands of their choice without facing stock-outs or overstock situations.

 

What I am prescribing for HUL also applies to other iconic brands in India like Amul, Nestle, Patanjali and Cadbury. If they don’t act now, very soon, multi-brand distribution will take away their competitive advantage. Then, nothing stops the likes of Jio from replacing popular consumer brands with private labels of their own.

 

About the author: 

 

Lalit Bhise, CEO, Mobisy Technologies, is an enterprise mobility veteran with 17 years of experience building products. He built Bizom as a SaaS product to help companies grow faster by selling and distributing better in emerging markets.Bizom today enables trade in one of every three retail stores in India. In this journey, Lalit has provided guidance to not just industry leaders but also to leadingconsultants on howto go about digital sales transformation.

 

With over 350 enterprises leveraging this technology and growing rapidly, Bizom is poised for high growth.  Lalit’s business acumen has helped the company scale and win awards including Deloitte’s Fast 50 Awards for three years in a row since 2016.Additionally, Lalitmentors start-ups in the SaaS space on product and GTM. He enjoys mountaineering, cycling but mostly speaking and writing about “Algorithmic Jugaad”.

 

 

LinkedIn:https://www.linkedin.com/in/lalitgbhise/

Twitter: @lalitbhise

 

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