The New Decade of Digital Distribution for FMCG Brands

By Mr. Abhishek V. Neheru and Santosh Dabke

As India battles to overcome the third wave of COVID-19, it is important to introspect the learnings of the last two years (2020 & 2021) which have changed the rules of Indian FMCG Distribution in multiple ways.

Firstly, COVID-19 taught us to be ready for a world of volatility, uncertainty, complexity and ambiguity (VUCA). COVID-19 came as a sudden nasty surprise to most businesses having physical presence. The second Delta wave and the third Omicron wave have kept us on tenterhooks, guessing over the future. Historically, humans have been known to adapt best to the environment around them and the transformation that they have made in the last two years has been phenomenal. Consumers who used to spend sizable amount of their time, energy and money on physical shopping suddenly shifted gear to the new Aladdin’s genie of Online Shopping. However, this change of consumer buying behaviour made a very big dent on the physical world, impacting the economy across sectors, including the biggest and largest of the fast moving consumer goods (FMCG) ecosystem.

According to India Brand Equity Foundation, it is estimated that the current Indian FMCG market size (excluding groceries) is approximately $110 billion and is likely to cross $220 billion by 2025. The FMCG landscape is broadly divided into 2 major categories — Offline (General & Modern Trade) & Online (platforms like Amazon, Big Basket, Flipkart, etc). Indian FMCG market is the fastest-growing market across the globe and is hence, attracting giants to invest dollops of money in the hope of cornering the lion’s share of the market.

The Offline Traditional model is currently the largest channel for selling FMCG brands. It enjoys a market share of 80-85%. The remaining 15-10% is in the hands of e-commerce players. This paradigm shift from offline to online has given a big boost to e-commerce players who have gained significant traction in the last two years of the pandemic. This online growth has been boosted mainly because of two reasons,

1. Convenience of purchasing through online portals
2. Lockdowns and work-from-home culture restricting consumers from physical presence at stores.

For the FMCG sector, the next 2-3 years will be very interesting where a lot of FMCG brands are restructuring their new strategy. The new strategy will require a new operating model which will focus on a truly agile approach, relentlessly highlighting on consumer relevance. Most large FMCG brands are already modifying their sales, distribution and marketing strategies focussing on the Omni-channel model.

FMCG brands have gone back to the drawing board, remodelling their success stories of the last 3-4 decades of physical distribution, challenging the status quo. “What got them here won’t get them there” is the new thought emerging very fast. The story of New Age D2C brands is a bit different since they lack a full-stack distribution model. Most of the New Age D2C brands have developed excellent product innovation, enlisting on e-commerce platforms directly targeting the end consumers. However, this online market is still very small and if these brands need to grow swiftly, they will have to compete with the big daddies in the offline distribution. Most of the D2C brands have got a very limited Offline distribution and hence struggle to garner large market share in the Offline space.  Moreover, a large number of global brands are also in the waiting que to enter India but are worried about the fragmented distribution and challenges in managing supply chain logistics in the country.

The traditional offline authorised distribution channel in India has been the largest and most important channel since independence. These distributors have been working with brands for more than 2-3 decades and have grown faithfully with the brands, basking in their growth journey. India has more than 4 lakh traditional distributors working tirelessly and delivering on brands SLAs’. These traditional distributors are the pillars of the offline business in the country, contributing more than 75% of volumes for various brands. These warriors have been consistent in their focus and have persistently fought pricing battles with modern trade, and now with the giant e-commerce players.

COVID-19 has been a big dampener for these traditional distributors. It has made these warriors highly vulnerable to the sweeping changes in consumer behaviour. Firstly, consumer expectations have undergone a sea change in the last couple of years. Earlier offline shopping was time consuming, and the process took longer, from order to delivery. This was followed by the Next Day Delivery or NDD model, which improved to Same Day Delivery or SDD model by Flipkart and Amazon. Today, Quick Commerce 10-minute delivery is the new reality which was impossible to imagine a couple of years back. A number of new-age players are all charged up with the required fire power of money, resources, infrastructure and technology to take customer experience to newer heights.

Hence, it is imperative now for the traditional offline channels to evolve, innovate and match-up to the consumer expectations as they say; ‘Consumer is the King’. Consumer (Retailers for B2B) today are having multiple distribution options to choose the best for themselves. Competition is rising every hour as new ways of consumer-servicing is being innovated.

The next decade is going to be the Era of Digital Distribution where a number of new players will join this bandwagon disrupting the traditional distribution models, including supply chain, data analytics, flexible deliveries, dark stores, etc. to build meaningful and profitable businesses. These new-age players have already set high benchmarks on all customer parameters, taking the game to the next level.

The Next 2-3 years are going to be game changers resetting the Off-Line Distribution models for FMCG Brands digitizing the complete Ecosystem.

(This article is co-authored by Abhishek & Santosh – Founders of RIPPLR)

Originally appeared on: TheSpuzz