The entire business of distributing consumer packaged goods (CPG) in India is on the cusp of change being driven by digital technologies. Over the past few quarters, top line growth has been a challenge for fast moving consumer goods companies not just in India, but across other Asian markets including China and Indonesia. In India, while there are an estimated 8-10 million outlets, the majority of the business is handled about 1.5 million outlets in the big cities.
“ Despite years of investment in distribution and spending crores of rupees, not more than 10% is direct. Its similar to Indonesia, Vietnam, China. Even within the top 10% that is directly reached, not more that 15-20% of the outlets are covered in a manner that will satisfy the company, ” says Satyadeep Chatterjee, managing director, consumer goods & services, Accenture. As if that is not enough, attrition levels at the salesmen level – who earn in the region of Rs 10,000 a month – is in the region of 30-40%. Also, as newer products keep entering the market, getting access to high visibility shelf space is shrinking.
All that has made it tough to getter better visibility in stores. The distribution chain is being disrupted by digital technology. Not having the first mover advantage means that someone from outside the industry could disrupt it. That has already happened in the taxi business with the entry of Uber. Some of that has happened to CPG distribution in Mexico where a wholesale distributor has set up a platform connecting retailers directly to large CPG companies. If it is happening in Latin America there is no reason to not believe it will not happen in India. Either you are able to build a one-on-one relationship or wholesale might get consolidated and demand better terms from companies. That’s the threat. Wholesalers could emerge as the Uber of the retail industry.
In India, the big disruption will be driven by the proliferation of smartphones. Instead of salesmen visiting stores daily, companies are looking at giving the retailer an app. Those without internet access or a smartphone will be reached through telesales. That means salesmen have only a defined number of stores to cater to, while the rest can be handled digitally. Says Chatterjee: “If I can incentivise 70% of my orders through telesales or an app then I can balance salesmen. I can use them where required.”
There are benefits in this for the retailer too. Since he deals with 20-40 large companies, there is a steady stream of salesmen, merchandisers, auditors, company people in suits for market visits and consultants trying to figure out what is happening in the store. Having an app reduces much of the traffic. “While it is unlikely that 100% of the stores will go digital, the initial response in rural India far exceeds estimates’ says Chatterjee. The situation in India is quite similar to that prevailing in South East Asia. Says Tim Yoon, managing director, Accenture NewsPage: “An Indonesian edible oils company with 5,000 salesmen touches 300,000 outlets. But just 5% of the outlets account for 90% of the revenues. In Asia, the trend has been that you sell as much as you manufacture.”
While it sounds interesting, no company has visualized this journey. They do not have the capability now to drive this change. Though startups are great to pilot something but to build scale you need a large service provider.