FMCG companies are forging tie-ups with hyper-local delivery apps to meet rising demand.
FMCG companies have been grappling with supply chain and logistical challenges due to the countrywide lockdown imposed last month. In order to ease last-mile connectivity and distribution challenges, some of the FMCG majors have tied up with food delivery and hyper-local delivery apps. Marico, Godrej Consumer Products Limited (GCPL) and Britannia have tied up with Swiggy, Zomato and Dunzo, respectively; ITC Foods has partnered with Domino’s Pizza, while Tata Consumer Products has joined hands with Flipkart.
Even though the demand for FMCG products, especially daily essentials, is high, the supply has suffered as production facilities are shut, and manpower and transportation are unavailable, leaving distributors in a difficult situation. As a result, the sales of these companies are down by 10-30%, according to experts. Companies with a large number of daily essentials in their product portfolios are faring better than those who don’t.
At a time when the entire country is in lockdown, and stepping out even for essentials is fraught with risks, hyper-local delivery has emerged as a solution for FMCG companies as well as consumers. Under this arrangement, delivery apps are picking up products directly from the distribution centres and shops, and delivering them to the consumer.
Marico’s tie-up with Swiggy and Zomato, says Sanjay Mishra, COO, India sales and Bangladesh business, Marico, is aimed at “increasing efficiency”. “The Covid-19 crisis has resulted in supply chain disruptions and delivery operation issues for the platforms. So, while the demand is up by 60-70% in essential categories across platforms, there are several challenges in trying to meet the demand,” he adds.
Meanwhile, GCPL, apart from its tie-ups with Zomato and Dunzo, is looking at other partnerships to solve distribution issues. The company has also partnered with B2B supply chain start-up Shop Kirana and car rental company Zoomcar.
“We are employing Zoomcar’s fleet for prompt deliveries of products to our distributors and wholesalers in Mumbai and Nagpur. We will be extending this to Pune, Madhya Pradesh and Gujarat. This will be for all products under the personal care, hair care, home care, and household insecticide categories. Shop Kirana will provide direct supplies of our soaps to individual retailers,” informs Sunil Kataria, CEO, India and SAARC, GCPL.
Tata Consumer Products, on the other hand, has listed its distributors on Flipkart, which will pick up and deliver the products to the consumers. GCPL and Marico plan on continuing these partnerships even after the lockdown ends.
Partners for good?
The hyper-local delivery model is not known to be very cost-effective, and has forced grocery delivery companies such as Grofers and BigBasket to pivot to inventory-led models. Is the present arrangement of FMCG companies with delivery apps sustainable?
Anurag Mathur, head – retail, and partner, PwC India, is of the opinion that with the minimal pressure on price and promotions right now, the model can be effective in the current situation.
“Today, it is more about connecting the right inventory to the right place and moving the stock fast. Hence, these strategies might work out in the short term and even in medium term, if supplies continue to be disrupted in some parts of the country. In the long term, however, they will have to figure out a way to make this profitable,” he adds.
A few industry watchers believe that these measures may help FMCG companies improve their sales marginally, and in the long term, help them get a better grip on e-commerce as a channel. According to a Nielsen report, e-commerce’s contribution to overall FMCG sales in the country stands at 2% currently and is expected to increase to 5% by 2022.
Pinakiranjan Mishra, partner and leader, consumer products and retail, EY, expects the sales of FMCG from e-commerce to go up, “as many people who were not used to ordering online are now using the channel”.
Shipra Biswas Bhattacharyya, principal, Kearney, says the current situation also presents an opportunity for FMCG companies to get their products tried by new customers. “Consumers are not picky these days; they are going for anything that is available. Through such partnerships, these companies can reach out to new customers,” she adds.