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Well, consider a scenario that plays out every day in small stores across India: It’s the height of summer, and Kumar, the owner of a small kirana store in a city, is finding that many of his customers are asking for a new soft drink that’s being advertised heavily during IPL matches.
Kumar has already run out of the stock he had received last Wednesday and would like to order a new, larger batch to keep his customers happy. However, the brand’s salesman’s beat brings him to Kumar’s shop only next Wednesday, which is three days away. Kumar knows that considering that there are hundreds of shops like his in the distributor’s area he is likely to get delivery of his order only 2-3 days after that and even then it’s only likely to be partially fulfilled given the heavy demand. He would probably also need to buy a slow moving product to keep the distributor happy.
So for nearly a week Kumar must turn valued customers away from his store (and towards the big supermarket nearby) and lose out on revenue and customer trust and goodwill. The brand too loses out on the momentum created by the expensive ad blitz and possibly revenue and customer loyalty.
THE PROBLEM
If this sounds like an absurd situation, consider the fact that this has been the reality on the ground for several decades now. As all FMCG professionals knowthe retail supply network in the industry works on a top-down, push-based model. This is how it works:
Brands send sales executives to retailers either directly or through distributors.
Sales executives visit retailers as per their beat – on average 40-60 stores are covered on a daily beat – and collect orders on a form or, increasingly, on an order taking app, and reports the orders to the distributor/brand at the end of the day.
The distributor/brand sends out delivery vans whenever they feel they have an optimal number of orders to deliver in an area and fulfills the order either completely or in part – well-run brands fulfill over 70% of the orders on average but fulfillment rates are far lower for many others.
This is no doubt a simplistic description of an extremely complex delivery model. But that’s precisely the point – the current model is so complex and slow that it’s costing everyone in the ecosystem, from brands to distributors to retailers to consumers, precious time and money. Clearly, the system is ripe for disruption.
THE SOLUTION
Now imagine this: Kumar, faced with high demand for the soft drink, opens up an ordering app on his phone, searches for the product, selects the quantity he requires and clicks buy. The order reaches the brand immediately and the order is delivered within 24 hours by a local partner (a distributor or stockist/substockist) in a two-wheeler/rickshaw/van. Kumar can serve his customers seamlessly and the brand stands a chance to increase customer loyalty and revenues and gains a better ROI. This bottom-up, direct brand-to-retail supply model has more game-changing benefits for all players in the ecosystem:
Brandsget access to real-time, drill down data on market demand that they can use to streamline manufacturing and upstream and downstream supply to ensure that they have enough stock available to meet demand (and nothing more).
Intermediarieslike wholesalers, distributors, stockists and substockists are also able to see orders immediately and plan to fulfill 100% of the orders in a matter of hours.
Retailersget their orders delivered within hours rather than days and are able to compete with bigger competitors in modern trade and ecommerce in serving customers on demand.
Consumersget their favorite products when they need it, where they need it, and at a good price (owing to lower costs for brands; see below).
What’s more, all these benefits come at a lower cost of capital for everyone involved as the system ensuresbetter working capital utilizationby facilitating just-in-time, optimal stocking and efficient delivery. This ultimately reduces the network’s reliance on credit (brands usually provide goods to distributors on credit, who in turn extend credit to retailers,trapping all of them in a never-ending cycle of debt.
THE NEW ECOSYSTEM
Considering the big problems the technology-driven direct-brand-to-retailer model solves – and the enticing possibility of taking a piece of the ~$70 billion FMCG market – many companies, big and small are now building partnerships with brands and selling order taking apps to retailers. This list include marquee names such as Amazon B2B, Walmart and Metro Cash and Carry as well as small startups, including Bizom’s sister brandDistiman.
Among smaller players, some well-funded companies likeShotang and Just Buy Live (JBL) seem to have shut shopwhile others like Distiman are growing steadily by convincing brands and retailers of the value of a multi-brand direct distribution system.
CASE STUDY – DISTIMAN
Distiman is a stock ordering app from Mobisy Technologies (the company behind Bizom)that allows retailers to order stock for thousands of products from over 300 brands across different product categories. Distiman fulfils these orders within 24 hours by using a hub-and-spoke model that uses local franchisees and young entrepreneurs for last mile delivery. This allows brands to focus on meeting demand while the platform takes care of core distribution and marketing execution.
The app was envisioned as forward integration for sister brand Bizom’s suite of solutions for sales network automation that includes their market leading sales force automation, distributor management and retail execution modules. “We have already built technology that crunches vast amounts of supply chain and retail consumption data to provide intelligent predictions on right stocking for everyone in the supply chain, including distributors and retailers. This greatly drives up the capital efficiency of these businesses. Plus, we are an ecosystem player. We are leveraging our existing relationships with more than 160 brands with reach to more than 10,000 distributors and more than a million retailers pan India,” said Mobisy’s Chief Growth Officer Arun Narayanan in a 2016interview.
Fast forwarding to 2018, their bet seems to be paying off. Distiman now services retailers in Kolhapur, Maharashtra, and Mysore, Karnataka, and has onboarded more than 3000 retailers with an average dropsize of Rs. 4300. According to company sources, Distiman’s monthly GMV is increasing 20% MoM.
According to Niranjan Anand, lead of Distiman operations, the success of their model stems from the company’s deep understanding of the retail ecosystem and the relationship it has built with brands over the years. “While Distiman is a game changer for retailers, we also offer many advantages to brands. Our multi-brand model helps brands service outlets more efficiently, providing them almost 50% higher ROI than what can be delivered by a single-brand. We give brands reach in tier-2 and -3 crowds where its not financially viable for them to operate through single-brand distributors. Also, brands can directly communicate offers, loyalty programs or even get research done with retailers individually or by segments. Most importantly, on-demand, just-in-time secondary order fulfilment eliminates stock-outs and makes products available for the final consumer when and where they need it.”
A GAME OF NUMBERS
Distiman’s numbers speak for themselves:
3x more SKUs of a wider variety of brands available at outlets.
40% increased sales for retailers using Distiman.
Retailer service time reduced to less than 24 hours from 1 week.
Distiman stockist’s capital turnover is 5x of tradition distributor resulting in 3x higher Return of Capital Employed.
HOW TECH COMPANIES CAN DELIVER TRUE VALUE
We believe that while there are several ways in which this model can work, there are some critical features that a technology vendor must provide to ensure success for brands and retailers: – First and foremost, a new solution must aim to leverage and streamline the current ecosystem of distributors and stockists/substockists, and not bypass the network which was built over decades and possesses vast stores of business knowledge and wisdom. – It must deliver real value beyond 24-hour delivery and easy credit and work to weed out limiting practices such as the debt cycle by enabling data-driven decision making around optimal stocking. – It should easily integrate with related digital systems like sales force automation, distributor management and retail merchandising to allow brands a 360-degree view of market demand and channel partners’activities. – It should offer data analytics that can drive business decisions up and down the supply chain.
In conclusion, as technology adoption skyrockets in the tradition-bound FMCG sector, nudged along by environmental imperatives such as GST and digital payments, the next few years will see major disruptions in how business is done. The brands that survive the inevitable shakedown will be the ones that use technology to improve their supply network and reach out to partners directly. The technology partners that help these companies up their game will reap rich dividends. The challenge is in winning hearts and minds by devising a model that marries the best of traditional models with the best of what technology has to offer. Watch this space for news and developments in this quiet retail revolution.
To understand the impact Distiman makes on the lives of small kirana store owners, watch this video. For more information, call Distiman at 080 41108397.
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