Wholesaler-Distributors Guide To Ecommerce.
Through these tough times when traditional distributors after the pandemic as well due to the modern apps.
Distributors have to understand that their existence in the capitalist market is dependent on up-gradation and the adoption of new trends. Constant waivers and support from FMCG companies are not going to help in the long run.
The present distribution infrastructure in the country is the result of a constant improvement that FMCG companies have made in line with the distributor demands so as to serve the retailers and consumers without compromise.
The response and feedback provided by distributor salesmen give the organization the much-needed ground-level insight to develop and launch relevant products in the marketplace. While adopting new technology that alienates a certain section of the channel, this perspective should not be lost.
Technology is an unstoppable evolutionary process and a short-sighted approach to select ‘app-based’ distribution may cause divisions in the trade structure, that will be very difficult to erase, if not handled carefully.
Googling the Reliance Jio Mart app throws up 1,37,00,000 searches in 0.76 secs! Launched barely a few months ago, this app has created deep disruptions in the FMCG trade dynamics. The All-India Consumer Products’ Distributors’ Federation (AICPDF) has sent out a letter to the manufacturer raising concerns over the market price disparity and instability that this app is causing.
By 2025, the online market share of FMCG (fast-moving consumer goods) is expected to be 10%. Though this number may appear small, it’s positive to see this offline-centric industry growing online.
FMCG eCommerce is particularly doing well in China (25% FMCG eCommerce sales), South Korea (24.4%), Taiwan (11.4%), Great Britain (11.4%), France (8.3%), and Japan (8.1%).
Emergent FMCG Business models in B2B Distribution landscape
Initially FMCG downstream supply chain had a “distributed” channel structure. Traditional distributors covered towns or part of towns and were mostly exclusive to a particular brand, built relationships with the many thousand general trade outlets and wholesalers operating locally. Retailers in a town depended on these distributors to deliver orders or visited wholesalers to pick up required stock. This traditional distributor managed demand and working capital efficiently doling out micro-credit and also drove trade marketing initiatives for the brands.
This model was first disrupted by the brand aggregators – Modern Trade Wholesalers like Metro, Booker and Walmart. These MT outlets offered a one stop-shop for retailers across brands and categories, but did not offer door-step delivery unlike the traditional distributors. The informal credit practice was also not extended. Prohibitive freight costs in low volume towns meant direct coverage was ~50 – 60% for even the biggest of FMCG brands.
Online platform led distribution wishes to offer the best of both worlds – aggregated demand to be a one-stop shop for the retailer, amortizing freight costs to ensure direct distribution with door-step delivery and offer micro-credit with partnerships.
Comparison of operating revenues, costs and margins across business models – FY21
The traditional distribution system operates on a gross margin of ~8 – 12%, for mass market products. These wafer thin margins, drive the distributor ecosystems to have lean and efficient operations. Low inventory levels with “Fast moving” stock characterises the inventory model and hence offers the name to the industry – “Fast Moving Consumer Goods”.
Manpower productivity and optimized freight costs are critical to profitability and so is effective credit cycle and cash flow management. Companies operate with 15 – 20 days of stock and ~20 – 30 days of payable and receivable days. This working capital is usually the investment made by the distributor and if these benchmarks are maintained, the distributor can expect an RoCE of ~30%. Analysis indicates the median RoCE of the top distributors of the country is ~33% and they operate at 21 days of inventory, 20 days of sales outstanding and 15 days of payables outstanding.
The contrasts can be noted in Indiamart’s marketplace model, where the gross margins are at ~90%. The marketplace platform charges fees on the discovery and engagement between buyers and sellers, while IT & employee costs borne to manage engagement & discovery are the primary cost of services.
Assessment of cost drivers indicate the need for lean business operations to drive profitability
The traditional distributor is not too worried about revenues. The margin and the “fast moving” nature of the merchandise are more critical factors in deciding the SKUs to stock and volumes to purchase. Higher the premiumness of the merchandise, higher the gross margins. To drive profitability, the distributor from hereon, effectively utilizes assets – warehousing infrastructure, logistics network, inventories, sales & distribution manpower. Four key metrics – SKU throughput, freight cost per unit, manpower productivity and inventory days – are measured and optimized for religiously. An analysis of one of P&G’s largest distributors – Chamadia Group (Fig 4) – indicates how razor thin profit margins look when compared with product revenues. But, a comparison with the gross margins indicates a reasonable 9% profitability before tax.
FMCG industry growth in Ecommerce
The FMCG industry flourishing online as a result of the convenience this retail model offers. The three prominent factors that provide this irresistible convenience are:
Ease of digital payments to consumers
Digital and mobile wallets are a leading choice of payment globally. During a measured period of time, Worldpay estimated that digital and mobile wallet payments accounted for 44.5% of worldwide online transactions. And in the Asia Pacific Region, online wallets account for 60% of online transactions.
Increasing desire for free door delivery (shipping)
According to a customer survey, 96% of the respondents said that free shipping is an important factor when shopping online. This makes free shipping almost a norm in the online retail industry. Faster shipping options also add to the convenience of shopping for FMCG products online.
Competitive Low online prices
Around 64% of online shoppers wait for sales to buy products online and about 59% search for discount coupons before making an online purchase. Usually, products sold online come at a discount during specific days of the week or month, this stimulates online purchases.
Modern tech-savvy distributors reached out to retailers through WhatsApp when the traditional distribution workforce could not (due to social distancing). This accelerated the advent of an omnichannel system like never before. The explosion of ‘data-enabled smartphones’ (420 million in the country) led numerous retailers to embrace apps and use them for multiple purposes. The availability of real-time data enabled better and faster decision-making across the supply chain.
Working Capital Discrepancy – Over 90 percent of FMCG trade in India is still unorganized and any technology intervention results in its differential adoption across urban and rural, thus leading to working capital variances. Those with access to the apps, benefit by way of more frequent stock supplies and hence can afford to service their customers (retailers) without stockouts. Their lower inventory levels also mean less working capital, leading to better ROI (return on investment). The scenario is quite the opposite for those who are not tech-savvy and hence unable to download the app. They hold larger inventory to make up for the less frequent supplies, thus leading to fewer returns on their investment. So, in this case, there is a steep difference in the returns gained by the two sets of distributors and this creates discontent.
Last Mile Coverage – There has always been a problem with last-mile coverage for the traditional distributors. Given the heterogeneity of our country and the difficult access to many parts, numerous geographical locations are out of the coverage zone. But technology has somewhat leveled this. 31 percent of rural people use the internet; 61 percent of them have smartphones (2021 data).
This has been well tapped by the modern distributors. They now get orders from smaller Kirana stores that otherwise had to go to nearby cities or to the big bazaars to buy the goods for their shops. Direct last mile coverage also improves brand visibility and better retail control and communication. Overall, the consumer benefits through regular stock availability and service.
Online Fmcg Product Listing Flaws to Avoid
As an eCommerce seller, you need to be vigilant of some product listing errors that can lead to declining consumer traffic and low sales. If your in-house staff members do not have expertise in listing products, you can seek professional product data entry services. Outsourcing the task ensures critical errors are avoided since professionals are well-versed with the right techniques when creating listings.
Nevertheless, every online store seller should be aware about the following common product listing mistakes and ensure that these are avoided.
What’s up with online storage facilities canceling auctions and re-listing 2-4 weeks later?
Storage facilities have to follow a ton of rules in order to auction off units. Either they realized they missed a step in the process, or the unit owner made some forward movement in trying to get caught up on rent. Then once they either made sure they’d completed all the necessary steps, or the unit owner failed to get caught up on rent, the unit goes back up for auction.
Weakly Optimized Listing
It will have a limited response if you upload general content as your product description. It happens because your description doesn’t fit into the search algorithm. Maintaining informative and quality content is equally important to optimize your product listings. Use targeted keywords in your title and description; however, do not overdo it; maintain balanced proximity. If you find the process complex or cannot devote time to this task, try engaging in eCommerce product listing services.
Found the smallest shrink-flation in Coles today: Gippsland products used to be 720g. They’re now 700g. Website still uses image with the old weights while listing the new weight. Would’ve loved paying the same for more
No Product Research
A lack of product research can be devastating for an eCommerce business. If you ignore product research, you are likely to miss a crucial detail that can lead to the failure of the product in the market. It helps present a better product and create an attractive description that will allure buyers. Sellers can hire competent eCommerce product listing service providers to research the product, its technicalities, demand, and value-adding features. Once you have researched data, curate your description content accordingly.
Poor Product Images
Product photos play a vital role in converting leads on an eCommerce platform. Advanced editing and photography techniques can turn your normal product images into a strong sales pitch. Sellers often underestimate the effect of high-quality, informative, and gripping images. This mistake can be a major cause of your listing’s failure. It is crucial to get a competitive edge in the market too. Ensure that uploaded photos meet the minimum required specifications based on your online platform’s guidelines. Your product photos should be accurate, uncluttered, focused, and informative. Professional eCommerce image editors are well-acquainted with the market’s needs; sellers can use their services for better results.
Failure to Define the Target Audience
Similar to product research, analyzing your target consumer base is crucial to creating a good product listing. Working on your target customers helps in sketching the buyer’s persona. According to the concluded buyer’s persona, you can create a description content that will satisfy customers’ queries. If you write a product description that is not aligned with your target consumer, it can result in bounced leads.
Your product’s pricing needs a lot of groundwork before you perform the listing task. It should be competitively priced for the buyers. It will be a huge mistake to price your products without balancing them with the market prices. It is challenging to manage when you have listed products across multiple platforms. Consistency and transparency are crucial when deciding the cost of your products. If your product listing shows different prices across various marketplaces, it will build doubt and affect your credibility.
Lack of Reviews
Ignoring review generation is a mistake that affects your brand image and authenticity. Consumers find it hard to trust products that do not have reviews. It works like social proof, driving the buying decision of many incoming leads. You can request reviews from consumers as the product gets delivered. Request it with a thank you email after the purchase or send a note with the product itself. You can seek professional help to obtain innovative ideas for review generation.
Lack of Media
It would be a mistake not to include trending media and graphic styling in your product listing. Elements like infographics, video, 360-degree images, and 3D shots can help the customer better understand your product. The key is to make your listing more informative and attractive. You can add a video about product usage and basic functions. The infographics can be used to explain various parts and their role or key features. Media can be used to build trust in consumers and give them a real feel, as it is in physical stores.
Product listing is not just a mere step of launching your eCommerce store. It requires a focused, strategized, and goal-oriented approach. As a seller, you might be overwhelmed with many core responsibilities, which could make you focus less on the crucial aspects of the accurate product listing. In such cases, outsourcing the task to eCommerce product listing service providers can be considered an efficient and cost-effective option. It will save you time and capital, and the expertise and experience will improve visibility and customer engagement.