Top reasons How fmcg salesmen change distributors all newbies must know why ?

Why International Companies in FMCG Change Distributors So Frequently.

FMCG companies today world over are staring at a major disruption in their distribution model. Other than some basic technology interventions to track primary (sales from the FMCG company to their Distributors), and in some cases, secondary sales (sales from the Distributor to the Retailers), very little changed over the decades. Products go from brands’ manufacturing facilities to their Distribution Center (DC), on to their warehouses in each state, on to their few distributors in that state, and finally on to the retailers, where consumers/shoppers purchase them.

The primary reason for the lack of change is the more or less static retail environment we have seen –close to 90% of retail even today is dominated by mom & pop outlets, or what we call General Trade, or neighborhood and open market outlets, this was as high as 98% till a decade or so ago.

How does an FMCG distributor model work in India?

Role of Distributor in FMCG Channel

Distributor is the keystone to FMCG business sector. FMCG distributor generally has exclusive rights of distributing a set of products in a defined geographical location. He will be responsible for the redistribution of the products, market coverage and retail penetration. Few a times, distributor is appointed to serve a particular clientele base such as canteens, hotels, restaurants etc.

Below given are some of the functions which a distributor plays in FMCG channel:

• He purchases/stocks products in bulk quantity from the manufacturer and distribute/sell them to retailers in small quantity.
• He takes orders from the institutions & retailers and ensures quality and on-time delivery of products.
• He maintains products stock and the requirement of outlets are managed through their own stock.
• He provides needed finance for allowing credit to the retail market.
• He expands the retail market (by opening new outlets) as well as the retail penetration of various products.
• He does field level marketing activities like inshop and H2H (Human to Human promotion) etc.
• He helps in minimizing consumer complaints and resolving them.

So basically it was the broad role of the distributor in FMCG Industry. Becoming distributor of FMCG products is a profitable option. Start your search now for the potential brands!

Looking at the evolution of FMCG Distribution  since 1970 we can categorize it in the following categories:

Distribution 1.0: (1970 to 1996) this entails traditional distribution model elucidated above, and very little changed in the model.

Distribution 2.0: (1996 – 2002) This was the period of small tweaks, where a) Company Sales reps were transferred to the Distributor for better supervision and management, called Distributor Sales Reps (DBSRs). Moreover, some leading companies starting to divide the sales teams into category teams, still primarily serving the General Trade, to focus on each category & SKU. b) We also saw leading FMCG companies adopt technology to track primary sales at both the distributor and branch level.

Distribution 3.0: (2002– 2020) This has been the period of major change, with Wider adoption of technology to track inventory & sales (primary and secondary) through the implementation of Dealer Management Systems (DMS) and Sales Force Automation (SFA) Launch and rapid growth of Modern Trade (MT) from 2005 onwards, followed by e-commerce in the last five years. FMCG companies outsourcing their Sales Reps to third parties to reduce complexity for General Trade coverage, while also deploying Sales promoters in-store to engage with end consumers/shoppers to improve the shopping experience.

Today, however, the time tested FMCG Distribution model may experience massive disruption, and this is likely to continue if we go by what has happened in other emerging markets like Central Eastern Europe, Russia, South East Asia & China, and India.

On the demand side, a lot of new retail channels are emerging that are disrupting “Where” and “How” shoppers are shopping. We have seen the growth of modern trade in the last decade, e-commerce/online retail in the last 5 years. As shoppers move to an “Omni” mode of shopping, expecting the products to be present “when” and “where” they shop, FMCG companies will need to adapt their distribution models to enable this.

On the supply side, factors like changing aspirations of distributors, changing role of modern trade as a distributor, increasing complexity of FMCG business due to increasing categories and skills, increasing competition for shelf space in General Trade, rise of private labels, and the rise of new distribution “aggregators” are impacting the traditional distribution model.

Thus, distributor churn is increasing rapidly, ranging from 15-30% annually. It is also becoming increasing difficult to replace exiting distributors as the distributor community continues to shrink. This is likely to have a major impact on brands’ ability to increase (or even maintain their direct distribution or coverage.)

In addition, Sales Force turnover (across all levels, and especially at the field sales level) is also increasing, it can be as high as 30-40%, annually. This is due to stiff competition from new age business like e-commerce delivery, food-tech companies, mobile phone retail, electronics and apparel retail (single and multi-brand outlets), jewelry chains, MT chains, etc. This is making it very challenging for FMCG companies to recruit and retain salespeople, putting further pressure on their model and margins.

Finally, increasing channel conflict on pricing, discounts, and range between General Trade, e-comm and MT is increasing pricing and margin pressure on FMCG companies as they juggle their volume growth ambitions with prices and margins, while trying to build their “Omni” channel presence. While the end consumer may be benefiting in this conflict through lower prices, the pressure on margins across the value chain continues to grow.

Even more concerning is the fact that as new generations of families begin to come of age and look toward their share of profit dividends, those profits have begun to shrink. The reasons for this are numerous and complex.

The Reasons behind the Trend

One of the most common reasons that distributors all over have found their share of business shrinking is the fact that they are typically forced to bid against third-party logistics companies. 

Such companies have developed outsourcing models in mature markets and have now begun to infiltrate those models all over.

Also contributing to the problem is the fact that the region has experienced a historically high rate of growth at the same time that saturation is occurring in more developed markets.

 Even a decade ago, big European and American companies might have viewed local markets in the Middle East as only a second- or third-market opportunity.

 Today, that is no longer the case. Large distributors from outside the Middle East are now paying far more attention to the activities in the region.

  With principals changing management frequently and new teams desiring to institute change in order to achieve targets and career advancement, business relationships that once lasted generations are no longer safe. 

Consequently, an increasing number of principal companies have elected to change distributors when they realize they are not receiving the service they believe they need in order to compete in local markets.

The results can be devastating to distributors. Even in a situation in which a principal company elects to withdraw a portion of its business that the distributor has handled in the past, the effect on that distributor’s revenue can be considerable. In the event that the principal should choose to withdraw all of its business and take it to another distributor, the consequences for the former distributor could completely decimate the business. Some distributors have even been driven to the point of bankruptcy following such incidences.

When situations like this occur, it affects not only the distributor’s owners but also their own principals, who may be caught completely unaware by the resulting crisis and find themselves in a situation where they must rush around to locate a new distributor in the region without much advance warning.

 Far too frequently, the crux of the problem is that many distributors remain stuck in the past and have failed to recognize a changing paradigm. The business model that once served distributors in the region so well is rapidly disintegrating as more competitors enter the market and regulations have begun changing to meet the needs of a global economy. 

Worsening the situation is the fact that many distributors have remained in a precarious position of being dependent on just a few principals. By not recognizing the position they currently inhabit, those distributors have failed to update the skills of their workforce. As a result, distributors have become increasingly vulnerable.

Despite challenges in the region that have driven principals to change distributors so frequently, the fact remains that doing so can result in irreparable harm to multiple parties. Perhaps now is the time to consider the repercussions of the mounting trend and make a positive change.