Ms. Arpita Doshi is the Founder of Nutrition Dynamic Food, a pioneering provider of food and beverage premixes, she oversees Business Development and Research for the organisation, two vital tasks that help any business develop a sustainable business model. In a situation where the FMCG sector in India is plagued by businesses that have raised enormous capital to achieve scale but remain largely unviable, Ms. Arpita Doshi has been leveraging her past experience in the Research and Development to build a commercially viable business model for the company from the first year of business itself.
The capacity to digitise quickly, maximise the use of Big Data Analytics, and improve customer experience through e-commerce will be the most important difference as businesses embark on digital transformation. Over the last two decades, rising disposable incomes and a trend toward a consumption-driven culture have aided India’s FMCG industry is charting new development routes. Significant elements that have contributed to the sector’s transformation in India include increased product variety across food and non-food categories, the proliferation of wellness items, and increased age and gender-specific segmentation. In recent years, there has also been a larger emphasis on promoting products as ‘healthier’ and ‘herbal,’ as people become more aware of the need of eating nutritious foods.
The FMCG industry is now the fourth biggest in the Indian economy, with household and personal care accounting for 50% of the market, while healthcare and food and drinks account for 31% and 19% of the market, respectively. Despite a recent slowdown in the Indian economy, the FMCG industry is likely to continue growing in the next years. Nielsen predicts that the FMCG industry would increase at a 9-10% annual rate in 2021.
The increased usage of digital technology is one major reason that will continue to drive the FMCG industry to higher development routes shortly. From increased usage of digital marketing to more e-commerce customisation, a rising number of sector participants are now aggressively adopting digital technology to drive the next phase of growth amid fierce competition. The capacity to digitise quickly will also be a critical differentiation between firms as they shift to meet new requirements.
The problem here is that the software allows shops to purchase directly from manufacturers, circumventing the usual distributor system. With FMCG being the country’s fourth-largest business, with retail sales exceeding $1 trillion in 2020, distributional issues are nothing new. They’ve fought over everything from margins to physical territory, but this technology perspective is novel. The introduction of the Reliance Jio Mart and IndiaMART applications has dealt a significant blow to established wholesalers. The software allows stock orders to be placed across geographical borders and straight from the corporate warehouse. As we will see later, this has various repercussions.
The Covid epidemic has had unimaginable effects on many businesses, and technology has come to the rescue hugely. From a consumer standpoint, e-commerce has reached a new high. When the conventional distribution staff was unavailable, modern tech-savvy distributors reached out to merchants via WhatsApp (due to social distancing). This hastened the development of an omnichannel system to unprecedented levels. The proliferation of ‘data-enabled smartphones’ (420 million in the country) has encouraged many merchants to embrace and employ applications for a variety of purposes. Real-time data-enabled better and faster supply chain decision-making.
How tech is improving efficiencies
1) An ordering app allows businesses to securely submit contactless orders while also providing visibility into order fulfilment via logistical partnerships and user-friendly interfaces.
2) Digitizing manufacturing and constructing automated warehouses increase capacity and agility. Intelligent data and analytics fuel all of this, assuring seamless and optimised operations.
3) If a retailer believes that goods are running low, they can make an order between any two salesperson visits. Because digital orders are not tied to a salesperson’s beat (especially during the second wave of COVID when a salesman is unable to visit the outlet), the outlets themselves can make an order. Companies may now give greater support to salesforce by customising the pitch for a shop so that they choose the most appropriate stock-keeping unit thanks to improved analytics (SKU).
Until approximately a decade ago, the FMCG industry in India was best represented by local convenience stores, malls, and sales reps. Today, the FMCG sector is as pervasive as mobile technology. However, the FMCG sector’s digitization effort is not limited to the front end.
Today, there is greater internet and mobile penetration, a shift in rural purchasers’ consumption patterns, and an increase in the importance of the three “Vs” – videos, vernacular material, and views. These considerations are causing businesses to engage in digital efforts to better communicate with diverse stakeholders.
The key differentiator in the market for FMCG companies will be their capacity to quickly digitise the value chain, form alliances for manufacturing, distribution, marketing, and product development, and use data analytics to better understand consumers and shoppers to maintain and possibly improve customer experience.
Technologies such as big data, predictive analytics, and social media are also making significant contributions to the shift in the path. Customer behaviour may now be predicted almost accurately by cherry-picking purchasing behaviour.
Issues
The Jio Mart app problem has highlighted a bigger picture of how ‘technology’ may dramatically split the distributor fraternity and affect them in a splintered way.
Leveraging Technology –
Modern (tech-savvy) distributors employ WhatsApp, big data, AI, and machine learning to ensure seamless and automated operations for both their consumers (retailers) and producers. Traditional distributors, on the other hand, employ software platforms given by FMCG businesses; yet, many of these distribution salespeople are still unfamiliar with the technology. This disparity in total technological proficiency between some and others produces schisms in the short run in terms of company ease and profitability.
Working Capital Discrepancy –
Over 90% of India’s FMCG sector is still unorganised, and any technological intervention leads to differential adoption across urban and rural areas, resulting in working capital variations. Those that have access to the applications gain from more regular stock replenishment, allowing them to service their clients (retailers) without stockouts. Their reduced inventory levels also imply lesser working capital, which results in a higher ROI (return on investment). The situation is considerably different for folks who are not technologically proficient and hence unable to download the app. They keep a bigger inventory to compensate for less frequent deliveries, resulting in worse returns on investment. As a result, in this example, the results obtained by the two sets of distributors create discontent.
Last Mile Coverage
Last-mile coverage has long been a concern for conventional distributors. Numerous geographical areas are outside of the coverage zone due to the variety of our country and the difficulty of access to many places. However, technology has largely levelled the playing field. 31% of rural residents use the internet, while 61% have smartphones (2021 data). Modern distributors have taken full advantage of this. They now get orders from smaller Kirana businesses that would otherwise have to travel to neighbouring cities or large bazaars to stock their shelves. Direct last mile coverage also boosts brand visibility and allows for more effective retail control and communication. Overall, customers benefit from consistent supply availability and service.
Conclusion
While technology is a fantastic facilitator, as seen above, it has produced uneven benefits. The supplier-distributor relationship is extremely complicated and interdependent. Companies must treat them as extended family and help them during these difficult times when conventional distributors face risks from both the epidemic and contemporary apps. Similarly, distributors must recognise that their survival in the capitalist market is contingent on technological advancement and the acceptance of new trends. Constant exemptions and assistance from FMCG businesses will not help in the long run.
The country’s current distribution system is the product of continuous improvement by FMCG businesses in response to distributor needs to serve retailers and customers without compromise. The reaction and comments offered by distributor salespeople provide the organisation with much-needed ground-level expertise to create and launch market-relevant items. This viewpoint should not be lost when implementing new technology that alienates a specific segment of the channel.
Technology is an inevitable evolutionary process, and a hasty decision to choose ‘app-based’ distribution may produce trade structure divides that are impossible to reverse if not managed wisely.