To market, to market

Nuclearisation and an increasing number of dual-income households are well-known demographic drivers in urban India. Being time-challenged, such households are driving the growth of convenience categories such as ready-to-eat (RTE) and ready-to-cook (RTC) products, cooking pastes, packaged curd and pickles. Many of these categories are nascent today, but can grow rapidly over the next 10 years, subject to availability in retail.

Route-to-market challenges The route-to-market for small FMCG categories presents its own set of challenges:

Low throughputs (per dealer offtake – PDOs) beat productivity, leading to poor viability of direct distribution for single category players

Ongoing outlet addition and drop make sustained net coverage increase difficult

Narrow range of players at an outlet due to preference given to one or two top brands

These challenges are more pronounced for select regions and players operating in these categories. National players with small turnovers as well as most regional companies have lower PDOs at a large number of their serviced outlets. With traditional distribution models having a larger proportion of fixed costs, servicing such outlets becomes unviable and restricts coverage.

These concerns are further amplified for new entrants and challenger brands in a category. To ensure a distributor’s viability, companies either subsidise them for an exclusive salesperson or share the salesperson with other companies, which in turn affects the focus on their portfolio.

National players with a wide portfolio of brands are not insulated from this challenge. While viability is not a concern, they suffer from a lack of focus on the smaller brands and SKUs by the frontline sales force. Thus, it is imperative for companies to break out of this cycle and adopt innovative route-to-market (RtM) models with lower and more flexible cost structures.

Disruptive RtM models Disruption in RtM models can be achieved by using a mobile app, leveraging digital tech-enabled platforms and co-opting shared resources.

This allows the company to involve a wider set of participants, given the increasing smartphone penetration in urban markets. Activities can be simplified by breaking down sales and distribution tasks into ‘smaller action items’, thus resulting in ‘deskilling’ these tasks.

This gives companies the flexibility of hiring less-skilled, low-cost resources for performing the sales and distribution tasks. To ensure that outlet locations are made available to any new resource, a one-time mapping and geo-tagging of the grocery outlets is required.

All this can be developed by customising off-the-shelf apps with seamless integration of back-end and front-end processes. Our analysis shows that two potential models can be developed to re-think the way low fixed cost distribution can operate.

Model A: Developing ‘urban entrepreneurs’ to service outlets Aspiring semi-skilled resources in the SEC C/D class households are always looking to augment their family income through ad hoc jobs.

People from such households, especially housewives, can be developed as urban entrepreneurs (UE) handling distribution for a smaller catchment near their residence.

Our research shows that by working 3-4 hours a day, and using an existing two-wheeler for servicing, the UE has the potential to generate a net monthly income of ₹5,000-6,000. This has the potential to significantly augment her family income and hence can be a great tool for social empowerment.

Super stockists or existing clearing and forwarding agents (C&Fs) with an enhanced role can replenish stock for the UEs. Training in product, distribution management and such subjects are essential to support the UEs.

Applicability of the UE model The UE models can be used for categories with a reasonably high value-to-weight ratio, such as RTE, RTC and pickles, given that stock is being carried on two-wheelers. Also, due to the low cost structure, this can not only be leveraged by market leaders but also by challenger brands and new entrants in a category. Existing players with unviable distribution in city outskirts and new markets can also move to UE distribution.

Model B: Attaching on-demand sales force to a distributor A fixed salesperson salary has a large impact on the distributor’s viability. Our research indicates that the traditional salesperson’s expenses can be reduced by 5-15 per cent by bringing in newer resources with variable pay and lower income expectations.

This model envisages breaking the order-taking activity into ‘tasks’, each requiring a total of 5-6 hours a week. Using a mobile app, these tasks are given out to part-timers (‘runners’) looking for additional income, typically college-goers. By completing these tasks, ‘runners’ can have a monthly earning of over ₹1,000.

Gamification of the app will create appeal among runners as well as link tasks and incentives to companies’ objectives on depth, productivity and retention. The company distributor handling delivery, inventory and credit management, along with runners’ costs is expected to be viable, given these savings.

Globally, apps such as Gigwalk enable a variety of tasks to be performed through a distributed set of workers, while Universal Avenue provides a field force targeted towards companies planning to enter new markets. In India too, startups such as StintMint have started in this direction, providing a distributed ‘mobile crowd’ platform to perform field tasks.

Applicability of the on-demand sales force model This model is not restricted by value-to-weight ratios and is thus applicable to categories such as UHT milk and fruit concentrates as well as chilled and frozen categories such as frozen foods, dahi and paneer . The model also becomes relevant for extremely nascent or premium categories that are present in select stores dispersed across a catchment. For example, mayonnaise, breakfast spreads. The variable nature of costs makes it viable for category leaders and challenger brands to adopt it profitably in these categories. To avoid channel conflict, the model is more suited when expanding to newer markets or low market share geographies.

Bringing under-utilised resources into distribution thus has the potential of disrupting and thereby re-shaping the RtM models for smaller FMCG categories. Players can leverage either of the two models based on the categories in their portfolio, market position, RtM objectives and execution capability. Both models can help achieve viable direct distribution without subsidising distributors. Thus, they provide sustainability and hence scalability for driving direct distribution expansion in nascent categories and low-market share markets.

Pankaj Guptais a Senior Practice Head of the Consumer & Retail Practice at Tata Strategic Management Group

Seshadri Narasimhanis a Project Leader with the Consumer & Retail Practice at Tata Strategic Management Group

Varun Soodis a Consultant with the Consumer & Retail Practice at Tata Strategic Management Group

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