Emerging distribution models in FMCG set to disrupt traditional channels: report

The report titled ‘Resilience in the FMCG and Retail Sector’ said that new business-to-business platforms will gain momentum and have the potential to disrupt traditional distributor-led channel. New models within e-commerce online and offline channels, direct to consumer, online business-to-business channels and social commerce are also emerging, it said.

B2B distribution aggregators and companies are changing how kiranas were serviced in the past, according to the report released on Wednesday.

“They are competing with FMCG distribution to reach kiranas. Using eB2B, companies connect with manufacturers directly and procure products with the aim of managing inventory more efficiently. These companies also have access to a broader category of products to offer to kiranas in urban and rural market,” it added.

Typically, such business-to-business platforms assist stores in improving margins, profitability, and inventory management, facilitating wider assortment, and providing delivery, logistics, and local or regional consumer promotion service.

The covid-19 pandemic has brought about a shift in the way products reach end retailers as well as consumers. Pandemic related restrictions also had impact on footfall in large format stores or modern trade channels; meanwhile kiranas remained resilient.

Companies need to respond to these underlying shifts on both consumer behaviour as well as watch out for new distribution models, said Rajat Wahi, partner, Deloitte Touche Tohmatsu India.

“As organisations rapidly adopt technology to operate in connected ecosystems, they have an urgent need to enhance their presence in online channels. Organizations also need to revisit their strategies to have flexible distribution networks, accelerate adoption of omni-channel strategy, digitize supply chain, and strengthen sustainable business practices to create a seamless consumer experience,” Wahi said.

Moreover, direct-to-consumer channels and social commerce platforms are also gaining momentum. This is leading to proliferation of distribution models.

Deloitte anticipates the dominance of such channels to further grow coupled with digitization of small mom-pop stores.

“Retail outlets are expected to evolve into modern outlets with the help of technology and newer models. B2B modern trade channel will gain momentum and has the potential to disrupt traditional distributor-led channel. New models within e-commerce O2O, D2C, e-B2B, C2C, and social commerce are emerging,” it said in its report.

In the retail pie, general trade share is expected to shrink but remain the dominant channel, the report said.

In India, the FMCG sector has grown on the back of diverse channels, such as general trade, modern trade, and online channels. The covid-19 crisis brought with it numerous challenges and opportunities not only for FMCG companies and retailers, but also for trade channels. Although the impact varies by channel, the channels have continued to co-exist, serving as different customer touch-points.