Business schools across the world often teach professionals that disruption is an integral part of the game. Professionals are taught, not just to accept disruption but to embrace it in order to revolutionise the way they conduct business. However, the crucial distinction is that this holds true for creative disruptions (AI, automation, big data, you name it). When it comes to once-in-a-century black swan events, as a society we seem to have few or no answers. For several decades, apart from some primitive technological tools to track primary (from the FMCG company to their Distributors), and in some cases, secondary sales (sales from the Distributor to the Retailers), very little changed in this domain. Suddenly, FMCG companies find themselves staring at a major disruption in their distribution model. Arguably, the biggest challenge is to be able get adequate laborers to come and work in the factories. Further down in the value chain, FMCG companies are working with the transporters to change the practice of two drivers per truck to one driver per truck, in an attempt to halt the spread of the deadly virus. Overall, as a result of this crisis, there could be some shifts in for the organised players: we are already seeing some shift in “do-it-yourself" kind of products, a difference in the way they market their products and communicate with their audience. It is very likely that there will also be simultaneous and momentous changes in the sales and distribution protocols for these companies as well.
DTC: The New “Normal”?
With health-conscious customers trying to avoid stepping out of their doors as far as possible, more than a dozen consumer goods companies including Hindustan Unilever, ITC, Mondelez, Procter & Gamble, Dabur and Colgate have started selling products directly to consumers.
That means circumventing traditional trade and distributor networks in areas where last-mile delivery has been disrupted due to Covid-19 restrictions by partnering startups such as Dunzo, Scootsy and Swiggy by listing brand stores on their portals and even reaching out to resident welfare associations (RWAs) through their sales staff. Godrej Consumer Products Limited for instance, is expanding its digital initiatives and increasing its presence in the e-commerce channels. The company is working with the channels partners and is also engaging through business-to-consumer (B2C) model, selling the products directly to the end-users.
An even more interesting development is the birth of several DTC micro-brands. What these micro-brands lack in manufacturing prowess, they make up for in data and marketing. Selling direct to consumers means that these smaller firms boast a trove of consumer data. Availability of this data translates to better product-consumer fit, quicker product updates and even better marketing. While the path for these upstarts is far from simple, early signs show that this is a great time to be disruptors in the consumer goods space.
Sabka Saath, Sabka Vikas?
Another unfortunate effect of this disruption has been a rise in distributor churn, although it would be incorrect to blame this entirely on the COVID. Much before the world had even heard of this little virus, changing aspirations of distributors, changing role of modern trade as a distributor, increasing competition for shelf space, rise of private labels, and the rise of new distribution “aggregators” were impacting the traditional distribution model severely. As a result, distributor churn is increasing rapidly. This is likely to have a major impact on brands’ ability to increase (or even maintain their direct distribution or coverage.)
Add to this, the fact that distributors have started dealing only in cash instead of the usual practice of offering a few weeks of credit (they fear defaults by small retailers during the business downturn) and you get a full-blown crisis. Experts believe the way out of this quagmire is for the companies to increase the credit period of their wholesalers and distributors by two to three weeks. With a significant difference in the abilities of the FMCG companies and their distributors to withstand periods of downturn, it may be wise to support channel partners. After all, “sabka saath, sabka vikas”, right?