Some of the country’s leading fast-moving consumer goods companies (FMCG) such as Hindustan Unilever, ITC, Parle Products, Britannia and Tata Consumer have increased their direct distribution over the last two years aggressively, aiming to cut dependence on wholesalers, which traditionally has been the dominant channel within general trade.
These companies now reach over a third of their total universe of outlets directly from around 20% earlier, conversations with company executives as well as their latest annual reports indicate.
While the trend of growing direct distribution — using authorised distributors or stockists to increase product availability — is not new, the zeal with which firms are doing it now points to a greater control over distribution that the players are seeking, experts said.
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Direct distribution also involves the company putting its salesforce in the field to monitor distributors as well as to talk to retailers to stock their products. In indirect distribution, the wholesaler undertakes all this work.
Some companies such as Hindustan Unilever (HUL) have also been encouraging retailers to place their orders directly on digital apps such as Shikhar as part of their direct distribution push. Order fulfilment, however, may happen by the company directly or through its authorised distributor, depending on the location of the retailer, industry experts said.
“The turning point for direct distribution in FMCG came after the Covid-19 pandemic,” said G Chokkalingam, founder and managing director of Mumbai-based advisory firm Equinomics Research.
“Companies were unable to leverage the wholesale channel due to lockdowns and shutdowns during the Covid-19 period, prompting an aggressive shift to direct distribution in the last two years as the market normalised,” he added.
A revival in rural markets in recent months, according to analysts, is also prompting companies to pay greater attention to direct distribution, since wholesalers may or may not stock adequate SKUs, which could hamper sales.
HUL reaches over 3 million outlets directly out of its total outlet universe of 9 million, its FY24 annual report said. Rival ITC also indicated in its latest annual report (for FY24) that it serviced more than one-third (2.3 million) outlets directly out of a total reach of nearly 7 million as it sought to improve availability of its products.
In some cases, such as Tata Consumer and Britannia, the share of direct distribution has now touched about 40% of the total outlet reach. Parle Products, which makes biscuits and snacks, has a higher direct distribution share at over 60% of its total reach.
“Our total retail coverage is about 5 million outlets. Of this, we service about 3.2 million outlets directly,” Krishnarao Buddha, senior category head at Parle Products, said.
Britannia reaches approximately 2.79 million outlets directly out of a total universe of nearly 7 million outlets, executive vice-chairman and MD Varun Berry recently said.
Tata Consumer MD & CEO Sunil D’Souza said the company services 1.6 million outlets out of a total base of 4 million.
While enhancing direct distribution does come at a significant cost, companies say they are prepared to bear it. Marico has earmarked `80-100 crore to increase direct distribution by 50% over the next three years, chief financial officer Pawan Agrawal told FE.
Agrawal said ‘Project Setu’, the title of the direct distribution initiative by the company, will serve a twofold purpose. “One is, it will help enhance product assortment in stores and therefore help in diversification and premiumisation of the business. Second, it will help improve the viability of general trade which has been under pressure,” he said.
Distributors that FE spoke to said they see no problem with the direct distribution push by companies, but indicated that achieving the sales targets can be challenging at times, especially, during a slowdown. Tweaking margins, therefore, can hurt their business, they said.
From: financialexpress
Financial News
