Distribution is one of the critical success factors in the FMCG business. Through distribution products are made available to each and every retail outlet that caters to the end consumer, fulfilling the consumer needs and generating business.
The distribution in the FMCG business is a very lucrative business, mainly because you just need to deliver the product. The company personnel ensures in-store visibility, marketing, promotion and all sales related activities. As a distributor along with on time delivery, the credit given to the retailers also have to be managed.
The distributor margins are very thing. As explained above, the distributor just acts as a small logistic partner, small time investor. Over the past I have seen most of the distribution companies running in losses or shutting down. The margins are so thing that if the systems, especially the back end and cost is not managed properly, the distributor will never know when the losses happen. New companies usually give 8-10% of margin to the distributors; in some case 12% also; but companies that are established give about 4-6% on the higher side. To operate in such kind of margins, a very strict control is needed. If this is not controlled or known, the distributor will never know whether he is making losses or doing business for charity, where after cutting all the expenses what he makes is a meager 1-2%.
Top companies have a system called distributor ROI, which itself is a vicious circle. They have highly skilled employees, who on the paper show that the distributor is making sustainable margins, where on actual terms the distributor is not making anything at all, but are camouflaged with the turnover. In one of the companies that I have worked, I have practically seen how the top personnel of a leading FMCG companies calculate the ROI of the distributor. If the calculation come to an amount that is equivalent or close to the top employee of the company, they will make the distributor re-invest.
Therefore before moving to the distribution business certain check points are needed.
- Distributor should not aim for only large brands; he should have a mix match of large and small brands. While the small brands are difficult to distribute as the order quantity is less, they still yield good margins and in the long run yield more benefits.
- The distributor should always have a kitty of companies with him, ranging anywhere between 10-15 companies. Then the logistics make sense.
- A lot of money is blocked in the credit note as well, which most of the time is disputed.
- Cost should always been monitored, and PnL should be made every month.
- Should look for getting CFA for the company for which they are distributing.
I have served for last so many years into the business of FMCG; have seen distributors who have come across such kind of situation. Most of them closed, others corrected and re-align the business, and very large distributor who have evolved. Would like to cite a couple of examples
Jay Foods: One of the leading distributors in Pune who is into the FMCG business. He has multiple products with and one of them was a very large business enterprise in India and it was this company that was substantially contribution to its turnover. I have met, interacted and discussed with him so many time during my visit to Pune. On one such visit as I was talking to him, he told me that he has given up the distribution of this large company. I was a little bothered to hear this as it was his major business. He then explained me that – although the company gave him a large turnover, he was earning no substantial money. What he meant to say me was – the return that he was not good with respect to the money he had invested.
He is still into FMCG distribution with selected brands giving good margins. But most important he is into manufacturing of his own products and is doing good business.
VS Logistics: Another enterprise into the business of distribution of FMCG products. He has been into the business from a very long time and has evolved every time. During one of my discussion I was debating with him on the challenges of distribution and told him that he has to be careful with the overhead and the actual return that he is getting, he came up with a very revealing answer.
- He understands that the in thin margins it is difficult to run a business. He has keep good people in the business who are working and updating him about the business
- He is also into the business of CFA for most of the products that he distributes. ‘
- More than staying with the team in the office doing all the back end work, the CEO, of the company is more involved in ways and means of generating new avenues to create business. He has tied up with leading e-commerce Company and has exclusive right for all India distribution.
- He has kept able staff in his team, who does the entire back end with a lot of precision. They have been giving guideline and checkpoints. In any case if they get into an alarming state, immediate corrective action is taken
I don’t call VS Logistic as a distributor; I would better call him as a Biz Enabler. Companies who are not only looking at distributor but also a total supply chain solution provider, who would contribute in giving business solution, then VS Logistic would be a ideal person that they are looking for.
Aparna Enterprise: A distributor located in Pune with a turnover of more than 100 Crore. Sometimes you are so large that all you have to do is manage the business and rest will follow. The best thing that I have noted about the company is that they key peoples of the company are working with Aparna, since long, may be for a decade or more. There are employees who have been working with the company since its inception. Notable things are :
- Although being a large business enterprise, the CEO of the company is a down to earth person. There are people who are successful and show an air in them while taking to them. But this gentleman, being very intelligent and hard working, has build his team. One of the reason because of which he has been able to retain people is the way he deals with them.
- The key peoples have been upgraded with the change of time.
- There is good team work; it is not that if a person is on leave the business will fall, there are other people who work for extra hours to ensure that the work is done on time.
- The best of all no matter how big or small the company is their dealing is very cordial.
This business enterprise is a classic example that good companies are made by retaining good people and to retain them, you have to ensure that the basic need of respecting people is fulfilled. This is one thing that lacks in most of the business enterprise today.
Suryam Enterprise: I would not call him a distributor; the company is lead by an entrepreneur who has extremely clear goals and work with clear direction.
- The company keeps all the data with it, which all the distributor do, but they have a little edge of other, they also do complete understanding and analysis of data
- For all the companies that the company is working with, the CEO keeps himself abreast with what is going the market in terms of the industry and then talks about it
- Suryam has worked with start-up and then grew along with the company. It takes a lot of patience to wait for a brand to develop
- Suryam has certificate of appreciation from Indian School of Business for one of its project in the business
For all the companies that want business enterprise who want robust growth, then he would be a strong choice.
Concept Marketing: Of all the people I have mentioned, according to me the best person in the business is Concept Marketing. The CEO of the company is an incredible person. He was one of my distributors in one of the companies that I have served.
- The turnover that this company was handling was not very high, but he was very good at what he was doing.
- With less turnover, his income was close to the company that was doing business that was more than thrice his size.
- He has micro level understanding of his business.
- Key success factors that ingredient for what he did were
- He had the actual cost, with all the detailing
- Had good rapport with the end customer
- Had great service to the customer. He has very less difficulty in retaining customer
- What he did is what most of the other people in the business doe, but his way of doing was excellent
Although he has a conservative approach to business, he is an ideal person if someone has to know the basic of distribution. Today he has given up the distribution of the companies that he was working earlier, and is currently running his own brand and as I said earlier, makes good money.
These are few examples that I have given, but there are a lot more – Jalaram Trading, Gulmohar Enterprise, True Value, Bajori Foods, Concept Marketing, Hasmukh Enterprise, TJUK ….. all of them have evolved in the business.
For me, I don’t call them distributors, I call them ‘’BUSINESS PARTNERS’’
FMCG – Foods Professional
Business Consulting, Change Management, Sales Management and Motivation