Why is FMCG distribution in India so challenging?

India's vast geographical size, diversity, and infrastructure challenges make FMCG distribution complex. With over 13 million retail outlets, including remote rural stores, even leading FMCG companies struggle to access a significant portion of these outlets directly.

What role do power brands play in the Indian market?

Power brands, like Maggi and Nescafe, enjoy a strong consumer pull, which allows them to reach even the most remote areas. Their brand loyalty and recognition make them highly effective in penetrating markets that are hard to reach through traditional distribution methods.

How do wholesalers contribute to reaching rural markets?

Wholesalers play a crucial role by redistributing products to remote markets. They supply smaller retailers in urban areas and satellite towns and facilitate the delivery of goods to rural markets where direct distribution may not be feasible.

How has e-commerce impacted FMCG distribution in India?

E-commerce has opened new avenues for FMCG brands to reach consumers, particularly in areas where traditional distribution networks are less effective. It allows brands to tap into remote locations, especially when infrastructure supports efficient delivery.

What is the significance of brand loyalty in rural India?

Brand loyalty plays a pivotal role in rural markets. Consumers in remote areas tend to trust well-established brands, which allows power brands to thrive even in regions with limited retail infrastructure. Brands with high consumer pull, like Maggi, are able to penetrate deep into rural markets.

How FMCG Power Brands Conquer India's Complex Retail Network

India’s retail network is vast, with over 13 million outlets. Even the FMCG power brands struggle to reach more than a few millions of these stores. Rajat K. Baisya explores the evolving challenges and opportunities in India’s distribution networks, highlighting the role of power brands in overcoming these barriers.

Challenge in Reaching Remote Markets in India

India is a vast and diversified market to cover that makes processed food products available far and wide to widen the distribution reach and capture interior rural market opportunities. We have over 13 million retail outlets, including mom-and-pop stores. Even large Indian domestic corporations and multinationals don’t have direct reach to cover that many retail outlets. Even the best-known corporations with well-distributed products in the FMCG category, like Hindustan Unilever Ltd, having multiple product categories, are not able to service more than 3 to 4 million retail customers directly. For other players, direct reach will be even much less.

The distribution of products in India is very complex due to the country’s size, diversity, and the challenges of moving goods across the country. Brands can use a variety of strategies to navigate these complexities. The retail distribution industry in India is dynamic and also fast developing. Two decades ago, we witnessed organised retail trade, starting with the entry of Walmart and wholesale distribution with the entry of Makro from Germany and Booker from the UK. Macro operated for two decades and was then finally taken over by Reliance Retail; Booker Wholesale is still continuing in a joint venture with Tata Trent. The retail and distribution industry accounts for about 10% of India’s GDP and also provides 8% of the total employment in India. India’s retail and distribution, as well as wholesale industry, thus is a very important component of our economy.

Expanding Retail Network: Opportunities and Obstacles

In the initial stage, all these organised retail and wholesale distribution industry concentrated in the major cities, but now they are spreading to tier II and tier III towns as well and growing exponentially. FMCG distribution and retailing are still big challenges for manufacturers and marketers. It is still evolving and growing. Due to technological advancement, business models are changing, and that has impacted the retail industry as well. We have been witnessing the gradual evolution of e-commerce, starting with the launch of Flipkart, which WalMart and Amazon have subsequently acquired. E-commerce can cover the places where courier services are available at affordable cost and delivery efficiency, which is also linked with the infrastructure development connecting remote areas of the country and the transport system, which would take longer time than we think it would.

power-brands-in-indian-retail-network — Power brands are valued for their strong loyalty and trust. Their name or logo alone inspires confidence, transforming a generic product into a complete brand experience. Brands like Maggie and Parle G are even found in remote Himalayan regions, showcasing the brand’s widespread influence.

The Role of Wholesalers in Extending Distribution Reach

The growth in the business can happen only through extending geographical coverage or by penetrating deeper into the existing territory. To penetrate deeper into the same territory, we need different propositions with a differentiated product identity and a distinct brand marketing plan supported by resources. However, marketers have products, particularly food products, which have universal appeal and can be in demand in remote areas, provided we can reach our target consumers through a regular dealer distribution network. Direct distribution coverage can cover limited geographical areas represented by appointed distributors and wholesalers who cover their respective areas.

The wholesalers play a very important role in terms of re-distribution of the product to remote markets. Large cities like Delhi, Mumbai, and Kolkata have wholesale markets. In these wholesale markets we have wholesalers of FMCG products, like food products, who are regularly serviced by the manufacturer marketers. These wholesalers sell the goods keeping a low margin to the retailers within the cities who are small and falling in the categories of C and D class outlets who are not directly serviced by the locally designated distributors.

These retailers regularly visit the wholesale markets to pick up the stocks they require based on their weekly or fortnightly offtake, the frequency of their visits to the wholesalers, and cash availability, as wholesalers normally don’t extend credit. Under exceptional circumstances, some credit facilities might even be extended depending on the long-term relationship of the retailers with the designated wholesalers. In addition to that, these wholesalers also service the satellite markets in the nearby regions extending to the villages.

Some of the bigger retailers in the sattelite locations also act as resellers. Even from the remote villages, retailers come and buy stocks from the wholesalers in the city. They even collate orders of the retailers of a village market and go to buy the stock from wholesalers for all the retailers of a village market. There are sales agents who provide these services with a small margin to ensure regular supplies to rural villages. Besides, there is a practice followed by the large players to operate van routes to cover villages on the market day and sell directly to both consumers and retailers of the village market to extend the distribution.

ALSO READ:

Van Routes and Resellers: Innovative Strategies for Rural Coverage

The van route operations also provide an opportunity for the company to interact with villagers to understand their requirements and also to promote the company’s products. Depending on the demand of a particular market, this flow of goods to the village market from wholesalers of large cities and resellers of the satellite towns over a period of time, a pattern gets established in due course of time, and their relationships and trading as well trade terms get also formalised. The power of the brand plays a very important role in the distribution reach of the product. The more pull the brand has, the higher and deeper the reach, and the volume of transactions will also be large.

FMCG Power brands are synonymous with high value and loyalty. Consumers hold the most powerful brands in high esteem. Their name or logo alone can inspire trust. Power brands take a generic product and turn it into much more, making it about the entire experience with a particular brand rather than just the product itself.

Power Brands Drive Consumer Loyalty in India’s Diverse Market

Power brand has their presence everywhere. For a daily-use product, it develops a relationship with the consumers and also becomes part of their lifestyle. Large global corporations have a few products in their portfolio that have attained the status of a power brand. There are only handful of power brands one can find in a global corporation’s product portfolio. For example, in Nestle – Maggi, Kitkat, Milo, Nescafe, and Nespresso are FMCG power brands. The pull of the power brands is much higher compared to other brands. Power brands’ reach is much higher. The consumer pull can make the product available even in the remotest area.

maggi-reaching-most-remote-corners — *Gopal Singh Bhagel, the Maggi and tea stall owner with the author at the bank of the river Narmada in Maheswhar, Madhya Pradesh.*

Case Study: Maggi, the Power Brand, Reaching India’s Most Remote Corners

This author recently undertook a visit to Ujjain to visit Mahakaleshwar, then to Omkareshwar and Maheshwar. Omkareshwar and Maheswar are on the bank of the river Narmada. On the other side of the river Narmada, one has to go by ferry boats. Only visitors and tourists go there during the day. One popular spot is Shahashra Dhara, and apparently there is no habitation on the other side of the river. In that area, Gopal Singh Bhagel sets up his tea stall every day for the visiting tourists for tea and the only other product that he sells is Maggi 2-minute noodles. His son also assists him whenever he has time. His son has completed graduation in Agriculture from a college in Indore and is now looking for employment opportunity. Gopal Singh Bhagel makes his living selling tea and Maggie 2-Minute Noodle to the floating tourists’ population to make a living.

The familiar power brand Maggie is also displayed in front of the shop. When asked why he is keeping Maggie, Gopal Singh said it sells. That power of the Maggi brand forced the make-shift tea stall owner, Gopal Singh Bhagel, to carry the stock where no distributors or retailers were there to service. One can see Maggie and Parle G even in upper Himalayan regions. Such is the power of the brand.