Distribution Equity and the leverage it provides

The other day I had a discussion with one of my friend who has been both a manager and later on a distributor for one of the top food companies in India, and he spoke about the concept of "Distribution Equity"(DE) which he said is as strong as Brand equity if not stronger..

The concept of DE is one which has not been studied much, though at the operational level it is a very strong concept and distribution driven companies realise it's utility. As with brand equity, this equity also provides firm with a substantial edge in the marketplace, and the strength is by virtue of its distribution channels. The difference would be that brand equity is in a consumer's mind versus distribution equity is embedded in the marketplace. Both the equities talk about the benefits both in the present as well as in the future.

The current manifestation of the concept of DE in the field can be seen in the ease of launch of new products, because companies which have a very strong distribution channel find it much easier to launch new products,as they can piggy ride the existing well established products. It is logical for products in the same category, like a soft drink company leveraging its existing distribution to launch a new flavor of variant or pushing a new variant. But some companies have used their channel strength to even enter into totally new categories , like ITC which has leveraged its channels strength and equity to enter new markets like snacks, and even FMCG.

Companies like AMUL have been leveraging this strength for quite long to test launch new products , and based on the acceptance they decide to launch the product nationally with adequate marketing support. If not , the product is given a quiet burial. So their channel strength provides them a low risk option for trying out new products.

I think this concept of DE is more significant in markets like India, where the complexity in distribution channels is very high and your channel strength might be as critical for your success as your other marketing elements. And the concept deserves more attention than it has been receiving till now..

Experimentation Still 'ON' in Indian Retail

The last few quarters have been quite trying for the Indian Retail sector, and though the consumer demand and overall outlook has improved but certain fundamental issues still plague the industry. I will try and list a few of them,

First issue seems to be the one with regard to the right format for the Indian market, experience till now shows that just copying the international formats will not work, like initially the larger formats were thought to be the the best, as it made sense for the retailer in terms of economies of scale and operations, and internationally large size formats were more acceptable, but then does it suit Indian consumers. With the slowdown many of the large formats were closed down , but now they are back in fashion, with Aditya Birla Group starting 6 new hypermarts, and Shopperstop with its Hypercities. Related new link.

And not that the so called "Indian Formats" are succeeding in , failure of subhiksha being the case in point and now the news that Vishal Retail is also in a similar kind of situation, the problem seem similar across both of them, too much of borrowing to expand faster and then.... Hopefully we should be able to save Vishal..

Next is the aspect of trained manpower, initially seen as a sunrise industry it attracted many professionals across various industries, but then with the slowdown and the realities of retail operations hitting hard, many of these people have packed their bags and gone back to their older companies. And the problem manpower is even more acute at the junior levels where people with right skills and training is a huge challenge..

Last issue though might seem a little ticklish to an outsider is the fact that India has topped the ranking in retail theft, the shrinkage put at 3.2 per cent of sales. And in a industry which runs on wafer thin margins this is huge and sufficient to tank many a retailers. More on Indian retail theft link.

Though it might seem that all is negative but along with these challenges the potential is also enormous , which is why it is attracting so many players, and many more waiting for the change in FDI regulations to make an entry.

Big Bazaar Versus Kellogg's

I should start with an apology that I have not updated the blog for more than a month now, will try and be more regular from now on....

I observed this new item a few days back and thought about writing about it, the fight between Big Bazaar and Kellogg's , and it is not first of the kind that Big Bazaar is involved in , some time back it was with Cadbury’s and even before that it was Lay's. All the three were removed from the shelves of Big Bazaar, and reasons given were the differences Big Bazaar had with the margins that were being given.

Some people might see it as a normal routine affair, bargaining between two parties for better margins, but it is not. It is part of the larger plan which big Bazaar has and the reality which marketers are walking into, the world which will be dominated by Dealer owned labels. In the news you can also read about how Big Bazaar is not too worried about the fact that Kellogg’s would not be there on its shelves, it has it's own Brand Tasty Treat which would be there as an substitute.

Now the typical FMCG marketer in India is used to be on a enviable position, the retailer being small and unorganized and at the mercy of the Brand marketers, who could afford to play from the position of strength. But this all will change in the near future.

The other day I had an opportunity to listen to Mr Manish Tiwary, who heads the Modern trade Division at HUL. a the division which deal with the organized retailers like Big Bazaars, Spencer’s and he shared his concerns how the dealer brands increasingly put pressure on the brand marketers. He said that the time when you could keep getting more customers just on the basis of cosmetic improvements to your brand is more or less over, and only those brands which have a very strong proposition and value for the customers will be able to survive.

Though in India the proportion of organized trade itself is very small and the proportion of the business of dealer owned labels even smaller, but one can see these events giving us a preview of the future holds for brand marketers.....

I had written more on Dealer Owned Brands earlier also , Link1,
Link2