New retail channels are neutralizing the traditional advantage that distribution offered and are providing opportunities for innovative brands to emerge.

eCommerceTrendz Thought Corner

Retailing in India accounts for over 10% of the country’s Gross Domestic Product (GDP) and around 8% of the employment. eCommerceTrendz estimates India’s Online Retail Revenue to reach $60 billion in 2020 whereas retail market is expected to cross $1 trillion by 2020. Also, India’s online Population is expected to grow 250 million by 2020. In the developed countries, the organised retail industry accounts for almost an average of 80% plus of the total retail trade. In contrast, in India organised retail trade accounts for merely 8% of the total retail trade. This highlights a lot of scope and opportunity for further penetration of organized retail in India.

The Indian retail sector is one of the world’s most exciting retail destinations. Currently it is witnessing high rates of growth for the organized sector and is visited by consumers who have some of the highest consumer confidence levels. The importance of distribution to take products to consumer lies in the fact that companies who have captured maximum depth of field are the most dominant ones in the market. Driven by income growth, urbanization and attitudinal shifts, new ways of distributing goods are coming to the scene of India’s retail market more than ever before.

Modern Trade:            

Modern trade still remains the biggest channel of distribution for most FMCG companies in India. Modern trade includes supermarkets, hypermarkets and other organized retail outlets, while much smaller grocery stores are classified under traditional channels. It is expected to grow three times to $180 billion in 2020 from $60 billion in 2015, said a report.

The rapid growth of e-commerce has retailers thinking of their multi-channel strategy. Many companies and brands are partnering with large format retailers to drive common consumption agendas. In total, 40% of sales are generated by modern retail. Reliance Fresh, D-Mart and Big Bazaar are some major examples of modern retailing in India.

Advantages:

  • Increased availability of choice in products and services
  • Rationalization and convergence of prices
  • Better quality of food and non-food products
  • Equalization in the standards of living available to consumers between countries

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Direct Distribution

A channel of distribution is the path that a product takes from producer to consumer. Distribution channels of varying length exist in modern business. A direct channel of distribution is the shortest and simplest form of distribution channel; it has become increasingly common since the advent of the Internet.

Advantages:

Using a direct channel of distribution to connect consumers with your product, especially a Web-based channel, can have many benefits. Most importantly, web-based selling has low overhead and gives your product a potentially global reach. In the absence of intermediaries, most direct distribution channels tend to have higher rates of profit than indirect distribution channels. Direct distribution via the Internet is convenient for customers and available 24 hours a day. Lastly, many customers appreciate the opportunity to give profits directly to producers and artists.

According to a McKinsey and Co. report on the future of retail supply chains, companies can reduce costs by about 20% at the distribution centre level, while optimal deployment of inventory can reduce working capital by about 10%. Direct Distribution examples include ITC which has one of the most extensive distribution networks in India. Its products are available at more than 4.3 million of the estimated eight million retail stores in India. Other examples are Hindustan Unilever, Nestle India Ltd and more.

Direct to Consumer

Direct marketing refers to promoting a product or service straight from the seller to the consumer, without intermediary advertising such as television commercials, radio ads, or public displays. This form of marketing can be particularly effective for small- and medium-size businesses with little brand recognition and moderate advertising budgets.

Advantages:

Direct marketing methods track customer responses, allowing for marketing effectiveness to be monitored for a strong return on investment. Advances in technology have made the development of lead lists and the tracking of customer responses easier; you can use specialized software to group targeted customers in many ways, as well as to capture, prioritize, and analyze useful feedback. Targeted lead lists ensure that time and money are not wasted on disinterested consumers.

distribution-3Changing Retail Models

Much has changed in the retail landscape over the last decade. One of the fastest growing channels is e-commerce. The likes of Amazon and Flipkart are changing buying habits in a way that could put traditional distribution models at risk. A wide gamut of products, competitive pricing and convenient delivery options have made this the retail channel of choice for a new generation of consumers.

The current marketplace has become increasingly crowded and competitive. It is imperative for the brand to develop its own identity. As the once-disruptive business model of bypassing wholesale and trading direct-to-consumer via e-commerce becomes commonplace, brands must do more to differentiate them.