Demystifying Hybrid Retail for Every Consumer Goods Business

It’s early 2022 and the third wave is already upon us with brute force. But there’s something tangibly different about this episode: consumer goods businesses are armed with the hard lessons derived from the initial struggles of the pandemic. From dramatically transformed supply-chain operations, alternative distribution models, end-to-end digital solutions, to personalized shopping experiences, both corporate boardrooms and local kirana stores are inundated with a range of solutions to leverage, and maximize business output. And yet, the search for an optimal consumer trade strategy is confounding retail experts across the world.

With many of today’s consumers shifting to online shopping, would it make sense to reallocate resources primarily towards digital? Which trade channels would be most pursuit-worthy for reaching the largest consumer base? What unique blind spots remain within these range of trading solutions? What does it mean to have a hybrid strategy in place? And what overall impact will these changes have on the company branding and unique value proposition? Whatever it may be, boiling the ocean is certainly not the solution.

A Flood of Trade Channels

Trade channels have continuously evolved over the last century, with a common denominator being disruption. In fact, the largest number of changes have come in the last decade, accelerated by the numerous physical and human limitations imposed by the pandemic. The “where to play” choices have increased and the following detail the viability of today’s consumer goods businesses.

General Trade: For many decades, FMCG relied on a standard procedure of reaching consumers, wherever they were. This included engaging in mass production and achieving economies of scale, leveraging mass media to differentiate products and build trust, partnering with mass retailers to maximize distribution capabilities, expanding into developing markets and tapping into the rising income levels of prospective consumers , and aggressively engaging in M&As to boost sales.?

Modern Trade: Retail continued to outgrow itself from the turn of the 20th century , from Piggly Wiggly to Walmart, making self-service the new mainstream, and a new consumer-favorite. Supermarkets turned into hypermarkets, with the objective of having “everything under one roof” with numerous other incremental innovations including private label products, multi-format offerings, category killers, and more. A radical move no doubt for space utilization and cost efficiency that naturally drew the beasts out of the industry leaders to maximize pantry share and reserve product visibility.?

Virtual Trade: 21st century retail marked a substantial slowdown in brick-and-mortar sales, and the subsequent revelation of the power of ecommerce. From books, groceries to clothing, today’s virtual trading platforms are supremely capable in comparison to its traditional counterparts, and yet have their own pros and cons for companies to consider.?

1. Horizontal Commerce: Digital business-to-business channels enable companies to sell their products to aggregators like Amazon at a wholesale price, skipping the outdated retail chain method altogether. Key advantages include convenience, scalability and well-established supply chains, presenting itself as a one-stop-shop that has led to its indomitable success. Though many still prefer to combine it with retail, consumer preference has clearly shifted, especially in our post-pandemic world, towards digital shopping.?
2. Vertical Commerce: Similar to horizontal, vertical commerce operates with a business-to-business framework but focuses on a niche product category. Key advantages include better user experience, better exposure at a lesser cost, and helps consumers stay updated on the latest trends. However, it is less of a crowd puller with the focus on specific product lines and finds it hard to combat with the strength of its horizontal counterpart.
3. Quick Commerce: Deemed as the next heroes of the ecommerce world, the quick commerce route is focused on delivering products in record time—from the traditional 3-5 business days to within 30 minutes. With real-time inventory management, innovative logistics technology, geographical advantage and more, this trade channel is indeed rewriting the rules of ecommerce at lightning speed.
4. Social Commerce: A spin-off of horizontal and vertical, social commerce combines the existing structure of ecommerce but reaches out to consumers through social platforms. While the channel was birthed in 2015, it was jolted to the forefront in the early days of the pandemic, and has been one of the leading contributors to ecommerce revenue, leading to $474.8 billion sales in 2020 alone .
5. D2C Commerce: Popularly known as Direct-to-Consumer commerce, this trade channel includes disruptive brands that want to exclude any middlemen in their business operations, from building, marketing, selling, to shipping. Key advantages include lower costs, end-to-end control, and most importantly, data on consumer preferences that are mostly absent from all other trade channels.

What Going Hybrid Truly Means

Hybrid solutions have always offered a safety net for industries to lean on while undergoing periods of difficult transition. Between 2017 and 2019, large brands operating within a traditional framework have lost volume at 1.5% annually while smaller brands and private labels continued to grow at 1.7% and 4.3% respectively , suggesting that companies that do not capitalize on and adapt to changing trends get left behind. Even though digitization has been at the helm for the past decade, the pandemic exposed holes in the old commercial path that has led many to break out and rethink how to combine their legacy with modern trading methods that work.

1. Combining Old and New: Simply evaluating revenue collection for big brands such as Nike reveal a massive shift in their trade channels . In 2011, 84% of all sales were contributed by wholesale customers. Fast forward to 2021, 39% sales came from direct sales and the remaining from their existing wholesale networks.
2. Realigning Brand with New Value Proposition: In a market dominated by big players such as Amazon and Walmart, smaller players like Grofers have made a radical move to realign their brand with their new value proposition of making 10-minute product deliveries by changing its name to Blinkit.
3. Shortening the Purchase Process: Hidden in plain sight, watch seller MVMT discovered a new source of revenue through social commerce that led to a surprising 60,000 new visitors in 90 days and $15,000 of additional revenue , assisted by Facebook Ads and by opening up shop at the top of its company page.

Clearly, maintaining the status quo will only be detrimental to today’s consumer goods business. Adopting a hybrid strategy doesn’t mean going full throttle on all trade channels, but finding blindspots and looking where no one else may have looked before. Hybrid then isn’t all encompassing - it’s about collecting data, rewriting your business narrative as many times as needed, and stepping on the gas in a sensible direction.

Trade Channel Selection That Yields Positive Returns

The pandemic, like every other crisis, beckons a new way of doing things. Whether you’re a retailer, running an independent boutique firm seeking full control of the business, or wanting to tap into the well-established structure of ecommerce aggregators, staying relevant is the new resilience mantra for the post-pandemic consumer goods business.?

While general trade continues to outperform 21st century trading methods by a large margin, having in fact gained market share from 87.1% to 88.8% through the pandemic , simply banking on one trade channel isn’t enough. Modern trade on the other hand is overwhelmed by frequent lockdowns, movement curbs, and labour shortages, resulting in disgruntled shoppers and shelves in supermarkets wiped clean . Adding salt to the wound, ecommerce is estimated to overtake modern trade in the next 5 years .

Truth be told, a successful consumer goods business in the post-pandemic age will need to master several moving parts that include an omnichannel strategy, a strong supply chain inventory, access to consumer data and shopping preferences, local delivery fleet that delivers products in record time, developing trusting relationships with a large number of distributors, and of course, have the capability to reach a large consumer base.

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For more insights on how to ramp up consumer strategy efforts in your organization, reach out to Benori’s Strategy Desk at [email protected] .