FMCG Distribution Business - The Dos & Donts

Distribution is one of the critical success factors in the FMCG business. It is only through distribution that the products are made available to every retail outlet that caters to the end consumer, fulfilling the consumer needs and generating more business.

The distribution in the FMCG business is a very lucrative, mainly because you just need to deliver the product. The company personnel ensures in-store visibility, marketing, promotion, and all sales-related activities. A distributor has to ensure on-time delivery and manage credit given to the retailers. Sounds easy, isn't it?

However, the fact is, the distributor margins are very thin. As explained above, the distributor just acts as a small logistic partner, or a small-time investor. Over the years, I have seen most of the distribution companies running in losses or shutting down. The margins are so thin that if the system, especially the back end is not managed properly, the distributor will never know when the losses happen. New companies usually give 8-10% of margin to the distributors; even 12% in some cases. But companies that are established give about 4-6% on the higher side. To operate in such a kind of margin, very strict control is needed. If this is not controlled the distributor will never know whether he is making losses or doing business for charity.

Top companies have a system called distributor ROI, which by itself is a vicious circle. They have highly skilled employees, who on paper show that the distributor is making sustainable margins, whereas in actual terms the distributor is not making anything at all. He is camouflaged with the turnover. In one of the companies that I worked, I practically saw how the top personnel of a leading FMCG company, calculate the ROI of the distributor. If the calculation comes to an amount that is equivalent to or close to the top employee of the company, they will make the distributor re-invest.

Before moving to the distribution business, do check the below points:

• The distributor should not aim for only large brands; he should have a mix 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 be monitored, and Profit & Loss should be made every month.

After serving for the last so many years in the FMCG business; I have seen distributors who have come across such kind of situation. Most of them closed, others corrected and re-aligned the business to become a very large distributor. I would cite a couple of examples of those who were incredibly successful.

Jay Foods: One of the leading distributors who are into the FMCG business. They have multiple products. One of them was a very large business enterprise in India. This company had a substantial contribution to its turnover. I have good relations with Jatin, who runs the company in Pune. During an interaction with him, he told me that he has given up the distribution of this large company. I was a little bothered to hear this. This company had a major contribution to his total business. He explained to me that – although the company gave him a large turnover, he was not earning. What he meant to say was – the return that he got was not good considering the money he had invested. He was one of the people who knew his costs well. This enabled him to make a decision. If he did not control the cost, he would never know how this brand was draining all his money.

He is still into FMCG distribution with selected brands getting good margins. But most importantly, he is into manufacturing his products and is doing good.

VS Logistics: Another enterprise into the business of distribution of FMCG products. They are into the business for a very long time and have evolved with every experience. During one of my discussions, I was debating with the owner 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 gave a very relevant answer.

• He understands that in thin margins, it is difficult to run a business. He's surrounded by good people in the business who are working and updating him about the changing trends of 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 all ways and means of generating new avenues to create a business. Having done his MBA from Narsee Monjee, he could see the boom in the e-commerce business. He invested his time and effort in understanding e-commerce. Along with the traditional distribution to MT, he is now the fulfillment center of very large companies for their e-commerce business.
• He has an efficient team, who does the entire back-end with a lot of precision. They have been sharing guidelines and checkpoints. If, by any chance, they get into an alarming state, immediate corrective action is taken.

I don’t call VS Logistic a distributor; I call him as a Biz Enabler. Companies who are not looking for the distributor but a total supply chain solution, then VS Logistic would be an ideal blend for them

Aparna Enterprise: A distributor located in Pune with a turnover of more than 100 Crore. Sometimes, you are so big that all you have to do is manage the business and the rest follows. The best thing I noted about the company is that the key people working with Aparna have been associated with the CEO, Mr. Karmarkar for over 10 years. Notable things are :

• Although being a large business enterprise, the CEO of the company is quite grounded as a person. Some people around him who are successful do have a certain air about themselves but this gentleman is intelligent and grounded. One of the reasons why he could retain people for this long is - he would never lose his cool.
• The key people have been upgraded with time. Their compensation has also been raised.
• There is good teamwork; 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.

This business enterprise is a classic example of a company made by retaining good people and for that, you have to ensure that the basic need of respecting people is fulfilled. 

Suryam Enterprise: The company is led by an entrepreneur who has extremely clear goals and works with a clear direction.

• All the distributors store the necessary data with them. But in the case of Suryam Enterprises, they analyze data and make necessary decisions.
• For all the companies that Mr. Chandrakant (CEO - Suryam) is working with, he keeps himself abreast with the market trends
• Suryam has worked with start-up and then grew along with the company. It takes a lot of patience for a brand to develop.
• Suryam has a certificate of appreciation from the Indian School of Business for one of its project in the business

For all the companies wanting robust growth, Suryam would highly be recommended.

Concept Marketing:  Of all the business I have mentioned, the best in the business is Concept Marketing. The CEO of the company, Mr. Sriram Joshi is an incredible person. He was one of my distributors at HUL and was an institution in himself.

• Even though his turnover was not very high, the income that he had was equivalent to the distributor who was doing business that was thrice his size.
• He has a micro-level understanding of his business
• Key success factors that made him so good were

-- The actual cost with all the details

-- A good rapport with the end customer

-- Great service to the customer and high customer loyalty

Although he has a conservative approach to business, Mr. Joshi is an ideal person if someone has to know the basics of distribution. Today he is running his own brand.

These are few examples that I have given, but there are others too. Jalaram Trading, Gulmohar Enterprise, True Value, Bajori Foods, Hasmukh Enterprise, TJUK etc. all of them have evolved over the years and I take great pride in calling them business partners.