Distribution Business in India

Distributors are an essential element in the supply chain. The distributor maintain inventory while distributing the product to retailers. The manufacturers often do not want to manage orders with individual retailers. Manufacturers are focused on production, while distributors accept bulk inventory at one location, where they parcel out individual orders.

The distribution model can work on either a tightly- or loosely-controlled level. For example, distribution in the beverage industry is tightly controlled. In many cases, a single distributor manages numerous territories for a large beverage company. The beverages shipped to the distributor warehouses, and the distributor manages deliveries, and even displays and sales in some cases.

Indian Consumer Goods/FMCG distribution has always been a dynamic and complex affair due to multiple tiers in the structure with Carrying and Forwarding Agents, Dealer/Distributors, Wholesalers and the end Retailers spread across the entire country with different states/geographies having unique characteristics. The top FMCG brands hence have always been using Reach and Coverage as the two prime levers to increase share.

Companies are trying to reach the Kirana Shop Retailers directly to the extent possible to influence sales instead of relying on wholesale distributors and other tiers in the network.

Manufacturers use a three-tier selling and distribution structure that has evolved over the years. This structure involves redistribution stockists, wholesalers, and retailers. As an example, an FMCG company operating on an all-India basis could have between 60 and 120 redistribution stockists (RS). The redistribution stockists will sell the product to between 200 and 600 wholesalers. Finally, both the redistribution stockists and wholesalers will service between 300,000-10,00,000 retailers throughout the country. The redistribution stockists will sell to both large and small retailers in the cities as well as interior parts of India. Depending on how a company chooses to manage and supervise these relations, its sales staff may vary from 75 to 500 employees. Wholesaling is profitable by maintaining low costs with high turnover, with typical FMCG product margins anywhere from 4-5%. Many wholesalers operate out of wholesale markets. In urban areas, the more enterprising retailers provide credit and home-delivery. Now, with the advent of shopping malls, companies talk of direct delivery and discounts for large retail outlets.

India has one of the highest retailing densities in the world with more than 12 million retail outlets. India is in process to become one of the world’s largest markets for consumer goods. Still, India having a number of interrelated factors that make distribution particularly challenging.

How to Start A Distribution Business In India

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