In the last few years, kiranas have been very agile to adapt to the new digital, B2C tech-enabled world. These stores now have the convenience of ordering from apps of B2B (business-to-business) platforms, procuring everything under one roof at competitive prices. Apart from choosing from a wide array of goods, whether in-store or on an app, there is tremendous time- and cost-saving, faster fulfilment and doorstep delivery service within 24 hours.
Modern B2B players have acted as catalysts to drive demand for kiranas, helping them to digitise and modernise their store operations along with efficient utilisation of inventory, data analytics and targeted promotions through B2C apps as well as facilitating credit to enhance their working capital efficiency. This has led to growth in topline, bottomline and improved cash flow for kiranas.
In line with emerging consumption habits, B2B players have been helping kiranas to also stock new categories like frozen snacks and vegetables, ready-to-cook edibles and organics to help grow their topline. Such supplementary services and benefits are what modern B2B players bring to the table, enabling them to get better terms of trade (ToT).
The traditional distribution model, however, has been slow to adapt to this changing landscape. While it has the edge of low-cost reach, traditional distributors are still banking on their old relationship model to reach out to kiranas. They are not addressing their need for guidance on assortment, planogram and inventory management. Kiranas, with limited manpower, find it cumbersome waiting for distributors who come once or twice a week to replenish stocks.
Thanks to B2B wholesalers and omnichannel partners, stock replenishment is much faster now. The traditional way of distributing consumer goods is getting disrupted, as small retailers go digital and buy from modern wholesale and eB2B players.
The impetus of traditional distributors has been on pushing top-selling items and offering the best deals to select customers. B2B players, instead, sell a wider and more premium range of products – both known value items (KVIs) and non-KVIs, while pushing higher stock-keeping units (SKUs) and items from end caps and promotional areas to all, including small retailers not serviced by traditional distributors.
In the modern B2B format, new product launch and penetration – ‘speed to market’ – outruns the legacy distribution networks. Apart from prominent brand visibility in stores and on B2B apps, product availability and servicing are faster. Even for startups in the FMCG space, this means easy access to the distribution footprint of millions of kiranas through modern B2B players. Put simply, modern eB2B and omnichannel players offer more value on both supply and demand side.
There is a rising clamour among disgruntled traditional distributors about higher margins and price parity in diverse channels. This, however, overlooks the value being added by each channel, and the fact that the competitive price point is determined by operational efficiency and value service being offered with requisite investments in trade manpower, working capital and digitalisation.
Nevertheless, each channel carves its niche, and B2B entities are playing a complementary role vis-a-vis what distributors do for brands. The entire system operates on a symbiotic relationship in which B2B wholesalers and traditional distributors have a role to play in servicing kiranas. Every channel caters to different buying habits via varied structure, operations and an assortment of items. Each model works on the cost to serve, which differs for different channels.
FMCG manufacturers need to balance and decide what the role of each channel is. The ToTs being offered to different channels are equitable, primarily on a pay-for-performance basis, the value-adds offered and the future runway visualised with those channels. Eventually, the winner will be the one that provides maximum value on both supply and demand sides. Traditional distributors will have to evolve to stay relevant and focus on the ‘demand’ side of kiranas.
Eventually, kiranas will decide who is offering them the best value service and support to improve their cash flows and profitability. Ultimately, whatever the format, it should be a winning proposition for all stakeholders, particularly end-consumers.