Does FMCG Really Needs a Distribution Network?

Traditionally we believe that success for an FMCG product or a company depends upon its distribution networks, which actually ensures the optimum availability of the product as per the speculated requirements of the market.

FMCG products are generally low cost daily consumption products, and consumer hardly puts in much of thinking before buying a product. Most of it depends on the availability and brand of that product. Due to intense competition in every segment and with hardly any differentiation among the products, there is continuous price war going on between companies which makes the profit margin to be really low per product.

"The way to success lies in volumes, higher volume of sale would earn higher profits for the company."

That means FMCG companies who have an efficient and well spread distribution network would be having higher probability of succeeding in the market. Yes, the criteria had worked till date for most of the FMCG giants, whoused to invest huge amount of their efforts and resources to build an efficient distribution network which also involved a significant amount of their total operating costs

Wait, what if you are a start-up with a brilliant product idea but no resources to spend on building a distribution network: Sell it through ‘e-commerce’ market place.

Yes, e-commerce has actually changed the way FMCG industry worked till now, distribution network from being core competency at one time is today considered as just an added advantage by companies. With penetration of internet and growth of e-commerce industry, companies have found an easy and cost effective way to deliver their product to the end consumers. Moreover, it had helped companies to focus on their main business lines rather worrying about the distribution channels for their business.

As per the present scenario, though most of the FMCG purchase is through the retail outlets, but increasing number of people are adopting e-commerce for their FMCG needs. The trend is expected to drive the retail marketplace in near future.In U.K., majority of the FMCG purchase is done online, considering the comfort for the customers and low costs there are no signs of downturn.

E-Commerce players have well equipped logistics and distribution partners, which enables their vendors to enjoy a highly efficient and well spread network to distribute their products to the customers.

Companies are saving huge in terms of both costs and efforts, which in turn is resulting in higher profit margins for the companies, while some of the benefits are also transferred to the consumer in form of discounts, add-ons and others.

As a result many new players have eventually evolved serving very niche markets, one can easily buy fresh vegetables online which would be delivered to their door steps on time. Having a huge demand in urban areas, the trend is increasing for the rural cities as well

SaiKiran Kadam is an Analyst working with Mordor Intelligence, a market research consulting firm which specializes in Market Research Consulting, Market Research Reports, Market Sizing Reports, Industry Research Reports.