Retail-Myth & Reality Facts Face-off

In a country of 200 million inhabitants spread over around 500 urban centres and thousands of villages, the task of making products available at nearly a million retail outlets is not easy for fast moving consumer goods (FMCG) companies operating in Pakistan. The complexities and resulting costs involved in retail distribution lead to the emergence of regional players, a phenomenon that may (and does) restrict the producers of consumer goods from offering their products at larger geographical areas. 

There are a lot of misconceptions about product availability at retail/wholesale outlets which impact critical decision making by FMCG professionals particularly sales, marketing and supply chain ones. In this article, I will limit myself to a few critical misconceptions about product availability which, if addressed properly, can significantly improve a company’s top (and bottom) line. 

Do we exactly know our retail universe?

We find many stake-holders talking about ‘huge’ opportunities in retail distribution as well as their on-ground product availability. Keeping aside junior level sales associates and area distributors, you will find that even senior FMCG executives quote certain numbers, without any basis, about the  availability of their products nationally or territory wise. Sales and marketing directors of reasonable size companies rely on their product availability numbers which are sum of numbers received from field sales associates based on limited or no field work at all. Many FMCG companies found out following introduction of secondary sales tracking system that original numbers quoted by their sales staff and/or area distributors were grossly overstated in most of the cases. So the misconception is: we know our exact retail outlet universe and our availability therein. Reality: We don’t know our universe unless we have access to relevant data (retail census by research firm like Nielsen or internal ‘Every Dealer Survey’ etc.).

Is Retail Audit provides actionable data for distribution enhancement?

Research data based on extrapolation of sample surveys may provide directional numbers while actual numbers may be significantly different particularly for companies having limited availability. Such ‘assumed’ distribution level may either provide false sense of satisfaction at board level of these companies or, on the other extreme, may push panic button due to ‘alarmingly low availability numbers’ which may not be true. The real actionable distribution numbers come from secondary sales tracking system installed at company distributors’ premises or list of outlets obtained through census. Retail audit data does not provide list of outlets where companies can make their product available; retail census data does. So the misconception is: distribution numbers coming from retail audit directly helps in outlet coverage enhancement. Reality: outlet wise details obtained through census or ‘every dealer survey’ is to be used for outlet conversion.

Why segmentation is essential?

A generic view about product availability disregarding channel classification may not be useful for distribution enhancement strategy.  If a product is more relevant to shoppers of paan& cigarette outlets, then the availability in kiryana stores (mom & pop) may not be that important. Depending on product positioning and profile of target shoppers, the segmentation of retail outlets for the purpose of distribution drive is a ‘must’. So the misconception is: mere number of outlets having the subject product should be our focus. Reality: segmented distribution level should be the target.

Are non-handlers relevant?

A common mistake in distribution management is the perception about non-handlers i.e. the retail outlets which do not carry the subject product category. Our target outlets should not be limited to the ones carrying the category; the non-handlers in the relevant retail channel may represent huge potential in increasing distribution level at comparatively lower cost (primarily due to low entry cost).  For instance, kiryana stores not carrying, say hair shampoos, should not be excluded while formulating distribution enhancement strategy for a particular brand of hair shampoo. So the misconception is: category non-handlers are not relevant for distribution enhancement. Reality: category non-handlers in relevant channels may represent great potential for increasing product availability.

Market Share or Shop Share

In mad race to gain market share, a number of FMCG companies continue to increase the number of outlets where their products are to be sold. Though there is nothing fundamentally wrong with this approach, a critical aspect is likely to be overlooked in the process i.e. availability versus effective availability. This differentiation is important both from strategic and operational perspectives. Any company dealing in consumer products tries to reach as many shoppers/consumers as possible by making its products available through retail outlets. The main objective for the company is to increase its sales through increased availability. Since product availability at retail level involves multiple distribution cost, it is important that practically possible share is achieved at shop level that will ultimately increase market share. If we succeed in increasing the ‘drop size’ (order size delivered at particular shop) on sustainable basis, the overall market share will increase as a result of such initiatives. The share in shop is the function of various sales and trade marketing initiatives which make product availability ‘effective’ (or otherwise). So the misconception is: availability is the key to market share. Reality: ‘effective availability’ is the key to market share.

How to use sales associates for distribution enhancement?

It has been observed that field sales staff in many companies is ‘expected’ to increase number of outlets in their respective territories. However, they are not provided any ‘actionable’ data, like retail outlet census, on that basis more shops can be added. Simply by expecting them to add shops while relying on data provided by sales staff without any counter verification may create a false sense of comfort as regards distribution level that impact overall corporate policies particularly sales projection, new product development process and territory specific marketing initiatives. So the misconception is: sales team will add more outlets when asked. Reality: sales team will convert the outlets if they are given list of specific outlets and conversion process is monitored in order to have reliable data.

Sustainable versus Temporary Availability

The preceding point raises another issue since lack of proper monitoring and recording system provides massive loopholes thereby a small delivery will result into one additional outlet in ‘our outlets’ list. In the absence of any secondary sales tracking system or lack of monitoring of data coming out of such system will provide much distorted picture of product availability at the market place. This discussion raises a fundamental question about the definition of ‘availability’ since one small delivery in whole of year at a particular outlet does not entitle it to be included as ‘our outlet’. Therefore, it is important that we define ‘availability’ based on minimum numbers of articles delivered during given time period. Such a robust and meaningful definition of ‘availability’ will provide a more realistic picture at the market place. So the misconception is: once our product is delivered at outlet, it becomes ‘our outlet’. Reality: once we make our product available as per definition (e.g. minimum quantity, given period), only then it becomes ‘our outlet’.

What role wholesale segment plays for improving availability?

Irrespective of operation size, FMCG companies supply their products to wholesale sector though the degree of reliance on that sector vary from company to company based on their strategic imperatives and operational ease. Even area distributors ‘dump’ major part of their stock at wholesale outlets which operate as ‘quasi-distributors’. A number of small scale FMCG companies (and even some large scale ones) rely heavily on wholesale sector in order to have ‘perceived’ cost and operational efficiency but they compromise on market development and retailers’ loyalty in the process. It has been observed that some sales associates disregard corporate directions and encourage distributors to focus on wholesale sales since sales commission and incentives are generally based on primary sales instead of secondary ones. Too much reliance on wholesale may be a major impediment in developing retail outlets where shoppers interact with the brands. In such a situation, companies become too much dependant on large scale wholesalers and subject to arm twisting on regular basis. So the misconception is: wholesale route is an easy fix to distribution problems. Reality: wholesale is a reality an FMCG company cannot ignore though market development may be compromised in the process.

It is apparent from the above that despite being major challenge, product availability at retail levels remains a notion about which many misconceptions exist impacting companies’ approach towards distribution level. A more robust and pragmatic approach is needed to ensure that offerings (product/SKUs) are made available at retail outlets in relevant channels.