FMCG brands constantly face fierce competition because the market is mostly highly saturated with numerous brands competing in them.
Not only do they need to persuade end-consumers to choose their brands over others through marketing communications strategies, FMCG companies need to ensure that their products are available and have high visibility at store levels.
Although online trade is increasingly popular during the pandemic, general trade is still the backbone of the FMCG business to sell its products.
Moreover, research from securities firm CLSA in September 2019 revealed that 70% of total retail sales in Indonesia are still carried out offline, of which 65% are served by small traditional retailers.
This further strengthens the distributor's position as an important partner in the success of the FMCG business because they are the one who supply your products to smaller retailers.
However, distributors often have pain points when working with FMCG companies or principals that hinders their performance, too
Multiple FMCG Distributors Pain Points
Every part of the supply chain; from manufacturers to distributors, retailers, agents and finally to end-customers, tends to be inefficient due to lack of adaptation to technology.
In general, some of the pain points that are often experienced by FMCG distributors are as follows.
1. Pricing and margins
Negotiating pricing and margins is a critical aspect of the distributor-principal relationship in the FMCG industry. Distributors act as intermediaries between the principal and retailers or end customers, responsible for acquiring products from the principal at a wholesale price and reselling them at a higher price to make a profit.
However, arriving at a mutually agreeable pricing structure can be challenging due to several factors, such as ensuring their profitability while being competitive in the market, complexity with the principal, pressures from retailers for lower price and market dynamic.
2. Order minimums and requirements
Meeting the order minimums and specific requirements set by principals can pose significant challenges for distributors, particularly those with limited resources, such as smaller distribution businesses.
FMCG manufacturers often establish minimum order quantities that distributors must meet to continue their partnership. These minimums ensure a certain level of sales volume and help maintain consistent supply chain operations. However, for smaller distributors with lower buying power, meeting these minimums may be financially demanding and could lead to inventory management issues.
In addition to order minimums, principals may impose specific requirements on product assortments, packaging, or promotional displays. Adhering to these requirements may require significant investments in inventory and merchandising, which can strain the finances of the distributors.
3. Manual order bookings
In today's fast-paced business environment, the inefficiencies of manual order booking can impede the distributor's ability to respond quickly to changing market demands and customer preferences. It also hinders the distributor's ability to optimize inventory levels and plan effectively for future sales.
This outdated method of order processing, often involving pen-and-paper or manual data entry, is prone to errors and inefficiencies. Distributors relying on manual order booking may experience delays in fulfilling orders due to the time-consuming nature of the process.
This process can be time-consuming, especially when dealing with a large number of orders or during peak sales periods. This delay in order processing and fulfillment can lead to supply chain bottlenecks, further exacerbating delays in the delivery of goods to retailers or end customers.
4. Order processing delays
For a distributor, the ability to meet customer demand relies heavily on the timely processing of orders by the principal. However, when the principal's order processing system is slow or inefficient, it can lead to delays in acknowledging and confirming received orders. The distributor may face uncertainty about the status of the order, leading to difficulties in planning for inventory and delivery schedules.
Such delays in order processing can have a ripple effect on the distributor's operations. The distributor may struggle to fulfill retailer demands on time, leading to potential stockouts, dissatisfied customers, and strained relationships with retailers. Moreover, excessive delays in delivering products to retailers can impact the distributor's reputation and brand image in the market.
5. Ineffective physical delivery from distributor to various retailers
When the system relies on manual and unstable processes, it often results in delays in product delivery, leading to empty stock at the distributor's end and products not reaching consumers on time. This scenario creates multiple challenges for both the distributor and the brand they represent.
Firstly, delays in physical delivery can cause the distributor's inventory levels to fluctuate, leading to potential stockouts. These stockouts can not only affect the distributor's revenue but also damage their relationship with retailers, who rely on a steady supply of products to satisfy their customers.
Secondly, delayed deliveries negatively impact end consumers. When products are not available on time, consumers may face disappointment and frustration, potentially leading them to seek alternative brands or products from competitors who can offer faster and more reliable delivery.
6. Manual payment system
While many FMCG companies have embraced digitalization in various aspects of their operations, some still rely on manual methods to record sales and process payments.
This outdated approach is highly inefficient, time-consuming, and susceptible to human errors, which can potentially strain the otherwise good relations between the company and its distributors.
In a manual payment system, the process of recording sales, invoicing, and handling payments involves manual data entry and paperwork.
This labor-intensive process not only consumes valuable time but also increases the likelihood of errors, such as incorrect invoicing or misallocations. Such errors can lead to delays in payment processing, causing frustration and dissatisfaction among distributors.
7. Non-transparent promotions
When companies create product bundling, many times the end-customer won't receive the bundling.
For example, when the company makes a bundling of “purchase a bottle of shampoo, get a free shower cap”.
Unfortunately, distributors can't be sure if the bundling will be received by end customers because it can be lost in the middle of the distribution process. There's always possibility of damaged packaging or even taken by someone for personal gain.
8. Competition from modern trade
The emergence and expansion of modern trade have resulted in a shift in consumer shopping behavior. Customers increasingly prefer the convenience, variety, and attractive promotions offered by modern trade channels, leading to a rise in footfall and sales within these establishments. As a consequence, traditional brick-and-mortar retailers, where distributors traditionally supply products, are witnessing a decline in market share.
For distributors, this shift in consumer preferences presents challenges. They may face pressure from principals to prioritize distribution to modern trade channels due to their extensive reach and potential for higher sales volumes.
In contrast, traditional retailers may experience reduced support and attention from distributors, leading to strained relationships and potential loss of business for both parties.
9. Market competition
As they handle similar FMCG products, distributors find themselves in a constant battle to secure a significant market share and sustain profitability in a highly competitive landscape.
With multiple distributors vying to serve the same target market, the competition can be intense. Distributors must not only contend with other companies carrying similar products from the same principal but also face the threat of rival brands with comparable offerings. This rivalry can create pricing pressures and erode profit margins, making it challenging for distributors to maintain a competitive edge.
10. Channel conflict
Channel conflict arises when multiple distributors, all handling similar FMCG products, compete for market share and the attention of retailers. This situation can lead to strained relationships and sales challenges within the distribution network.
The presence of multiple distributors offering the same products can create a competitive environment where each party seeks to gain an advantage over the others. Distributors may resort to price undercutting or offering additional incentives to retailers to secure their loyalty. Such tactics can cause tensions among distributors and may even escalate into open conflict, affecting the overall efficiency of the distribution process.
Moreover, retailers may feel caught in the middle of this conflict, as they receive competing offers from different distributors. This can lead to confusion and uncertainty for retailers, making it difficult for them to make informed decisions about their product sourcing. Retailers may become hesitant to commit to long-term partnerships with distributors, further complicating the distribution network.
FMCG businesses are very dynamic and their products are always needed by customers in daily basis. Therefore, having a good relationship with distributors in the supply chain is very important.
The company needs to overcome the pain points felt by the distributors to improve their overall performance in selling your products.
Here are some suggestions that might be considered by your company to resolve those pain points:
- Migrate to digital supply chain management
Businesses are more resilient to supply chain changes if a strong supply chain model is supported by the best technology. This is important, especially in the uncertain economic conditions we are facing today.
It also enables companies to be flexible and adaptable to respond to different market conditions, supporting growth potential and opportunities for manufacturers and the supply chain as a whole.
- Build efficient inventory management
By creating a digitally integrated asset inventory system, maintenance and procurement will become more organized and easier.
- Develop agile business delivery model
The old standard delivery model is now fragmented into multiple delivery models, primarily due to the growth of the omni-channel experience.
Customers are tech-savvy and their needs are constantly evolving. As a result, FMCG companies are exploring and experimenting with newer and more innovative delivery models. Analysis allows FMCG companies to identify the most efficient and successful models for their business, based on customer data and success factors.
- Communicate with distributors across every touchpoints
Build a dedicated ecosystem for partners to be connected to all processes; availability of products, ordering, tracking shipments & payment orders. You can use the web/app itself or use a solution from a third party, one of which is the Channel Incentive program from Tada.
- Utilizing your data
Use big data to maximize sales strategy for different areas; SKU selection and mix match products that are popular in the area.
- Build your own channel incentive program
Create your own incentive programs for all channel partners in your supply chain to acknowledge their achievements.
Everyone wants to be rewarded for their contribution, and you should do the same for your network of distributors and retailers to appreciate their performance in selling your products.
Make sure that your incentive program has simple rules, easy to use application / website and can easily redeem the rewards.
Save your time and money by using the best loyalty platform and incentive channel like Tada which will help you 100% in creating a personalized incentive channel program specifically for your own distributors.
Tada provides the following unique selling points:
- Manage and monitor targets, achievements and rewards in real-time via dedicated dashboard
- Monitor the progress of each distributor in achieving sales targets
- White label solutions that can be easily integrated, so that distributors have their own dashboard to see their progress as well as see the reward points accumulated in their account.
- Various rewards options from Tada's extensive catalog, ranging from shopping vouchers, electricity, e-wallet top up, electronics, gold bars and so on.
- Distributors can easily redeem their reward directly from the application.
In the midst of fierce competition, pandemic disruption and a complex supply chain, FMCG companies are encouraged to implement the best strategies to maintain their market share and also increase the revenue.
One of the proven way to achieve those goals is to help overcome the pain points felt by FMCG distributors in the supply chain, so there will be no obstacles in their daily operations.
It is very important to maintain good relations with distributors and retailers because they are the middleman in the distribution network. Giving appreciation in the form of rewards and incentives can be one of the way to increase distributor brand loyalty, while at the same time encourage their performance.
Tada can be a one-stop solution for those of you who are confused about how to give appreciation to distributors or retailers who sell your products. With a wide selection of loyalty programs available, we can help you create the most suitable channel incentive program for your business. Request a free demo from us now!