DISTRIBUTION MODELS FOLLOWED IN FMCG INDUSTRY

The purpose of this article is to understand the various models of distributing products in the FMCG industry.

The term FMCG stands for the “FAST MOVING CONSUMER GOODS” industry. The characteristics of FMCG products include:

Items of almost daily usage or frequent usager
Easy availability of productsr
Comparatively lower unit pricesr
Frequent purchases by consumersr
A geographically wide-spread usage of the productsr
Mass usage of the products

In terms of easy availability, in India, FMCG products are available at almost every nook and corner (FMCG items available at small shops, mid-size shops, and at large-format stores and supermarkets).

Examples of FMCG products include chocolates, biscuits, soaps, cosmetics items, packaged milk products, bottled water, stationery items (pens, notebooks etc.)

Owing to the very nature of FMCG products, especially owing to their mass usage, the location where the FMCG products are produced may be geographically very distant from where these are purchased and consumed.

It is pertinent to mention that in FMCG industry, the availability of a brand at a particular retail location may be an important factor in influencing the actual sale of the brand. So, if a consumer asks for a brand X, if the brand X is not available with the retailer at that time, it is possible the customer may settle for brand Y which is available. Hence, for a brand to sell in the market, widespread availabiol9ity is a critical parameter.

In the FMCG industry, there are national level companies, region-level companies, state-level companies and companies which operate across only in specific districts (that is, area-level companies).

The distribution model of an FMCG product has to be planned based on the following objectives:

The product has to be easily available at all locations, where the target customers make their purchasesr
The cost of distribution has to be at lowest possibler
The partners in the concerned distribution channel should get a reasonable return on their investmentr
Proper methods of inventory control must be used, to prevent excess inventory as well as to prevent stock-outs

While actually zeroing-in on a specific distribution model, the company would need to keep in mind the following factors:

In which geographic areas id there a demand for the company’s productsr
What is the extent of “pull”/ demand for the company’s productsr
What kind of geographic spread can the company afford, in terms of distributionr
What kind of margins can it provide to partners of the distribution channelr
How profitable is it for the partners in the distribution channel to stock and to distribute the company’s products

Depending on the various distribution models used by FMCG companies, the following types of partners are part of the distribution channel in the FMCG industry;

STOCKIST
DISTRIBUTOR
CARRYING & FORWARDING AGENT
DEDALER
SUB-DISTRIBUTOIR
SUB-DEALER
RETAILER

The RETAILER is typically the place from where the end-user / end-customer make the purchase.

Prof Pravin Narang

Assistant Professor

DR V N BRIMS, Thane