Aligning to the new normal

  • Manali Sengupta

 

Paanwala is the oldest format, last nodal point, and the smallest unit of retail network in India. Although cigarettes &Paan still form the backbone of a paanwaala, this traditional channel still serves as FMCG’s one of the main and trusted channels. This format has seen constantly evolving supply chains, globalisation, technology induction, entry of new market entrants home delivery formats to players with best discounts. Not to forget, it has witnessed crises such as Tsunamis till Pandemic that we currently are undergoing, yet,it still remains unchanged and stays as an integral part of the supply chain. With over 14 million (yes 1.4 crore) paan shops across India, industry experts say, this forms 5th P of marketing! No wonder, FMCG players have tremendous hold on these shops to promote and push their products

Below provides simple explanation about how does the current distribution chain work –

  1. Arrival of new products – The arrival of the new product is purely through the allotted salesman who introduces the product and bargains for a slot to stock just right in front of the store (Joh Dikhtahai who Bikhtahai concept)
  2. Order management (Mix of Push and Pull) and inventory management – Orders are a mix of both pull and push as the paanwala orders the necessities whereas the new products / products with discounts are pushed to be stored
  3. Payment cycle– Paanwala generally provides credit to his regular and reliable customers (almost 70% to 80% of the customer base). Payment to salesmen are typically not allowed to be paid later (availing around 30% to 40% purchase credit). But, more established business dictate terms better and therefore control the credit term. But,most of the times, he pays on time to not take the burden of interests.

 

How is this evolving in the recent times?

There has been a manifold increase in customer’s awareness, coupled by birth of new delivery models such as ecommerce, and enhanced supply chain visibility (technology). With these developments, paanwala is facing a downward growth trend, though not a dreadful at least in the near future. This is because consumer, now equipped with smart phones order essentials which end up in his door step (with discounted prices)! What more could a consumer expect!

Adding to the fuel, the recent pandemic has thrown all forms of supply chains out of gear, starting from condensed demand to bottlenecks in logistics making it difficult for the products to reach the desired consumer.

Hence it has becoming increasingly challenging to manage a traditional distributional channel due to the following factors-

  1. Demand fluctuations – Sporadic demand due to pandemic has resulted in unreliable forecast errors resulting in over or under production
  2. Huge inventory storage costs – Forecasts errors leading to inventory pileups both at upstream and downstream supply chains (until paanwalas).
  3. Availability of labour – Most of the labour involved in warehousing and distribution live a hand-to-mouth existence without medical or other benefits. With advent of Covid, availability of such labour has also become dreary with labour returning homes for a more stabilised living.
  4. Delays in payments from paanwalas – Due to reduced foot falls at the shops, paanwalas have deferred paying their suppliers and almost 95% of them have either not paid or have crossed the credit periods
  5. Lack in visibility – FMCG, inspite of these amazingly interwoven networks have not been able to connect till the last mile point.

How do we overcome this challenge and ensure we evolve from the current model? Pandemic has challenged us to become more creative resulting in new hybrid-distribution model providing end-to-end solutions. All thatpaanwala needs is a smartphone and few hours of training on an app’s technical know how to order his requirements. It is a win-win on all the following accounts. We have put up a SWOT analysis for the new emerging model.

STRENGTHS

  1. Convenience – Paanwalahas to download the app, order it online anytime, anywhere. He would be made aware of offers/promotions available on his personalised profile.
  2. Transparency – Actual demand is made visible to the material planners through orders resulting in reduction of bullwhip.
  3. Aggregation of demand– Dependency on salesmen and other intermediaries are reduced/avoided and requirements are maintained in a single basket at a certain minimum order limit.
  4. Credit and Financing options – Major drawback of the traditional model was the lack of credit facilities and predatory rates of the distribution network. This kind of distribution network removes this roadblock, offering flexible payment options of Cash-on-delivery, payment on apps etc.

WEAKNESS

1.Lack of Human Touch– Dependency on salesmen have not come in a day. Hence, it would be difficult for many to embrace ordering without face-to-face interactions. Also, the sales personnel’s market visit may reduce resulting in not being in touch with ground realities unless it is mandatory

  1. Adversity to technology and innovation –“Jab jaruratpadtahain, tab apneaaphaath-pair maarnapadtahain.” Change management and educating Paanwalas is a challenge that we need to overcome
  2. Inability to mitigate Delivery issues – App can only provide traceability of stocks. It will not be able to rectify the delays in deliveries.

 

OPPORTUNITY

1.Low share of organized retail – With organized retail accounting for almost 12% of Indian grocery retail, digital transformation of this supply chain node acts an opportunity for FMCG brands to streamline inventory losses and tap further into the traditional market.

  1. Generation Z – Majority of Indian population is below 30 years. They are more tech-savvy, aware, cautious and selective of brands they are servicing.Downloading an app is no biggie!

THREATS

  1. Uncertainty of location: Despite being an indispensable presence in every residence, parking lot or office, small businesses live in a constant fear about the uncertainty of their location be it government agencies, local goons or the legal infrastructure. Most small shops are located on encroached public land.
  2. Demotivation for growing business: A combination of current generation who are more educated and lack of manpower, there is a lack of motivation and commitment to spend 16-20 hours to run the shop / operations.

 Summary:

Considering the new situation, the world is facing, innovative companies are leading from the fore front. Instead of looking at pandemic situation as a setback, innovative companies have taken this opportunity to play the game at the next level. Innovators and early adapters will sieze this opportunity to push the paradigm – which not only increases competition within the corporates but would any day help consumers. By these actions, virtually Business is getting closer to the consumer!

(The author is Programme Manager, Thoucentric – a Bangalore-based management consulting firm)

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