Distribution channels are pathways along which fast moving consumer goods, FMCGS travel from producers and manufacturers to ultimate consumers. They are routes along which products, information, and finance flow. These channels are rapidly being disrupted by technology in Kenya and across the world. While some manufacturers deal directly with their customers, most manufacturers use a distribution channel to take products to consumers. Effective distribution channel can be a source of strategic advantage for companies.
Flow of finances including credit is rapidly shifting into non tradational channels including mpesa and bank agents. Same can be said about information in the advent of social media. Of course flow of FMCGs is following the same trend albeit a bit slower. Its becoming increasingly likely that you buy products online, they are delivered via Sendy, or Lori, or Uber and of course you pay via mpesa.
Disruption in components of distribution channel can greatly harm manufacturers. A good example close home is the fall of Nakumatt. Many premium brands are yet to recover from the reduced access to customers by the fall of the giant supermarket. Thats why its important to know who are involved in distribution of your product and how they hold against shifting market and technology landscape
Distribution channels consist of agents, merchants, and facilitators who need to be aligned to assist manufacturers in fulfilling and creating consumer demand for products and services. Agents promote products and generate sales but do not themselves buy and stock products. Merchants such as retailers, wholesalers, and distributors buy, stock, and sell goods to others in the chain or to ultimate consumers. Facilitators such as logistics service providers, independent warehouses, and transporters facilitate movement, storage, and delivery of products but are not involved in promoting or trading.
The African context is complicated by the fact that majority of end consumers still buy FMCGs at estate level shops and kiosks.
In a recent Nielsen study of sub-Saharan countries, Nielson found that 80% of consumers shopped from table tops. In addition, Nielsen retail sales data shows that some 40% of consumers shop in small, local grocery stores, which account for nearly 50% of consumer goods spend.
80% is a huge figure, and this complicates and lengthens distribution channels to get products to final consumer. This affects market penetration for most manufacturers as their products may end up too expensive (market leaders FMCGs are available to only about 60% of outlets, which falls to 30% when you consider top 10 products in a category) which in turn creates a vacuum for counterfeits to thrive.
The good news is that all these components of distribution channel are in a shifting landscape that may help manufacturers who will innovate thanks to technology.
As technology grows, it is becoming increasingly easier to measure demand in a more granular way and manage flow of products more efficiently. It is also making it possible to maintain your distribution partners and still have a form of relationship with the end user.
An example is when you pay by Mpesa in an estate level shops. If a receipt is issued, it’s possible to link specific item purchased with a mobile number.
Further there is a proliferation of apps that help shops and kiosks keep track of their stocks and reorder levels. Data available here can help manufacturers know the reach of their products geographically and even the number of intermediaries, stock outs and a trove of other valuable data.
Another valuable innovation in this respect is on demand transporters from trucks to motorbike and bicycles. This is making the complex logistics field more fluid and moving products a lot cheaper and faster
Though the technology is still disjointed, it’s just a matter of time before the loose ends are tied and the cheese in FMCG distribution start moving.
At Avigail Systems, we are already innovating in this area. If you have read this far, you may want to do free a trial of Kwetu Logistics to have a feel of where future may end up being