FMCG Distribution in India – HUL, Nestle, ITC

For most of the brands across the globe, India is a consumption story. It is one of the biggest markets in the world for many global brands outside their home country. A population of 1.38 bn serves as a huge consumer base that has varied needs, wants, and demands. Thereby, FMCG Distribution in India has been a case study in itself across the globe.

FMCG companies in India have been establishing a robust distribution system in the country for years to serve this population. Right from the days of liberalization to today, this distribution system has evolved and has also stood the test of time. However, lately, the entrance of deep-pocketed and heavily funded players into retail has shaken the entire Traditional FMCG distribution system in India. However, let’s look at how it has been operating over the years.

FMCG Distribution in India

The credit of establishing a robust FMCG distribution in India goes to HUL (Hindustan Unilever). HUL has not only shaped the distribution system in the country but has also laid rules of the game which directly or indirectly many FMCG companies in the country have followed. There are approx 12 mn FMCG shops in the country and there would be hardly any that would not be selling an HUL product.

Below is how a traditional FMCG Distribution System in India looks like. Of course, it’s not so linear and easy. Many times, the roles are overlapping and the flow of products also may skip a stage or two depending on the purchasing power of the retailer.

Please note: Organized retail (Modern Trade like Big Bazaar, Reliance Retail, and e-Commerce players) get served directly by the manufacturer or manufacturer’s CNFs and is not depicted in the infographic.

Read more on Organised Vs Unorganised Retail in India here.

Let’s look at the role of each stakeholder in building the FMCG Distribution in India:

1. Manufacturers: These are the companies that manufacture consumer goods. e.g. HUL. Nestle, Godrej Consumer Care, Parle, Britannia, and many more. These companies have a manufacturing unit and a warehouse from where the goods are pushed down in the hierarchy.

2. Company Depots OR Carry & Forwarding Agents (CNF Agent): Manufacturers, in the initial days, used to have their own company depots where they used to store their goods. With time it has been outsourced to Carry and Forwarding agents who primarily provide warehousing services for the company’s goods. They have almost no role in demand and supply forecasting.

In Numbers: HUL has approx 40 CNF agents in India

3. Redistribution Stockists OR Super Stockists: Different companies call this level in the hierarchy with different names. One may call them redistribution stockists (as HUL does), super stockists, stockists, etc- Their role is to stock the company’s products basis demand in their region. They are expected to stock goods, say, worth 60 days of rolling demand commonly referred to as STRs (Stock Turnover Ratio). This period varies from company to company also on the nature (perishable/non-perishable) and movement of the product. The Redistribution Stockists / Super Stockists operate at a margin anywhere between 8-12%.

In Numbers: There are approx 15,000 Redistrbution Stockists / Super Stockists in India. HUL alone has approx 5000 Redistribution Stockists in the country.

4. Distributors: Distributors pick up stock from Redistribution Stockists/Super Stockists/Stockists and serve the retailers in their area. They ensure wide coverage of Mom & Pop stores in the country and try to serve as many as possible depending on their business. They also supply goods to wholesalers to cater to small retailers to whom they cannot serve directly.

5. Wholesaler: Many unorganized small retailers and street vendors which are difficult to be served by the distributor directly are served via wholesalers. The small vendors might procure items from wholesalers on a weekly basis and keep their cash flow rolling. Wholesalers operate at a very low margin.

In Numbers: India has approx 3,30,000 wholesalers

6. Retailers: The final customer touchpoint from where an end consumer picks the product. This is varied from large, small, street vendors and now organized players in the trade.

In Numbers: India has approx 12 million shops selling FMCG products

Amongst all this distribution network, FMCG companies place their sales personnel (Area Sales Manager, Regional Sales Manager) who ensure fair trade as per their hierarchal level in the ecosystem, availability of stock, and its smooth movement to meet consumer demand. They monitor ROIs of stockists and cab suggest cost-cutting or investment opportunities in the business basis low or high ROI.

Different companies have churned this hierarchy basis their business priorities. For example, a company that focuses heavily on the rural market can resort to different distribution solutions in the rural arena via differentiated strategy for the rural market or taking advantage of the postmen etc-

In practical terms, it is unlikely to find such a simple linear distribution system in any organization. In reality, there could be small retailers being served directly by the distributor, OR stockist & distributor’s role being overlapped by a single entity. So one should be ready to come across various variations of the mentioned structure on the field.