You have worked as an ASM at L'Oréal and ITC before joining as the National Key Account Manager for E-commerce at ITC and consecutively as a Brand Manager at Bingo. How has this shift been like?
Well, I would like to talk about ITC because I always think of it as my best stint and for good reason. The magnanimity of the organization, employee-friendly policies and fair, transparent bosses has ensured that I have soared professionally. Despite being laterally recruited as a new hire I was asked to shoulder the tremendous responsibility of setting up and scaling ITC’s e-commerce presence. Even on day one, I did not feel like an outsider, with the organization affording me all resources I required to do my job well. I am extremely humbled that recently I have been tasked with the responsibility of managing India’s second-largest bridge snacks brand Bingo! Tedhe Medhe.
Talking about E-commerce, how do you think would B2B E-commerce revolutionize the Distribution landscape in India?
Interesting question I am actually going to answer this in my next blog post. So I would urge the readers to stay tuned.
What are the major challenges in the landscape of B2B E-commerce?
I wish there was a more intriguing answer I had for this. But my FMCG brethren would be disappointed to know that the challenges in B2B e-commerce are not novel. They are the same as the challenges in any alternate distribution model like Cash and Carry as well as wholesale.
What is your opinion about the Direct to Consumer E-commerce with a lot of traditional FMCG companies having forayed in that space?
Personally, I believe it’s not the best idea, for several reasons. I will mention a few of them – large B2C platforms riding on investor money spend millions on gaining scale, because on paper scale is the route to profitability. This paper vision never actually transpires in reality. While many platforms are able to achieve scale in terms of GMV – they are not able to cut back costs or increase revenue (margin) sufficiently to witness profitability for several reasons like persistent competition pulling away customers. Even if they manage to cut costs – it is followed by a crash in GMV.
Talking about FMCG companies while now they are doing a lot on digital and e-commerce, hardly any company can claim expertise in driving user growth to scale on D2C platforms. This problem is compounded by the continuing endeavour of user acquisition by existing platforms.
The advantage of D2C for FMCG companies is cutting out intermediaries and saving on margins, which allows them to play the (discounting) game for a little while at least before it turns into a bloodbath. The biggest advantage, however, is the availability of reliable first-party data which can be used for actionable insights if available at scale. Achieving scale, however, has its own share of challenges as elucidated above.
What do you think are the success markets and the route to profitability in the D2C space?
Operating in emerging categories and market niches is the easiest route to profitability in the D2C space. The caveats here are that there should be sufficient entry barriers in these categories. To illustrate with a hypothetical example – could be if there was a d2c platform selling apps and accessories for apple like products which are incompatible with other available accessories and hard to imitate. The category should also be promising in terms of future growth potential. A lot of digital-first brands like Mama Earth and mCaffeine are showing the way. While their presence on 3P platforms like Amazon is enviable in their category their captive platforms are also doing reasonably. Definitely one of the reasons for their success is tapping into market niches like ‘natural’ and ‘caffeinated’ ingredients – time will tell whether they are inimitable because if the propositions show promise competitors will try to replicate.
A radical idea for large FMCG companies could be allowing online sale of your top SKUs only your D2C platforms (exclusivity) – this, however, would lead to considerable sale loss on 3P platforms at least in the short term, may also end up souring relations with existing sellers of the product online. The idea may also require vetting by legal experts before deployment
Could you briefly take us through the Distribution cycle in the Direct to Consumer space? Would the cost to serve significantly go up due to the elimination of intermediaries?
The D2C distribution cycle is rather lucid, the stocks move from production to stocking to distribution node where it is then picked, packed and shipped for last-mile delivery. Typically the delivery is done through a milk run therefore order aggregation and route planning is done beforehand so as to optimize for delivery time and delivery cost. The delivery charge levied to the customer should not prove to be an impediment to ordering and therefore is not nearly enough to cover LMD cost.
The cost to serve is definitely much higher compared to other channels. It declines rapidly with scale though. Additionally, the elimination of intermediaries reduces margin leakage to companies that can accrue some savings to reinvest.
With multiple route-to-market having emerged, how are FMCG companies tackling the issue of channel conflict? Does it mean high discounting for the consumer?
Great question, which I have spent 7 years answering. There is no one right answer. Each solution is unique to the context, category and channel. So, I will not propose solutions, rather will lay out my approach.
FMCG companies do a lot of consumer research to understand consumer expectations from a product and develop products accordingly. I believe if the same research is conducted to understand the top stakeholder expectations and trade-offs, offerings (not just product but packaging, price, communication and so on) can be designed which are unique to a channel and therefore reduce channel conflicts. Well, this is easier said than done. Consumers expect everything from every channel, which is why it is more critical to understand what are the consumers willing to trade-off rather than what they are expecting. Even these trade-offs become difficult if competition even if temporarily starts offering them.
If you had to give one piece of advice to the MBA community in the current times, what would it be?
Well, I believe the advice is in the question itself. Stay with the current times. Shine in the present but keep an eye on the future.
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