FACEBOOK– INTERNET, DISTRIBUTORS– What’s Next?

By: JP Aclan (President/CEO Kratos Hub Inc.)

Facebook has redefined the World Wide Web. The concept of SOCIAL NETWORKING has changed the world. If we saw this revolution online, what’s the next big thing for the distribution business?

As a distribution and FMCG expert myself, I truly say that constant reinvent myself as the concepts evolve as we speak. My organization sometimes even had to cope up with the changes that I employ in order to be in tune with this dynamic industry.

Looking at the trade landscape, from traditional trader, to glorified wholesalers, to would be distributors, to 2^nd generation distributors, to sub-distributors and dealers, how will brands penetrate the market in the next 20years?

Is it the expansion of Modern Retail Outlets, wholesales up ply channels? Or is there another idea that integrates everything with an end in mind of reaching more consumers?

The answer: BRAND PENETRATION CHASSIS.

Reach Development has been an issue for numerous consumer goods companies. As organizations strengthen marketing plans; there is a specific need to develop the right cost effective distribution strategy in order to improve product availability.

Although the main culprit is cost, sales executives are always guided to out sourcing their distribution campaign. Low cost, but unreliable at best. I’m not even talking about sub-distributors. I’m referring to primary distributors of consumer goods.

Even if we develop them into a powerful secondary organization or a world class distribution chassis, the idea is now obsolete. As profit pressure mounts and the fact that sales professionals continuously abuse their distributor partners, the point of the matter is, we need a 3^rd Generation program that will incorporate the ideals of REACH AND BRAND DEVELOPMENT.

What companies need to have is a distribution partner that focuses on BRAND development rather than just volume through put. I’m not saying that volume is bad. Volume is very good especially if it is profitable. This concept is easier said than done. However, it is very timely for this to be

Executed considering that share holders of blue chip corporations are always greedy for higher returns. Let’s face it. We cannot change investor mindset. But we can always develop corporate mindset.

THE DISTRIBUTION FALLACY

By: JP Aclan (President/CEO Kratos Hub Incorporated)

              Can distribution in its most practical sense deliver more sales, hence more profits? In my experience, it is a resounding NO.

                  Let’s face it. Numeric distribution won’t matter in terms of volume. The impact it brings on the table is insignificant to the point that it is only being capitalized by the bureaucracy that exists in FMCG corporations.

What matter’s most is weighted distribution. It’s all about the stock weights of the SKU’S that will definitely rake in the profits. Sellers must focus on developing power SKU’S rather than building trade inventories that will only strain the capital of storeowners.

       Of course, this is easier said than done considering that marketing executives are clearly focused on expanding their portfolio to bring in more profits for their assigned category. Insights usually lead to expansion lines in order to address certain needs of consumers but the capitalization of the trade environment is not growing proportionally to this expansion. This is why I always question the profit position of accredited company distributors. I agree that the margins may vary from one principal to the other. But nevertheless, in my 12 years of experience in the field of distributor management, distributors are usually abused. Of course, I cannot categorically say that it is true for all, but majority of the time, it usually happens.

          The impact of expansion lines with the promise that distributing more SKUS to the trade environment will lead to higher volume is the biggest fallacy of it all. Distributor profitability is severely affected by high inventories and the fact that there will always be product launches that are not well thought off. This usually leads to capital erosion due to the fall out resulting from the failure of the new line that will in turn translate to losses for the distributor. The VDMP concept (Volume, Distribution, Merchandising, Pricing) is a good read and a spectacular insight for the principal companies but is a potentially big loss for the distributors.

                 In my opinion, what needs to be strengthened is the marketing chassis of the FMCG companies. The way that brands and categories are crafted must be in tune with driving consumption for POWER SKUS rather than expanding lines that are not really helpful especially at the miniscule trade level. What brand owners should develop is a marketing plan that will generate better acceptance for their products instead of relying heavily on loading distributors, stores under the veil of DISTRIBUTION.

             This should change. Company executives’ needs to start thinking like a micro-entrepreneur. . .

The Ambiguity of the Retail/Wholesale
Industry

By: JP Aclan – President/CEO (Kratos Hub Incorporated)

                     There is one common misconception about the retail/wholesale business: “IT’S THE SIMPLEST BUSINESS WITH VERY SMALL MARGINS”. If I were a stagnant type of entrepreneur and an ordinary trader at that, I would have totally agreed with this idea. However, my 12 years of extensive experience in dealing with the retail/wholesale market tells me otherwise.
Yes the margins will appear small. But once you look closer and understand it further, you will see that this industry is the most LUCRATIVE, PROFITABLE and SUSTAINABLE business model that any entrepreneur can ever venture into. There is one issue though, you have to accept and learn to live with its AMBIGUITY.  I have known several executives in the FMCG (Fast Moving Consumer Goods) industry that constantly veers away from this landscape.

This is due to the stress level and the time that you need to allocate in order for you to effectively run this business. The ambiguity lies in the basic truth: “THE BUSINESS IS NOT AN EXACT MATH.”

The biggest company in the world, WAL-MART, has perfected this model and look at where they are right now. They are so amassed with cash that when they sneeze, CEO’s of Consumer Goods Companies are catching a cold. However, it is important to note that they succeeded in the first world market. They haven’t conquered the third world yet.

This is where the challenge lies. This is what we have perfected and continuously improve in our company. We know how to attack the basic trade unit of the third world countries: “SARI-SARI STORES.” And we still constantly learn on how to do so.

If you combine the “SARI-SARI STORES” in the world, they are 3 times the size of WAL-MART. This is retail heaven. No single company can monopolize this trade environment.

This is the greatest ambiguity in the retail/wholesale industry. Small margins you say? Try effectively turning your capital and doing business with the Tier 2 and 3 stores.