Q-Commerce - A Bubble in the Quest

Q-commerce – A bubble in the Quest.

A philosophical interpretation

 

A Bubble in the Quest

 Thank god technology has created a lot of options for shoppers and even for business to business convenience. There have been many developments in the retail ecosystem, every six months there are reports that something new has come up and such startups get good funding. I must say that it is the “war of ideas” that is being fought in the retail ecosystem and it is causing disruption in some way or the other. We are in the era of Retail 5.0 where we have to accept that Omni Channel is the way we serve our customer and consumer.

Whatever be the idea, concept and way of doing business but the quest to reach the consumer is never ending. Startups are inventing new terminology to lure investors to their full potential and there is no doubt that they are succeeding and getting good funding. There are many examples of turning this idea around and mixing it with technology and the names are eB2B, social commerce, dynamic commerce and now Quick commerce.  During last 10 years I have seen the advent of technology driven b2b, b2c, social commerce and adjoining it with hyperlocal facilitation etc. etc.  

One thing is very clear that despite the huge funding, coverage and overall market penetration of these startups, there are still doubts as to when will they become profitable and how long will it take to recover the customer loyalty and the duration of the customer life cycle. Will you (investors) burn more money? or as a marketer still around the typical market fundamental that burning is earning? 

Startups are raising funds and even they are getting it at inflated valuations. This suggests that in future either the number of customers or their preferences will improve and some will remain in business. Yes, it is market funda’s and usually we expect the same, but in the present scenario where every six months’ new ideas come with huge investor money, who are burning money to test the scenario of their business strategies. Is it?. Will they be like "frogs"? What is not? It will be discussing in later articles.

I am very positive that something new must come in the market and that new must be disruptive enough to lead to a profitable & sustainable business. For a year now we have been talking about Quick Commerce or Q-b2C, the imitation of the West being tested in the Indian retail ecosystem. Some startups received funding of millions of dollars. Wonderful! Yes, those same investors are testing their luck with the Q-commerce startup. Incredible 10-15 minute delivery services are factually based dear. It is not a dream or a thought inside the nerves of the brain. Already, four startups have received substantial funding from investors and have started operations in some cities. I would not have mentioned their names as it would not be wise to evaluate them or compare them with each other at this initial stage.

I have a slightly different level of positive thinking about these kinds of ideas and how they work. I use business environment fundamentals and ground realities first and accordingly dare to share my views.

only concerned about the longevity i.e. sustainable business life cycle, because that comes through making good profit and making it sustainable for a long time. But do you think that startups who are testing their luck in the startup ecosystem are making money? or is there any possibility that they will be profitable even after ten years of operations? have doubt because of the fundamental which they are not applying. 

Take the example of grocery retail. There are over 55 startups operating in the Indian grocery retail ecosystem. All are tech driven platforms. More or less they are connecting the supply chain. Let us examine the margin spreads of FMCG and Staples. 15-18% is the average margin spread of FMCG products nationally. Leave 10% off for retailers. Those working on DTR (Direct to Retail) are burning 7-10% i.e. 8% on average as supply chain cost (this cost is inclusive of reverse logistics cost). 5% on average they are burning on promotions, deals and offers. Overall it comes out to 10% Retailer + 8% Operation Chunk + 5% Marketing = 23%.

Similarly B2C players are burning 15-20% of their money in promotions, bringing in new customers, maintaining their loyalty and worrying about the CLC of the consumers. Take an example, if a startup from eB2B or B2C or Q-B2C takes a minimum of five years to reach a unicorn level or some takes 2 or 3 years. It is 99% possibility, that during the said period they will burn money to build bigger and bigger market share and make top line. If you take the example of existing startups in the same ecosystem, you will find that they have lost millions of dollars. If it takes five years for a business to reach and generate a level. Take an example that Rs. 1000 crores accumulated loss, then think that when they are on the positive side of business operations. It will take another five or ten years to payback the loss and capex. My statement in this regard is that no one will make money even after 10 years of operation in the said segment.

This is a common man's calculation. Around 5-8% of the revenue by the b2b startups gets burnt for some reason or the other and 15-20% in the B2C. The only concern is to win the top line. This will lead to higher valuation which will be the benchmark for raising more funds.

Now, let's take a look at where Q-commerce is going to disrupt the retail ecosystem in a big way. Some of the existing B2C companies have changed their names and are now swimming in the same tunnel but they forget to analyze the basic and ground reality and even their vision. Well, leave them to their fate.

Quick Commerce a new way of e-commerce

Positive aspects of the concept:  Q-Commerce is time bound and time count third generation e-commerce concept. Here we must say that technology made it happening. New capabilities built in technology to drive the operations smooth in a TAT.

Characteristics of Q-Commerce:

1.      Technology driven ubiquity

2.      Consumer centric as on demand fulfilment

3.      Turnaround Time specific

4.      Convenient in terms of need.

5.      Interactivity

The positive aspects of the concept really pertain to the retail ecosystem. It is best suited for the impulsive and thirsty needs of grocery, medicine and services. The consumer is thinking of cooking something about a new recipe. Previously they had to plan the event and make purchases, but technology brings new features with the promise of quick delivery, so things happen on click. Whatever you plan to eat, try and fry, the consumer is ready to eat in 10 or 15 minutes. It is indeed a huge force of technology and developed operational capabilities of companies providing anything on click within the promised time.

Who's on top? No doubt it is the consumer, the cycle of events is around the consumer and is very focused towards specific needs.

There is no doubt that startups came up with the idea that they will make profits in the short term and will be at the top of valuations. Similarly, early investors will have multi X as ROI in the next two or three years.

As a retailer and a retail expert, I congratulate the minds behind the Q-Commerce idea and lead for their execution.

Take a look at the operations matrix and feasibility:

Macro level - cost of serving an orders comes Rs. 45-50/- including cost of picker, packer and riders. It means 12-15% cost element. Micro level this cost can be minimize to Rs. 25/- per order.  Now rest calculation is for you and evaluate and please revert to me.

Flip of the event:   There is another side of the store which is destructive to the Kirana /or other Retailers or Small retailers ecossytem.

Anything that gives value for money to the consumer is my cup of tea, but my concern is about the backbone of this retail ecosystem, i.e. the “The Retailer” /or "Grocer" / or the “ Kiranawala” who is most likely to suffer.

Why the Retailer will suffer the most? 70% of the Retail shop's over the counter sales are from the immediate needs of the consumers. Consumer visit the nearest store and buy Rs. 100-150/- bucket and disappear. Many consumers also visit these shops many times. Some visit for milk, biscuits, bread, butter, sugar or any other impulsive needs of their kitchen. The journey takes 10 minutes or 15 minutes. Eighty percent of consumers consider it a burden to go out from for shopping, and twenty percent want it as an opportunity to walk on the street. Think about the eight percent of consumers who are going to get impulsive goods in 10-15 minutes’ time just by clicking on their mobile. In this way, Q-commerce will fix the match in their mind and will definitely swap the earnings of smaller 2 retailers.

Roughly estimated 30% of small grocery stores will be on death beds in the next one year or two. The arrival of Q-commerce or likewise will be a negative news for their livelihood.

Any thoughts on this? There are organizations like CAIT, local retailer’s associations, he Federation of Retail Traders Welfare Association (FRTWA), Retailers Association of India (RAI) and 35 other retail associations in India who said to be advocate of retailer’s welfare as such has no influence. This is true that they are not able to raise their voice and accordingly not able to present the lobby.

It is true that the consumer needs convenience which they should have. It is also true that market is so kind and pertinent which gives opportunity to every businesses and every business have their own market share, but here we are talking about Retailers i.e. the Mom & POP stores the backbone of retail.  As a developing country we have to think that a community of more than 14 million micro entrepreneurs, who Creates 8% employment in the country, contributing their 11% to India’s GDP, still there is no promise from policy makers as to safe guard the interest of Retailers.

Skill India , Make in India is good for the country and a good initiative but we cannot leave everything to the open economy policies. As a policy maker, India Govt should patiently think that whether India retail need such disruption in the name of Startup India or we should think to empower and safe guard the business of small retailers.

My topic here is "Q-commerce is in the bubble of quest". It shows how unsusceptible we are in the ecosystem to assess business dynamics or how inconsumable we (investors) are to invest our money. Is technology driving the business Q-Commerce is the best example of this? A next level of search is on the way.

Bubble is not good for anything. Startup founders are working restlessly and want to make it a unicorn, similarly investors are burning their money in the hope that someone will give them 10x returns but what if such things take the shape of a bubble in the ecosystem.

This article is a way of mixing philosophical and psychological way of interpreting my thoughts that will take anyone either way. You may think positive till the middle of reading this and find it negative in the end.

The truth has never worked out as would like it to be, sometimes it appears unexpectedly and then "the policy makers i.e. retail policy makers will open their eyes and the bubble will burst with huge noise.

Best way is Empower the Existing Ecosystem whether they are Small Retailers, Distributors and Wholesaler. Create opportunities for them and take them with your journey.

The best way is the best of luck!

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written by Balwant Singh Rana on : 09.01.2022

 

Balwant Singh Rana

 

FMCG Distributor - Dilemma - Conflict to Survival

 

Distributors Dilemma & the Conflict 

Indian Retail market is rapidly growing, expected to reach USD 1.55 trillion ($1555 Billion) by the end of FY 2023.  however, 80% market is still traditionally driven but supported somehow by technology. No doubt transformation in terms of Infra and technology is going on at a keen pace, which will take this to the next level of growth.

FMCG Industry in India, Just for more clarity I extracted from it : https://www.ibef.org/industry/fmcg.aspx

As per the Apex Retail body IBEF, the Indian retail FMCG market will touch 2.20 trillion markets by 2025 almost double of existing market size, out of which 60% is the grocery market i.e.USD 1.2 Trillion. Currently, the market is around $883bn. India's $883 billion retail landscape is dominated by Kiranawalas.

    

The market is growing due to changes in customer preference, increase in disposable income inflated the consumption too, more technology-driven distribution is underway, retailers are also benefiting from the new age disruption by eB2B players, but there is an important member of this ecosystem who is suffering the most and is currently his existence is going through a dilemma. They are the Distributors who are in great dilemma and struggling to sustain their business. 

Why is such an important member not taken care of by Brands? In a real sense, they are the real connector and bonds. Distributors are connecting retailers with brands. Without its existence, we cannot think of reaching the retailer and ultimately end consumers. But, this community is now in great danger as they struggle to protect their business from stiff competition from supply chain aggregators.

Why I am keen to write on this topic?  Because I am from this ecosystem and working closely 1998 and understand the pain of an existing distribution channel partners.  I have been witnessing growth in grocery retail since 1998 when we introduced pulses in consumer packaging and find ways to make it a brand. At that time retail was in the development phase and retailers were at the forefront of moving a product through its placement cycle to the stage of making it brand. There is no doubt that retailers still have that power and are at the base of the retail pyramid, although the penetration of technology has provided new workspaces and room for developing technology-driven supply chain aggregators that will eventually lead to FMCG companies. provide wings in terms of more sale verticals but with conflicts.

But, my concern is more about the distributors because my way of thinking is that we should empower the existing ecosystem and not disturb them in any way.

Let’s put to light a few important things about Distributors.

With an ample size i.e. about USD 1.2 trillion markets catered by 14 million small retail stores i.e. Mom & Pop shops serviced by 0.45 million distribution channel partners ( C&F, Distributors & Stockist) still we are talking about opportunities in this segment.

New Developments in retail,

especially in the Kirana segment

Venture capital-funded technology-driven supply chain aggregators are the new wholesalers and taking the pie of distribution channels. As per the estimates, funded eB2B players are contributing USD 2.5 billion out of USD 800 billion of grocery retail. It is negligible if we talk about the intensity of trading volume in terms of GMV. According to me, the calculated GMV refers to the net revenue. I am not talking about organized retail trade. Organize retail consists of physical stores of retail giants like D-mart, Reliance, Big Bazar, Vishal, etc. This article is about all the problems faced by distributors and how they are affected by eB2B players.

Retailers are in the centre of all activities, no doubt they will be benefited from such developments but the same is happening with them as online commerce is taking their share and getting the big bite from the pie. Social Commerce, Q-commerce, and D2C platforms are going to take 30% of business from the Kirana Retailers by end of 2023 but they will have more choice to fill their inventory but he will be part of the conflict that is arising with Brands and Distributors very soon.

eB2B players are in process of reaching directly to Retailers so they are among the change-maker who has money power, the influence of technology, and some great risk-taking appetite disrupting the ecosystem. Disruption is a humble word for disturbing the system.  Let’s continue with it.

First of all, we have to understand the role of distributors in the retail ecosystem and how they are impacting the process.

Distributors are wholesale agents who connect manufacturers and retailers. Distributors purchase large quantities of goods from the producer and supply these to individual retailers, thereby eliminating the need for the manufacturer to contact a large number of retailers one by one. They provide large coverage and penetration in terms of selling line items of the product line, ensuring proper placement and through promotional activities by the brands creating a breakthrough.

Typically, distribution approaches support company-level objectives related to growth.

• Transactional functions: buying, selling, and risk assumption
• Logistical functions: assembly, storage, sorting, and transportation
• Facilitating functions: post-purchase service and maintenance, financing, information dissemination, and channel coordination or leadership, Expiry Management and providing replacement and services to retailers related to any queries arising due to quality of products and delivery timing etc.

1.  In a more refined way, they are providing:
2. Delivery of satisfaction i.e. providing freshness
3. Standard of Living i.e. providing latest items on time and convenient availability
4. Value Addition i.e. Providing goods at the right quantity, at the right place, and the right time.
5. Communication i.e. Information flow from Brands to Consumer through retailers
6. Employment
7. Efficiencies i.e. Distributor is an entrepreneur so he has to work on the scale of the economy by way of keeping efficiencies in their deliverables.
8. Logistics
9. Financing i.e. provide on-demand credit to retailers and keeping good relations with them

In Net shell:

1. ·         Greater efficiency in making goods available to target markets.
2. ·         Intermediaries provide – Contacts – Experience – Specialization – Scale of operation
3. ·         Match supply and demand.

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Based on the above information which tells us about their important role in the ecosystem we should mend our knowledge that they really contribute a lot. Now the question comes if they are so important part of the market so they must be gaining a lot i.e. earning good profit from the business.  During my twenty years of experience in Retail, I got a chance to visit hundreds of distributors and could see them closely.  They are still operating from a pitiable infra and driving their business in a very economic style.

Route to market should go through a proper channel. But, despite such an important role in the ecosystem, there are many challenges which distributors are facing. Let’s put a light on these issues and see how we can add value to their business and empower them in the best way.

 SLL  is done by the Distributors

Challenges faced by the Distributors

1. Most of the challenges are external to them, however, they have some of the internal ones which are generally related to their infra, mindset, and IT prospects, but for them, it is manageable amidst the low margins offered by the brands and somehow indifference from the brand side like isolation and lack of training mechanism. Distributors and semi wholesalers are catering to small retailers, truly they reach the last mile and reach out to the masses. With the advent of eB2B startups, distributors lost a significant portion of their revenue as small-scale retailers started placing orders with eB2B players using their IT tools.
2. Challenges from D2C
3. On-demand delivery by the Retailers
4. Last-mile delivery affected by the Supply Chain aggregations i.e eB2B startup
5. Emergences of social commerce, Q-Commerce, and consumer-driven B2C platform
6. Shrinking margins.
7. Territory bangs
8. Inventory Management & assortment management
9. Demanding Customers and prospects
10. Less penetration of IT tools
11. Sales return & RTV issues from the brands for new product lines.

There is a lot to find out if we talk about the problem side of distributors but the issue is why are they moving out from the stream and what is the solution, and how can they be empowered?

The conflict between brands and distributors is now visible in the ecosystem, recently All India Consumer Products Distributors Federation (AICPDF) warned nationalized brands not to be met by distributors if they did not find any solution for them.  The problem is with horizontal distribution i.e. eB2B supply chain aggregators and other big bang retailers who are giving or burning their money in terms of giving 15-18% margin and sponsored promotions to retailers through technology intervention, whether FMCG brand through traditional distribution system spread margin from 10- 12% then. Why this discrepancy?  

Here we have to expand on the word "disruption", I'm not convinced by the terminology that one segment of the ecosystem is burning money like crazy, offering huge discounts to build a bigger network, regardless of the bottom line. Creating the word “Disruption” exhibits an aura of disturbance in the ecosystem. The only good thing in this kind of development is the emergence of technology promising of that scale which is a huge parameter to "evaluate" in the start-up ecosystem. But, before they were fired from the ecosystem, we need to understand the fundamentals of the business.

Why distributors are disturbed and losing the charm, interest, and business opportunities?  This is not what we are not able to figure out but the thing is that we are a part of this ecosystem and are engaged somewhere and our selfishness is keeping us on hold that’s why we are not speaking aloud. 

With the advent of Modern Trade from 2005 to 2014:  FMCG companies started focusing on Modern trade, this has brought another line of consideration for them and they start giving low preference to the General trade market.  This has happened in every segment of retail, but yes grocery is the most affected. Undoubtedly, Modern Trade has greeted them with good visibility and stretched their product range beyond expectations. But, the landscape started in a different direction when modern business outlets started offering their own private label. The disillusionment of the FMCG company started in 2012 and onward. However, later some companies started introducing new pack sizes with different MRPs to avoid the conflict with GT market. Still, Modern Trade is a great platform for FMCG companies. But here the struggle has started for the distributors, the same FMCG company is giving more margin to MT outlets than GT. Somewhere the demand imbalance and consumer dissatisfaction made GT retailers less preferred resulting in turmoil in the sales of GT backfire distributors severe.  Things will go in the same directions, as per the market trend of MT market size, it will grow in double digits and will reach above USD 150 Billion by 2023, positively will be in the range of 18-20% of total retail market size.  I completely agree and I believe this will upset the existing distributors in a big way.

Ecommerce is on the other hand made a heavy noise:  B2C players, started entering B2B in one or another way.  This is something cannibalizing the opportunity for distributors. The advent of technology-driven marketplaces and diversion of the business model of b2c into b2b is something that is creating panic in the distribution ecosystem. Everyone wants to each to retailers so they are offloading their products and making the scale of the economy. Something fabricated and fascinated way of practice is going in B2C startups. Many startups are there to disrupt the ecosystem in their way.  They were getting heavy funds, some of them got Unicorn status and again burned more money in terms of discounts, promotions, and adoption. This advent in E-commerce will reach $111 bn size market by 2024 and maybe more.

It would not be wised to create a conflict, it will be a big setback for the FMCG companies irrespective of status they have i.e. national, regional, or local.  All are going to suffer if this would happen and distributors start a conflict with the brands.  Distributors can’t be let in the middle of technology-driven b2b supply chain aggregators and the traditional method of distribution. All stakeholders of this ecosystem should get a better solution so that distributors should not suffer. 

According to my sources, the AICPDF and FMCG companies have agreed to suspend the agitation for time being, but the struggle is not showing any signs of abating. If we are talking about any solution that FMCG companies will provide to them, honestly nothing will happen. I have an argument to prove that if FMCG companies find a way to resolve this conflict, it must go through a basic fundamental. As a retail professional, I am curious to know the outcome of this conflict. How FMCG companies will distribute lollypop among the distributors? 

Things need to be discussed with the retail giants and amicable solutions need to be brought into the retail ecosystem so that there is better consistency across all layers of distribution.

I am working to deliver some strategic solutions to the ecosystem so that such things can be avoided with brands and distributors.

Your valuable comments and suggestions are welcome to share with the stakeholders of this ecosystem.

Post written by : Balwant Singh Rana /23.12.2021