Over the last few years, digital marketplaces have been the buzz of the consumer industry as the global online share of FMCG has increased steadily. FMCG digital commerce is expected to grow rapidly across emerging markets within the next five to ten years as smartphone and internet penetration increases in these regions. For example, FMCG e-commerce grew by 4% in Latin America in 2021, an acceleration three years ahead of the predicted schedule.
However, despite the growth opportunities FMCG e-commerce represents, many FMCG brands and retailers still struggle to understand how to adopt them into their already complicated channel mix. Currently, the only way for these brands to ensure their products reach consumers is by distributing them through a fragmented network of roadside shops, open market stalls, and other small neighborhood stores.
While this distribution model has worked for decades, its limitations are numerous. There is no visibility across the distribution chain, and driving sales depends on physical visits by sales reps to thousands of distributors and retailers. With the pandemic accelerating the rate of digitalization, more retailers and distributors are willing to shop online, and FMCG brands now recognize the advantages of reaching their B2B customers on a digital platform.
Forward-thinking brands are already thinking long and hard about how to participate in digital marketplaces. This article offers a brief overview of why traditional e-commerce marketplaces do not work for FMCG brands. We also showed how AI-powered Open Commerce, a new type of B2B e-commerce, is the secret to winning in emerging markets.
B2B digital commerce is a must-have for FMCG brands in emerging markets
Across emerging markets, over 80% of all consumer goods are sold via the informal market, making small, independent grocery stores not only a vital channel for FMCG companies but an essential part of the local economy by supporting millions of households.
However, there is an inherent disadvantage to serving multiple small retailers located along the same route but with different ordering and delivery schedules. Sales reps are forced to make multiple runs with partially loaded trucks, a grossly inefficient and costly delivery model. In addition, the system leans towards entirely manual processes, such as manual order-taking and reconciliation, which are more prone to inconsistency and inefficiency. Thus, it is unsurprising that the average SG&A cost for the consumer industry is 25%, the highest of any single industry.
A fragmented route to market also makes for an inflexible supply chain. Everything from sales plans to delivery routes is difficult to alter, and there is no room for agile reallocation of resources. In a world where supply chain disruptions are occurring more frequently, this model leaves brands vulnerable.
Source: Staying ahead of the B2B ecosystem disruption, McKinsey 2020
Despite the inefficiencies that emerge from this fragmented distribution system, manufacturers must continue crafting new, digital approaches to reach these stores due to their scale and proximity to end-consumers, and by adding digital selling to their channel mix, FMCG brands can:
- Increase supply chain efficiency and reduce the cost to serve
- Ensure product availability across the retail market and reduce losses from out-of-stocks.
- Provide personalized customer experiences, increase customer engagement, and grow brand loyalty.
- Increase market reach and gain market share.
FMCG brands can only reap these advantages when they build and execute online selling the right way. For most CPG executives, e-commerce has historically been less profitable than traditional offline sales. Yet, digital commerce will most certainly be one of the primary sources of growth for consumer goods companies in the foreseeable future. Does this mean that margin dissolution is inevitable?
What FMCG brands should look for in a digital marketplace
With the right digital marketplace, CPG companies can generate healthier margins while selling online and drive revenue growth with data-driven dynamic pricing. However, a digital marketplace must offer brands the following capabilities to make the financial and technical investment worth it:
- Accelerate the shift to digital models and digitize interactions with all channel partners.
- Aggregate orders from channel partners, creating lower costs to serve individual retailers or distributors, leading to lower prices at outlets.
- Make ordering stock convenient for sales reps and customers, reducing the chances of items being out of stock.
- Increase visibility and transparency in the traditional retail markets and enable sales and marketing teams to create personalized, targeted promotions to drive growth.
- Increase market reach and penetration across multiple geolocations
Unfortunately, no digital marketplace solution provides these capabilities to brands in emerging markets. While third-party marketplaces like Jumia in Africa or Mercado Libre have the digital infrastructure to enable brands to reach more customers, the trade-off is that brands lose control over their supply chain.
Most e-commerce marketplaces use their distribution and last-mile delivery networks to deliver any goods bought on the marketplace, so brands do not have access or visibility into who is buying their products and where the demand for their products is. As a result, the real value of digital selling – customer and transaction data, data-driven insights, and personalized customer experiences will forever remain out of reach for FMCG brands that use third-party marketplaces.
The only other solution for brands is to build their own digital marketplaces, but it also has a disadvantage – convincing retailers and distributors to adopt the platform. Most digital marketplaces designed in-house by FMCG brands have a limited selection of products to choose from. This is an entirely unattractive prospect for distributors and retailers who often carry SKUs from multiple brands.
So, the question remains, how do FMCG brands win with digital marketplaces?
The answer is Open Commerce.
Leverage Open Commerce to win with e-commerce
Imagine a digital platform with the reach and scale of traditional e-commerce marketplaces but provides full, end-to-end visibility across the entire supply chain. Instead of simply seeing how many products were sold on the platform (basically the only information third-party marketplaces provide), brands can see who is buying their products down to the smallest retailers, their geolocation, how often they restock, and so much more.
This is what Open Commerce provides.
Open Commerce is a new way of trading for the consumer goods industry built on the same principles as the original open source movement. It provides a single point of digital engagement for brands, distributors, and retailers to connect and trade directly with each other, allowing the free flow of data between all ecosystem partners. With Open Commerce, retailers and distributors can access their favorite brands, order for stock, and pay securely online, no matter their location.
RedCloud has built the world’s first Intelligent Open Commerce Platform™, which allows brands to leverage the advantages of a digital marketplace while defending their core business. This platform also allows FMCG brands to capture real-time data across the entire distribution chain and analyze the data to provide actionable insights that can be leveraged to drive growth. With the insights generated, sales and marketing teams can shift from traditional outlet segmentation, which is often based on scale or region, to a more sophisticated approach, such as grouping outlets based on micro-market characteristics and overall growth potential.
Schedule a demo with us today to see how FMCG brands in emerging markets are embracing digital Commerce and winning with Open Commerce