At the turn of the century, retail in emerging markets experienced tremendous growth and immense change. Reports show that as the population in emerging markets grew by 21 percent between 2000 and 2015, retail sales per capita rose from $525 to $1490.1. Over the same period, emerging markets’ share of global retail sales jumped from 32 percent to 51 percent, growing at an 11.4 percent CAGR, compared to 5.7 percent for developed markets.
However, due to the fragmented distribution chain, an overwhelming reliance on cash payments, and a lack of technology adoption across the market, FMCG growth has slowed considerably, with reports showing zero retail growth between 2013 to 2015. Since then, the rate of retail growth has remained slow, and is likely to persist, unless there is a big shake in the traditional retail sales model caused by broad technology adoption. This move can generate up to $5.5 trillion in new retail sales across emerging markets.
The traditional retail market in emerging markets is fragmented
Across developing economies, retail trade is severely fragmented and depends mainly on small Kirana (grocery) stores and mom-and-pop shops as the main distribution channel for their goods. The traditional distribution chain, which starts from manufacturers to distributors, wholesalers, and eventually retailers, is a $2.8 trillion market that has remained unchanged for over 50 years.
This fragmented system comes with inherent complexities, as brands need to employ multiple field officers who service the same routes and the same retailers, often making delivery runs with partially loaded trucks. This system is grossly inefficient, as research shows that a large percentage of retail outlets are either underserved (with limited direct coverage from sales reps and low access to promotions) or overserved (with larger retailers receiving up to 80 visits in a week from a single brand). In addition, many small retailers and merchants are cash-constrained, lack access to credit, and are limited in the product assortment they can offer.
However, despite these inefficiencies, the role small shops play in local commerce, and social networks will remain relevant due to their scale and proximity to the end consumer. This is a crucial reason why B2B e-commerce has had limited success in emerging markets. Many consumers still want to buy their products and pay in their local stores, but the current e-commerce model only allows a direct-to-consumer distribution model. Hence, brands are stuck between two impossible choices. They must either adopt e-commerce and the sophisticated technology that comes with it but risk losing access to the large number of consumers who prefer to buy from small, local shops or stick with the inefficient, fragmented distribution system that increases costs and stifles growth.
To solve this dilemma and drive consistent growth, manufacturers must digitize their processes to eliminate inefficiencies without alienating their existing channel partners and breaking their distribution chain. This solution must disrupt the incumbent, inefficient distribution model while addressing the specific needs of brands, distributors, and retailers in emerging markets, ensuring that they can extract margin from the efficiencies generated across the entire value chain. However, building such a digital ecosystem capable of industry-wide disruption will require a thorough understanding of the market structure and properly setting the scale and speed of change.
Open commerce can increase the efficiency of the consumer goods industry
Open commerce is the only solution capable of industry-wide digital disruption while ensuring that brands can maximize the value of their existing distribution chain. Unlike traditional e-commerce, which focuses on selling to end-consumers and eliminating the traditional distribution chain, open commerce unlocks the full value of the distribution chain, providing a solution that connects brands, local distributors, retailers, and merchants on the same platform, all in real-time.
Open commerce provides the much-needed visibility that the current distribution model lacks by providing brands with real-time data at POS. With this data, sales leaders can see where the demand for their products is across the market and make data-driven decisions to meet that demand. Distributors can also place orders for their products from manufacturers and sell to retailers on the same platform while accepting digital payments, significantly reducing the time and resources spent on reconciling orders and payments.
Optimize your FMCG supply chain with RedCloud’s open commerce platform
RedCloud has built the world’s first open commerce platform that empowers brands, distributors, and merchants to sell smarter, buy better, pay simpler. With Red 101 Market, our open commerce platform, manufacturers can see every distributor and merchant in their supply chain in real-time. By accessing POS data, sales and marketing leaders can detect what products are in high demand and the areas where the demand is highest.
More importantly, FMCG brands can leverage Red101 Market to shift from traditional outlet segmentation, which is often based on scale or region, to a more advanced approach, such as grouping retailers based on micro-market characteristics, and overall growth potential. This will allow marketing leaders to create a more relevant assortment across price points and packaging types for different types of outlets, ensuring the right service level and delivery frequency across each outlet.
RedCloud has also built the world’s largest local payment network, available in over 100 countries and over 2 million pay-in points. This will allow merchants to pay for their FMCG products digitally even if they do not have a bank account. Adopting digital payments will significantly reduce the need for cash payments, which can cost up to 15 percent of total revenue, and provide merchants with a digital trading profile that can be used to access credit to grow their business.
Schedule a call with us today to learn how RedCloud’s open commerce platform can help you unlock the full value of your distribution chain and grow your business.
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