Distribution Trade in India – What The Future Portends

Digital disruption is empowering customers across India. Armed with Internet search tools and product comparison websites – customers are demanding more value for every rupee. The middleman chain between manufacturer/importer and retailer is crumbling from onslaught of e-commerce giants like Flipkart, Amazon, Snapdeal etc. Brick and mortar retailers have even gone to Govt of India for protection – demanding more control over e-commerce trade. However, such resistance has proved to be futile historically as consumer choice and economics ultimately decides the winner.

Major reason why retailers are unable to provide better pricing is distribution cost. India’s multi layer distribution channel adds more cost than value at every layer – benefiting middlemen but depriving manufacturers/importers as well as consumers. Ironically, organized retail chains, which were supposed to offer better pricing by cutting transaction cost – have failed to do so. Indian consumers do not find much difference between prices at retail chain and small stores.

E-Commerce giants are winning more customers by offering better pricing through innovative distribution process. Companies are selling directly to consumers – from Xiomi mobile phones to President Pranab Mukherjee’s autobiography – wiping out distribution chain. Manufacturers are happy, so also are consumers. However, retailers are terribly upset and lobbying Govt of India for restraining e-commerce giants.

Indian distribution system has not undergone much change over last 100 years. Traditional multi layer distribution system caters to over 13 million retail outlets spread all over the country. These outlets are mostly small in size, ranging from mom-and-pop stores to medium sized retail chains. Retail business size is about $ 550 billion. Share of organized retail is a minuscule 9%, though rate of growth in this segment is very high.

So, what does the future hold ? More and more manufacturers/importers/producers will attempt to go directly to retailers – wiping out distribution cost or at least shrinking it. Such companies will get able support from fast growing logistics sector with so many e-commerce fulfillment companies like Delhivery, Red Express, GoJava etc. along with traditional players like Fedex and Blue Dart.

With Goods and Services Tax (GST) likely to be operational from July’ 2017 – India will be one market with free movement of goods among states – demolishing significant tax barrier that distributors take advantage presently. Online exchanges like vanik.com, where companies interact with retailers/ dealers directly leaving out large distributors, is showing the way. More such developments like B2B E-Commerce marketplaces BazarA2Z.com will pave way for direct transaction between companies and retailers. Manufacturers and consumers will be benefited from such developments, heralding new era of online distribution