How digital disruption in emerging markets is helping to solve Value Chain inefficiencies in the Traditional Trade?
In many emerging economies, traditional trade stores are vital not just as a channel opportunity for consumer goods companies, but also, as support of millions of households that enables economic dynamism. In the report ‘Staying ahead of the B2B ecosystem disruption in emerging Asia’ Mckinsey & Company analyzed how consumer goods companies in Asian emerging markets are turning to data, analytics, and digital solutions to realize value in traditional trade. This article summarizes the report and highlights the main takeaways from it.
Given the scale and proximity of independent grocery stores to end-consumers, and despite the inefficiencies emerging from a fragmented system, manufacturers must continue doing efforts to reach these stores and adopt strategies to integrate intermediary systems that are becoming increasingly digitized. Companies from the industry should track and plan to benefit from the digital-led disruption triggered by the existent inefficiencies along the value chain in the traditional trade. Across China, India, and some economies in Southeast Asia, a pattern of solutions emerge, driven by entrepreneurs and ecosystems.
Here an example of digital assets created by ecosystem players that directly address key inefficiencies in the Consumer Goods Value Chain:
1. Suppliers and Brands:
- Problem: Limited direct connection with final consumers. Increased competitive intensity due to new players and proliferating assortment.
- Digital Solution: Supplier App: distribution system (ordering), analytics suit and promotion, and pricing suite.
2. Distributors and wholesalers:
- Problem: High operational costs given legacy ways of working. The long tail of retailers with a high cost to serve. Poor credit availability. Asset heavy operations
- Digital Solution: Logistics offering: warehouse, transport to an outlet, transport to consumer, financing.
3. Fragmented trade Outlets:
- Problem: Traditional trade retailer economics under stress. The proliferation of salesmen — hundreds of visits every week. Smaller outlets under- served under the current architecture.
- Digital Solution: Digitalizing Point-of-Sale: ordering app, inventory management, payments, local promotions, and offers.
4. Consumers:
- Problem: Disconnect between the new “online to offline” journey and the limited availability of options in the physical stores
- Solution: consumer app: loyalty (points), promotions, online/online-to-offline offering.
While China and India are among the leaders in digitization in Asia, similar efforts will inevitably find their way into the value chains feeding traditional retail in other emerging economies. Finally, it is important to note that while the disruptions brought by technology can address inefficiencies in the value chain, they can also help small trade outlets thrive.
Smart Partnerships
Companies in the Consumer Goods industry that are established and active in emerging economies must recognize the opportunities that digital disruptions in the traditional trade represent for them. A strategic response from companies to take advantage of the digital trends can be determined by a company’s network size, maturity, and “bulkiness” of the category. Moreover, adopting a proactive approach can be the first step to get more involved in the ecosystem, for example, experimenting with smart partnerships. Companies in the industry can engage in targeted partnerships with strategic digital solutions providers that complement their existing distribution systems and that have minimal channel conflict. The alliance between both can start on a small scale and once the potential of it is proven the initiative can be rapidly expanded. Events such as the Covid-19 health crisis are accelerating these trends of digital adoption in the sector that companies shouldn’t miss.
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Succeeding in this complex and unstructured environment requires an appropriate distribution management system with the right granular and analytical data to understand in real-time your field sales activities and outlet coverage.
Our solution FieldPro helps consumer goods manufacturers achieve that level of visibility and efficiency in record time. Get in touch with us today to better manage your presence in the traditional trade.
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Read the complete report from McKinsey & Company here
