Multi-category Distribution: The winning mantra to serve deep rural markets by FMCG companies

Rural markets have always been a challenge for FMCG companies that follow the typical sales and distribution model. In most cases, companies appoint exclusive distributors who do not want to penetrate rural markets due to low ROI; geographical dispersion and low basket value make the situation worse. Many companies have tried different ways to serve the rural market, like Pallidut of Unilever Bangladesh Limited, the indirect distribution (ID) platform of BATB, Runner of BEOL, etc. Many local companies appoint small distributors without any exclusivity agreement to make them financially viable.

Among all the strategies, Pallidut has been a successful model for years where Unilever appoints micro-distributors in those areas where exclusive distributors can’t reach directly (geographically dispersed markets) or the market is not financially viable. The Bengali word "Pallidut" means "rural agent." The Palliduts (Rural Agents), or micro-distributors, are tagged with the local distributors of Unilever, from whom the Palliduts lift products and serve the market where the Unilever Local Distributor can’t reach. This model has been highly successful for Unilever Bangladesh Limited for more than 17 years. The Palliduts cultivate the rural markets, and once they prove financially sustainable for the local distributors, the Unilever Local Distributors acquire the market(s) for direct sales services, while the Palliduts delve into the deeper rural markets and expand into new ones.

Despite the success of the Pallidut model, the majority of these micro-distributors operate across multiple categories to ensure their financial viability. The other categories are ideally non-conflicting with the Unilever product categories, and the UBL categories are the prime contributors to Pallidut’s portfolio.

So, the term "multi-category" is the key to being successful in serving rural markets. It's probably high time for FMCG companies to develop an official multi-category distribution process to cater to rural markets. Developing a company's own alternative distribution process is far more expensive and complex than a combined approach.

How will we implement a combined approach?

In a combined approach, two or three companies can work together to build an alternative distribution channel called multi-category distribution, taking into consideration:

• The product categories must be non-conflicting, or they must be mutually exclusive.

• A maximum of three FMCG companies can work together to make it more controllable.

• Companies should have similar coverage on the direct sales service or exclusive local distributor’s sales coverage.

The micro-distributors work modality is:

• Product lifting: They will lift products from the company’s local distributors. At the end of their direct sales service, the company's local distributors will send the products to micro-distributors.

• Distribution Area: Beyond the direct sales service area, where the local distributors can’t reach. The micro-distributor's warehouse must be within his distribution area.

• Distribution Process and Tools: Ideally, the micro-distributors will use non-mechanized vehicles to distribute the products on a spot-sales basis.

Business Process Management:

The expert marketing service provider can deploy a common field force management team to manage the combined alternative channel's business processes. This team will implement basic sales and distribution tools in the micro-distributors' distribution area.

• Outlet listing and route planning: The field force team will do the survey and make the list of outlets by retail channel. Based on outlet number and the geographic boundary, they will prepare a route plan for the micro-distributors.

• Coordinate the product lifting process: The field force team will coordinate with the micro-distributors for the product lifting plan and the company’s local distributors to ensure the product reaches the micro-distributors.

• Ensure proper implementation of trade and consumer promotions: The field force team will monitor the distribution process and ensure proper execution of trade and consumer promotions in the micro-distributors markets.

The combined approach will provide significant benefits for the implementing companies. This will help them tap untapped markets, develop them to take advantage of direct distribution services, and dig further into the deep rural to extend the alternative distribution process.

The Road Ahead:

Reaching more retailers is critical for any company that distributes products through the sales and distribution model. The more retail they can cover, the more consumers they can touch, and the more revenue they can generate. Here, alternative channels are the key to tapping the untapped markets and developing them for viable direct sales service coverage. A collective or combined approach to this alternative distribution model will play a critical role in a smooth operational process and a financially viable solution. It is high time for sales and distribution experts to explore this combined approach to tap untapped markets and generate more revenue.