ANALYSIS OF WHOLESALER POWER IN DISTRIBUTION SYSTEM WITH FOCUS ON LOYALTY PROGRAMS

Abstract

India’s billion-plus people are spread out across the seventh-largest land mass in the world. Thirty cities have populations of more than 1 million—but account for less than 15 percent of the total population. Despite increasing urbanization, nearly 70 percent of India’s citizens still live in rural areas. These people constitute 30 to 50 percent of the market for basic consumer goods. The Indian FMCG industry is estimated at USD28 billion & the estimates for 2018 peg the industry to grow to USD74 billion. The rural market is growing at 18% and catching up to the urban segments in terms of contribution to the industry. A total of 7.8 million retail outlets sell FMCG in India with Grocers constituting 59%. An organized retail sector has begun to emerge, but it represents only 5% of the overall market. Most distribution models in India involve many intermediaries between companies and their retail customers and have varying costs and benefits. Overseeing large numbers of people can be difficult, but investment in channel partners is crucial for competitive advantage. Companies that provide channel partners with the right selling support programs differentiate their offering from that of their competitors and earn high returns. More than the demand side, the battle is now fought on the supply side, wherein the companies try to occupy as much channel space as possible to eliminate the very presence of the competitor. The wholesaler is one of the most important players in distribution model and with the emergence of the rural segment; the focus of the major players in the industry has now shifted to the wholesalers. There has been a tremendous increase in the power of the Wholesaler especially since in the FMCG distributor model, the distributor acts as an extension of the manufacturer and operates exclusively within a specified territory. The Wholesaler wields a strong influential power over the Retailers for some category of products like Confectionery products. With hub-and-spoke model being followed in the rural areas, the power of wholesaler has increased manifolds. In any distribution model balancing the power between the various channel partners is extremely critical to the company. To tap into this, several FMCG giants have introduced Loyalty programs, which aim to capture the power of the wholesaler for competitive edge. This dissertation would focus on such loyalty programs to ascertain the various incentives being employed by FMCG giants for wholesalers and also analyze the subsequent power of the wholesaler. 9 “Analysis of Wholesaler Power in Distribution System with Focus on Loyalty Programs” The rationale behind this dissertation project is to analyze a practice of the FMCG industry, which in the future would only be further strengthened in form of even more comprehensive engagement of the channel partners by FMCG giants.