Guide to distribution business

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opportunity/distribution

Guide to distribution business While money could determine the products an entrepreneur gets to distribute, it is his salesmanship, networking skills, and the knack for providing value-added services that ensures lasting success in this business /Vimarsh Bajpai

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jay Misra (name changed) ran a profitable distribution business of firefighting equipment for ten years before slipping into the red in 2005. When Misra had entered the distribution business, there were only a handful of manufacturers and importers of such equipment in the country, and the Uttar Pradesh government was his only customer. Over the years, he developed good contacts in the state bureaucracy and won some big tenders more than once.

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Supply Chain Flow Chart Manufacturer Wholesale Distributor Dealer Retailer Consumer Manufacturer Retail Distributor Consumer Manufacturer Super Distributor Rural Distributor Village Retailer Customer However, as times changed and competition increased, Misra failed to take note of it. The number of manufacturers of such equipment more than doubled in a decade, while the

size of the market he catered to almost remained unchanged. Misra’s margins slowly started dropping; he did not diversify into other products, failed to provide value-added services, ignored

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opportunity/distribution automation of processes, and relied solely on the government as the customer. He finally closed his shop last year only to take up distributorship of a fairly new product.

The face of distribution business has changed over the years. It is no more about just storing your products, and sitting pretty believing that the retailer will come knocking at your door once he is out of stock. Today’s distribution business is about value-added services, understanding the needs of your customers (both retailers and end-users), good networking skills and master salesmanship. “The function of the distributor’s warehouse has changed from being a storage center to a distribution center and now to a value-added service center, creating a unique and vital link in the manufacturer-to-end-user supply chain,” says Prashanth, Managing Director, Lectra Technologies.

“The distribution business is a great opportunity for entrepreneurs, and there is a lot of scope for this business to grow. But you got to provide efficient service and have a greater reach,” says Vinod Sambrani, management consultant and trainer.

Roles and Responsibilities The distributor is a key link in the supply chain that starts with the manufacturer and ends at the customer. He plays that important role of “pushing” the product from the manufacturer to the retailer, and in turn makes money.

He works at the business-to-business level, wherein he interacts with the retailer and not the end customer. But this can be no excuse for a distributor to plead ignorance when it comes to understanding consumer behavior. This is because, in the end, he is supplying products for the consumer, whose buying habits could make or break his business. Thus, ensuring visibility of his products at the retail outlets is also his concern. “Jo dikhta hai woh bikta hai (only that product sells that is visible),” says a key industry source, who deals closely with distributors at the rural level on behalf of his company.

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Skills and Resources Needed for Distribution Business • Good salesmanship • Negotiation skills • Modern-day marketing skills and tools • Networking capabilities • Understanding of market conditions and supply chain dynamics • A knack for providing value-added service • Automation of business processes • Understanding of consumer behavior • Resources – Money, Manpower, Warehouse, Vehicles, etc Manufacturers depend heavily on their distributors for the “reach” of their products, because in today’s cut-throat competition, a customer sitting in a remote village is also on a company’s radar. Therefore, it is the distributor on which companies rely when it comes to expanding the reach of their products. In the case of urban markets, a distributor is appointed at the district level, and he serves the retailers across the district. In case a district is too large area-wise, there could be more than one distributor dealing with the retailers in their specified territories.

When it comes to rural markets, the chain gets a little longer. Take, for instance, Bharti Airtel, India’s top telecom service provider, which follows the hub-and-spoke model. It appoints a super distributor at the district level, who in turn, reaches out to several rural distributors sitting at the taluqa

The distribution business is a great opportunity for entrepreneurs, and there is a lot of scope for this business to grow.

But you got to provide efficient service and have a greater reach

“

”

— Vinod Sambrani

Management Consultant and Trainer

(town) level. They make Airtel’s products available to retailers in the villages that fall in the ambit of that district.

A distributor is expected to have a thorough understanding of the market he operates in. He is usually a local person who has good contacts with the retailers, with whom he has to deal with on a regular basis. He ought to have good salesmanship because only then would he be able to convince the retailer that his product would definitely sell. If need be, he has to provide marketing support through belowthe-line advertising techniques. These include pamphlets and posters. While manufacturers themselves invest a lot on advertising, it is the distributor through whom they roll out attractive consumer schemes and freebies.

“A distributor understands customer needs, knows the reality of business environment and is in a better position to anticipate trends and future changes,” says Prashanth. He adds, “Besides playing a critical role in helping the manufacturer expand market, a distributor helps him achieve an optimal logistics operation.”

Successful Vs Unsuccessful Distributor While money does play a key role when it comes to getting the distributorship of a product, it is no guarantee for success in the long run. Sambrani, who has experience in appointing distributors across several consumer and pharmaceutical products, believes that passion, sincerity and hard work are the key movers. “I have always chosen SEPTEMBER 2008

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DARE.CO.IN the unconventional way of awarding distributorship,” he says, elaborating, “There are several first-timers, who can also make it big in this business, given that they are able to provide value-added services.”

“Distributorship can’t be a part-time business,” says the industry source, adding, “You got to devote time and be in the market from 9 AM to 7 PM.” A company expects its distributor to constantly post growth in sales. This requires an increase in investment, for which a distributor must have surplus capital to pick more quantity for distribution. A successful distributor would withstand the pressure that comes from the company level, and convincingly pass it on to the retailer. Here is where a superb salesmanship comes in handy. The success in this business comes from selling more products (volumes) and adding more customers.

“In today’s context, it is up to a distributor to create differentiated reach, bring in intelligence and pulse of the market to the manufacturers to ensure that the right products reach the right customers/market in the shortest span of time. This adds value to the supply chain,” says Prashanth.

Inventory management also reflects on the distributor’s performance. Failure to source products from the manufacturer even before the retailer calls for it is important. At the same time, overstocking can kill. Thus, regular tracking of inventory would be important to quickly replenish the products that have moved out the shelf.

The distribution business runs a lot on credit. Your networking and rapport with the retailers could decide as to when you get your payments cleared.

While the telecom business runs on low credit, that of FMCG runs on high credit. This is why the investment rotation in the case of telecom distributorship is high vis-à-vis that of FMCG. A successful distributor would diversify both in terms of products and customers. This helps him keep his business in the black by banking on a high-demand product, if the demand for other products slip. Similarly, most distributors deal with retailers, 18

opportunity/distribution Tips to Entrepreneurs • Choose that product for distribution about which you have some knowledge • Work with customers close enough to understand their needs • Don’t miss any opportunity to provide value-added services • Distribution is a volumes game; the more you sell the more you gain • Maintain a good reputation in the market • Push, reach and visibility of the product can make or break your business • Device innovative marketing strategies to increase visibility of the product government departments and exporters at the same time. Some of them also don the role of the retailer.

Starting your own business?

Want to become a distributor of a top motorcycle brand? Here is what the company expects from you (quoted from its Website): “You must have experience in the motorcycle/automobile business, adequate finance and a passion for bikes. This means you must have or create a service infrastructure

Hot Areas to Enter Consumer Durables • Pharmaceutical and Medical Equipment • Clothing and Apparel • Furniture and Furnishings • Automobile • Computers, Phones, and Electronic Equipment • Building material • Sports Equipment • Industrial Equipment • White Goods • Cosmetics • Fuel • Footwear • Paper and paper products Consumer Non-durables • Packaged food • Newspapers and magazines • Toiletries • Chemicals

to provide after-sales service and take care of warranty requirements.

We want distributors with as much passion, stability and drive as the bikes we make. So, if you are a dynamic entrepreneur with a sound financial background and a minimum of 1500 sq. ft built-up area in a prime location.”

Some industry experts believe huge finance is the prime need to get into this business because after initial setup, over a period of time, the company would expect you to grow at a fast pace. For this, you would need to pump in money. To give an example, a well-known cigarette brand expects its distributor in a state capital to invest Rs 80 lakh as the start-up capital. The high capital infusion is because the brand is an established one, and its name sells.

However, this does not stop you from taking distributorship of smaller brands, or even newer brands. As the sales volumes are low in this case, the distributor’s margin is high. Profit margins vary a lot. In the case of telecom products and services, the margins could be from 1.5% to 7%. As for FMCG, these could hover between 24%. Smaller companies can give margins of up to 10%. Several companies give “incentives” to distributors, over and above the margins.

It is not advisable to enter the distribution business without any understanding of marketing and sales. In fact, most companies want to be satisfied that the entrepreneur has had some experience in selling goods DAR E or services.

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