Last month, Coke announced a new strategy. It tied up with e-commerce app, Grofers, to deliver Sprite Zero directly to their consumers. The company that, for more than a 100 years, bet on the traditional route (Coke to bottler to retailer to consumer), is now experimenting with the power of the Internet and mobile technology. Many FMCG firms (food and beverages in particular) are eying this segment with a lot of interest.
The impact
While the sustainability of the e-commerce model at current valuations is still under scanner and the jury is still out, the impact of this on the traditional brick-and-mortar models of business is there for all to see. Notwithstanding the long term sustainability challenges of Internet firms, they are not likely to vanish any time soon. The brick-and-mortar models will have to reckon with them and not dismiss them as fads.
This is, in some sense, similar to the way FMCG firms are still trying to grapple with modern trade vs. traditional unorganised fragmented retail. Many cross-breed/high-breed solutions have been tried out with varying rates of success. Throw in the urban-rural divide and the picture gets more complex.
A lot of companies are struggling with this question, some since the time of the dotcom era. From Walmart to the neighbouring bania have felt the impact of e-commerce on their trade, and are trying to deal with this challenge. However, in most cases, the attempts have been tentative and don’t come across as something based on a good understanding of the strengths of both models of doing business.
What really happens
It is common today for people to walk into a showroom for electronic goods, check out the models physically and place the order online thorough an e-commerce firm; sometimes, right from the showroom! The middle man, in this case, the dealer, who has invested enormous sum of money in the form of real estate, classy facilities, air-conditioning and trained sales force, feels short changed when the order finally goes to the online firm.
But they need to understand that this is inevitable, since the value proposition for a consumer is high while dealing with an online firm. Discounted prices, home delivery, warranty and service terms are same. The brick-and-mortar dealer will never be able to match the scale, variety and convenience of the e-commerce firms.
To be or not to be
The basic problem has been that of the mindset.
Most firms, unfortunately, see this as an either-or-situation, instead of exploring the potential for a creative and synergistic combination of the two models of business. It is a fact that they both have different strengths — while e-commerce firms have very many advantages, traditional models also perform many value adding activities. The wisdom would be in synergistically marrying them.
For example, can the e-commerce firm be the aggregator of orders and the traditional dealer network take care of the supply chain and logistics? Alternatively, can the dealer network function more as a showroom, wherein the main purpose is to showcase products (though selling need not be completely cut out, it needn’t be the main purpose)? Can investments, in terms of who carries the inventory, be looked at from this perspective? Can one look at a Grofer model where the company works with select traditional bania/grocery stores for the delivery and not attempt to replace or substitute them?
The traditional channels expect the OEMs to make things viable for them. The manufacturers and brand owners need to take the lead in this. It is the Samsungs and P&Gs that need to come up with solutions.
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