Reaching the Elusive Last Mile – Challenges of Digitizing Indirect FMCG Distribution Channels in Emerging Markets

Caylee Talpert, VP Business Development, N-Frnds

Part I: Lack of data on indirect distribution networks Reaching the ‘last mile’ is imperative for consumer facing companies in emerging markets, however several constraints remain. In this three part series I will deal with some of these constraints and share some of the learnings and insights I have gained through my work at N-Frnds, a technology platform company focused on last-mile distribution in emerging markets.

With over 400 million business not connected to the digital economy and an annual “offline” trade of $5 trillion (Based on World Bank Statistics), today’s global consumer facing companies realize that reaching the ‘elusive last mile’ is key to their bottom line and ongoing growth.

However, despite many efforts, ranging from partnerships with NGOs and local community organizations to pouring millions of dollars into technologies and other well-intended efforts for reaching these consumers, few companies have succeeded in serving these markets at scale. While there are a few well-known initiatives (e.g. Hindustan Unilever’s Project Shakti in India or the Mastercard-Unilever-KCB’s Jaza Duka initiative in Kenya), there are few success stories of large multinationals reaching and serving mass-market consumers at scale.

Lack of Visibility and Data at the last mile

In today’s world of ‘Big Data’, any modern company that is looking to penetrate a new market segment will start by digging into the data, analyzing trends and spending patterns of the target segment and use this to develop targeted and effective marketing strategies. However, the reality of the mass market is that this data simply is not available for the millions of consumers who are making their daily purchases in the informal sector. While many multi-national corporations (MNCs) have extremely precise information about their consumers in Europe or the U.S., when it come to the emerging markets, this data is limited to consumers that are purchasing from their direct supply chains (Supermarkets, Hotels, Restaurants) while the majority of the population in these countries purchases from indirect channels. These channels comprise of a complex network of wholesalers, sub wholesalers, small retailers, mobile stalls and other informal outlets that make up these disperse value chains. For example, in Indonesia a country of 260 million people, over 80% of the population purchases their FMCG products from ~4 million small ‘Tokos’ or ‘Warrungs’ (small street stalls) on street corners (McKinsey; Nielson, Winning in Indonesia’s consumer-goods market, September 2015)

86% of sales in emerging markets is via indirect sales channels with only 14% via direct channels, compared to 74% of sales from direct channels in the developed world – Kantar 2018 reports, Trading Economics

As a result, even the world’s largest FMCG players have virtually no visibility into the spending patterns of the majority of the world’s population. Beyond their direct network they have no way of knowing how much their products are selling for, what moves the fastest, are promotions being passed on to customers etc. This data ‘black hole’ makes creating marketing and sales strategies that cater for the needs of their last mile consumers almost impossible.

While technology and the use of mobile phones is the obvious response to this dearth of data, challenges remain in developing and deploying simple and appropriate technologies that will be adopted by wholesalers, small outlets and the various other stakeholders that make up these distribution channels. Part II will discuss some of these technology challenges and how N-Frnds is using an agent-based, technology driven approach for collecting such data at an outlet level.

For an overview of how N-Frnds is addressing this challenge of a lack of data and others distribution challenges in reaching the last mile watch this short video produced by Microsoft on our work together in digitizing distribution networks in Indonesia.

How can we utilize simple, flexible technology that is also scalable to generate data-insights for reaching the last mile?

Editor’s Note:

Look out for Part 2 later this month, which deals with challenges of digitizing indirect FMCG distribution channels in emerging markets

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