A: The General Trade (GT) retailers will still be there, but the way they are served and who calls the shots within the sector may change rapidly.
The GT proved to be very resilient during the last quarter century, when it had to compete with the Modern Trade (MT) across emerging markets. That said, the sector is suffering from real inertia, and becoming progressively less effective every year. There is a desperate need for the GT to lift service levels, reduce costs and generate useful data. At this stage, there is no indication that the manufacturers can make this happen.
MT ate a large slice of the GTs cake. The Digital Channel may bite off another slice…or it may completely transform the GT, so that it’s working for new masters.
The big questions are: Who will drive GT transformation? Who will benefit from it?
A: For the manufacturers the GT has been the single most important bulwark to protect their profit margins, yet they appear to have been unable to do anything about insulating or protecting the sector.
First we thought the issue was a lack of visibility, and the solution was to enhance integration between manufacturer and distributor through technologies. This helped, but wasn’t impactful enough. We then realised that innovation was being strangled by the very structure and organization of these networks. This has resulted in underperforming networks across the whole South East Asian region.
The diagram below represents how most Consumer Goods (CPG) companies operate:
Covid-19’s ‘New Normal’ will put immense pressure on the current model and things will start to break down. The innovation, determination and deep pockets of the digital players, will progressively give them far greater insight into consumer needs and market demand. That is their road to domination.
Manufacturers still hold the economies-of-scale advantage as digital players still have to overcome the enormous cost challenge of providing a high value service for relatively low value products. Gradually, as the digital channel grows, the manufacturers’ sole remaining advantages will diminish.
So the manufacturers clearly need to change their approach, otherwise they’ll lose influence over the distributors, their connection to the retailers and consumers will be undermined, and they will cede control over the GT to the digital players.
A: Yes, there is a very clear path to streamlining the General Trade.
We call it the Distribution Network Acceleration (DNA) model in which manufacturers use their position to
enrol network stakeholders into evolving structures, operating practices and disciplines that will benefit all parties.
DNA offers manufacturers 10 distinct benefits:
Right now, there is still a window of opportunity to make this happen. This window will rapidly close.
If manufacturers can break their (internal) inertia and change their approach to the GT, they still hold the advantage in scale, long-term relationships and existing network structures. These can be used as a foundation for a revitalised GT while at the same time opening an opportunity to establish mastery over the digital channel.
4 years ago, we developed the DNA model, and it clearly demonstrated a better way to serve the GT. The logic and practicality were solid and accepted by the dozens of manufacturers we shared it with, but it was ahead of its time. Complacency and inertia still ruled, so we put it in the bottom drawer.
This was DNA’s basic headline message at that time:
We now see that, for manufacturers, DNA will address both the GT and the Digital Channel threat and that the marketplace changes are now so dramatic and serve as the call to action and rethink.
To quote Victor Hugo:
“Nothing is as powerful as an idea whose time has come”
A: Absolutely not, but it is definitely do-able. Unless manufacturers want to give control of the GT sector to the digital guys while also abandoning aspirations to control the Digital Channel, I honestly don’t see an alternative.