Is there something to learn from nuances of go-to-market in industries which have a much smaller retail footprint like alcobev? Well yes.
At first sight, distribution in Alcobev seems to be relatively simpler – limited set of 75k outlets vs 10Mn+ for FMCG, 15-20 key SKUs vs 50+ for large FMCG firms, 2 key categories (whisky & beer) dominating consumption vs 10+ categories for FMCG.
However, a media-dark environment not allowing brand managers to use ATL (the bread & butter of marketing), significant regulation and uncertainty decided by each state independently and the alcobev sector still being under VAT and paying fees for cross-border movement makes Alcobev distribution increasingly more complex than it seems.
Coupled with the fact that Alcobev has also seen significant raw material inflation like other sectors (e.g., Glass cost has increased by 6 percent over the past coupled of years, cardboard cost by 10+ percent) but does not have the luxury of price increase due to state regulation constraints, compounds the profitability problem for Alcobev to a level much higher than other sectors.
Within this context, the Alcobev industry has shown tremendous innovation to remain on top of increasing complexities and grow the Alcobev industry by double-digit for the past few consecutive years. Understanding the nuances of distribution in Alcobev may lead to learnings for other sectors which might help re-think the established go-to-market methodology and differentiate themselves in execution.
Moving from outlet segment to outlet
Given the significantly high number of outlets in FMCG, companies have typically operated by segmenting retail outlets into A-B-C-D or equivalent classes – typically by volume / value, each of which have a designated margin, credit terms and standardised credit terms. Given increasing complexity in products, the goal has been to ensure right coverage in terms of numeric and weighted distribution. What gets overlooked in this way of distribution is establishing share of voice at the outlet through BTL, potential to drive premiumisation and / or specific high margin categories and learning first-hand from the customer at the store (both data and insights).
Alcobev, with its limited universe of outlets, can afford to take an outlet-level view versus an outlet segment view. Key features of the outlet apart from just volume / value salience, such as off-trade vs on-premise, browsable vs non-browsable, the price-tier of categories kept in the outlet (Value vs Premium), bars vs restaurants vs hotels vs pubs within on-premise – to name a few – are mapped, allowing the salesforce to not just decide margin and trade terms but also the right BTL tool-kit and push the right products x price-tiers at an outlet level (vs outlet segment level).
E.g., Browsable outlets can afford a company sponsored brand ambassador to educate consumers about company brands as well as collect company and competitor tertiary intelligence whereas the same thing can be accomplished in a non-browsable outlet through counter-salesmen incentives. A luxury hotel will the prime venue to push single malts in a celebrity-influencer hosted event vs a 3+1 promotion on your favourite tipple in a bar.
The result: higher value per outlet by selling the right SKUs via the right mechanisms as well as more effective branding – conducted by utilising the same workforce. The ask: The right technology and analytics enabling outlet-level planning with significant degree of automation, thereby enabling more effective targeting at minimal additional effort for the salesforce.
Re-inventing marketing and branding
Marketing has typically been divided into ATL and BTL with clear roles for both channels – ATL establishing the brand but only an indirect linkage to sales in-terms of increasing top of mind, BTL to push depletions for certain SKUs typically through discounts, promotions, or value packs without the objective to indulge in brand development via the salesforce.
Given a media-dark environment, Alcobev has had to rely on BTL to fulfil both the objectives with the retail outlet as the common battleground for 15+ brands. The result: A highly sophisticated BTL toolkit with 20+ levers with each lever fulfilling both objectives of branding as well as depletions. E.g., Many brands have employed brand-sponsored entertainment nights in on-premise outlets be it comedy, music, dance, game nights – with sponsorship clear displayed to a large audience backed by pre-decided targets for depletions, these activities have proved to be a game changer. Or take for example, branded shelves in off-trade outlets driving 3 objectives at once – a cost-effective BTL channel in competitive off-trade outlets with limited space, stand-out branding and rental payment only on accomplishment of monthly targets.
Driving net revenue & profitability with constraints
Alcobev does not have the flexibility of unconstrained price increases to shore up profitability, neither is supply chain network optimisation possible due to prevalence of cross-border taxes. With limited levers at their disposal, Alcobev manufacturers have taken drastic actions and pushed innovation to maximise profitability for long-term, even at the cost of short-term volume / share gain.
Take for example, geo-optimisation – Alcobev companies have a state x category x SKU approach to identify which SKUs to play with / pull the plug-in which state. This sometimes involves drastic actions like removing key volume driving SKUs in high-volume but price restrictive – low margin states like Telangana, at the same time compensating the volume loss in states in under-penetrated high margin states in the East. Some companies have taken it further by adding a channel layer on top – making choices not to sell in certain channels in certain states which have traditionally been low margin. The objective: Drive Net Sales Value maximise at the cost of volume / market share.
At the same time, manufacturers have identified multiple innovative levers to improve margins – introducing new variants with slight recipe changes to gain the right pricing in price-restrictive states, introducing customer-centric product packaging (e.g., Hipster PET pack) to drive volumes while significantly reducing packaging cost and optimising product recipe incl. malt content continuously while ensuring same taste to avoid alienating customers.
While Indian FMCG has significantly advanced in terms of optimising the go-to-market experience, increasing competition, complexity of portfolio and pressures on profitability is likely to require re-thinking of traditional ways of working to sufficiently differentiate and maintain / develop market leadership while maintaining / improve profitability. In that context, there are certainly learnings from alcobev to reflect on!
Mani Singhal, is managing director and partner, Boston Consulting Group (BCG) and Aayush Goel is project leader, BCG