On time with FMCG

What are distributors doing to remain relevant in the highly competitive world of fast-moving consumer goods (FMCG)? Gareth Greathead finds out.

FMCGs include everything from food and beverages, to household cleaners and personal-hygiene products. These items are sold at grocery outlets, convenience stores, corner shops and spaza shops around the country.

Retailers selling FMCG rely on low prices and high volumes to make a profit. Achieving this objective relies on an efficient distribution model that gets products onto the shelf at the lowest possible cost.

With the price of fuel hitting an all-time high and the implementation of e-tolls a few years ago, FMCG distributors have had to optimise their service offering to survive. E-commerce and business to consumer (B2C) delivery is the latest development in the sector while digitisation is the buzzword.

Economics in FMCG

Economic uncertainty has resulted in a low level of consumer confidence in South Africa. Within the FMCG sector this translates into subdued spending as consumers look to save a buck and spend less on luxury goods.

Reports published by Statistics South Africa confirm that household expenditure on food and non-alcoholic beverages has been lower than expected, growing by only 0,3 in 2016, and 0,7 percent in 2017. This means that people are spending less on food and non-alcoholic beverages than they have in previous years.

However, there will never be a time when there isn’t a need for FMCG. South Africa and the rest of Africa are going through an intense period of urbanisation and population growth. Moreover, there is a growing middle class that needs FMCG.

Supply chain management

Traditionally, FMCG distributors have driven supply chain efficiency by fully stocking shelves and restocking on a planned schedule. This mass-distribution model makes use of larger trucks dispatched from centrally located warehouses.

Cobus Rossouw, Imperial Logistics chief integration officer, says: “An efficient transport-management service reduces total distribution cost through planning optimal delivery events and routes and ensuring adherence to these plans.”

Central to the efficient collection of the information needed to make informed decisions in modern supply chain management is the use of internet technology, which improves visibility and enables management to view drivers, vehicles and assets.

Rossouw says that an efficient delivery-management solution increases customer satisfaction through correct deliveries of orders and timely communication. “The introduction of new technology such as radio-frequency identification (RFID) tags used for bulk loading, bin-level tracking and mobile tablets used for workflow information and real-time reporting, has minimised the unnecessary manual processes that negatively impact process time and data accuracy.

“Overall, an increase in on-time and full deliveries is achieved, while redeliveries and returns are reduced, resulting in time and cost savings. There is also less shrinkage of items and equipment, due to improved tracking and visibility,” he concludes.

Adjusting the business model

A weakness in centralised supply chain management is that certain products must be replenished more regularly than others. For retailers, having too much stock, or the incorrect stock, on shelves costs money. Not only does this stock have the potential to expire, more of another product could be sold instead.

More than anything, a lack of cash flow is forcing some retailers to rely more on the just-in-time methodology. The just-in-time approach is more fluid in its operation and deliveries are normally made daily. For example, if the store runs out of ice cream during an unanticipated heat wave, the stock can be replenished quickly.

To achieve this, a larger number and variety of vehicles, together with more distribution hubs, are required to avoid vehicles having to drive long distances between deliveries.

A preference for convenience

South Africa has a large number of smaller, independently owned shops. This presents FMCG transporters with the conundrum of how to provide shops with only what they need, at the right time, while keeping prices as low as possible.

Detlev Duve, MD at Dachser Intelligent Logistics, says: “We have had to be innovative in our thinking to meet customer demand without driving up costs. While in the past our fleet consisted primarily of larger heavy commercial vehicles, the fleet has grown to include motor bikes, one-tonne bakkies and light commercial vehicles.

“We don’t turn any business away and our sales force has had to look for business outside of our traditional client base. We are increasingly making deliveries to smaller independent shops and even to rural areas. We believe this trend will continue to develop in the coming years.”

Duve believes a new type of mobile distribution hub could be developed in future; where trucks deliver daily, invoice immediately and pull items on the spot.

Contractors and B2C distribution

According to the PayPal and Ipsos third annual cross-border report, South Africans spent R37 billion online in the 12-month period starting February 2016. McKinsey’s Global Institute predicts that, by 2025, Africans could be spending R1 trillion online annually.

Global players are taking notice. In 2014 American hedge fund Tiger Global Management invested R1,35 billion in Takealot.com (South Africa’s leading online retailer). Later in the year Takealot.com purchased
Mr Delivery in order to provide a better delivery service to its customers.

Some years ago, Pick n Pay set up a dedicated online picking warehouse close to Cape Town. It wasn’t long before e-commerce turnover increased by 30 percent in the Western Cape. Mr Delivery now handles Pick n Pay’s online orders with a fleet of 60 tuk-tuk three-wheeler motorbikes.

For the moment it would appear that distributors of FMCG do not recognise the role they have to play in B2C. This type of transaction typically doesn’t involve them and profit margins seem unattractive.

While things are set to improve in the coming years, it’s clear that acceptance of digitisation and capturing of market share by whatever means possible is required to remain relevant in the context of an extremely tight market.