Traditional FMCG Distribution System in Bangladesh

Traditional FMCG Distribution System in Bangladesh:

The goal of every manufacturer/importer is to make their products available to the end customers. In doing so, companies need to engage intermediaries to make sure that products are traveling from the point of origin to the hands of customers.

Traditionally in our country these intermediaries broadly falls into two categories:

a.  General Trade

b.  Modern Trade

General Trade:

This channel includes distributors, wholesalers, and retailers. They are the independent business entities who buy products from companies with a purpose to sell to their customers at a profit.

Retailers and wholesalers are managed by distributors under the guidance of Territory Managers. Distributors are appointed by companies by a sales agreement. They have their own capital, human resources, and logistics to run the business operations. Distributors buy products from manufacturers at “Dealer/Distributor Price” and sell to retailers/wholesalers at “Trade Price”. The difference between these two prices is the source of distributor’s earning. Distributors are managed by Territory Managers who are employed by the manufacturers.

How products reach at retail outlet?

In FMCG distribution system, sales order is taken from retailers a day prior to product delivery. Distributor’s Sales Representative (DSR) visits retail outlets and collects sales orders from them. The next day a delivery unit (deliveryman + driver) makes sure the delivery of the products to all the outlets from where sales orders were taken by DSR and collects “payments” against each successful delivery.

Day-1: DSR Collects Sales Order from Retail Outlets

Day-2: Delivery Unit Ensures Product Delivery to Retail Outlets and Collects Payment

Companies sell to distributors at dealer price, distributors sell to retailers at trade price, and finally retailers sell to customers at MRP. Companies time to time offer trade promotions to encourage distributors and retailers to buy more of company’s products. It is assumed that retailers will sell to their customers at MRP but sometimes retailers sell at a discounted price (below MRP) to attract more customers on which companies do not have any control. Generally, dealer price remains same for all the dealers/distributors and at the same way trade price also remains same for all the retailers.

Note: Companies may have their own Sales Officers (instead of DSR) to collect sales orders from outlets. In such cases, distributors are only liable to make sure the delivery of the products in exchange of payments.

Modern Trade:

Modern Trade consists of the super shops like Agora, Swapna, Meena Bazar, etc. who buy products directly from companies (some exceptions are there e.g. some companies deliver products from distributors) and directly sell to customers. Modern trades are the retailers in the eye of manufacturers. Some companies manage modern trade channel directly whereas some other manage them by distributors. There are some dedicated Territory Managers who look after this channel based on geographical demarcation. The entire modern trade channel is supervised by a dedicated Key Account Manager.

Companies make sales agreement with each super shop and fix a trade price at which super shops buy products from them. Generally, different trade prices are set for different super shops e.g. the same product may have different trade price for different super shops. Generally super shops buy product from companies on credit and sell to customers at MRP.

In “general trade” Companies mostly offer promotions for the traders (retailers) whereas in modern trade Companies offer promotions for the customers. This promotion may be in the form of discount or kinds (kinds mean giving a product free with the purchase of another product or same product). Whatever is the promotional form e.g. cash or kind, the manufactures need to pay for it to the super shops based of promotional sales quantity made by that respective super shops. Without promotional offer, super shops at their own normally do not sell any product at lower price than MRP which general traders (retailers) do.

In modern trade it is very much common to showcase products in Gondolas for which Companies have to pay monthly rentals in favor of the super shops which is a major source of earning for them.