Combination of marketing with logistics is the future
Om Swastik Trading has been a dealer of multiple brands and is in business for quite some time. Senan Shah, Om Swastik Trading, shares the pros and cons of exclusive dealerships, and the upcoming concept of shoppee.
How does cement distribution channel differ from FMCG products?
Cement is still regarded as a commodity. Every user has its own perception and understanding about the ´so-called´ brand or commodity. As a commodity we are doing a good job coupled with brand building exercise, good incentivisation.
In the FMCG business, the distribution cost is at a very micro level, whereas in case of cement, it is at a macro level relatively. If the distribution cost goes up, the cost of selling the product invariably goes up. Brand building and advertising brings continuos economic benefit to the distribution network and consumer. One needs to strike a right chord between brand building and advertising. If a top selling brand suddenly raises its price, the volume of sale automatically comes down. So there is a limit to everything.
Price is extremely critical. Quality-wise, it is same everywhere in India. Technologically, everyone is at par in the cement industry.
During construction of dams or bridges, what people insist is not only very good quality cement but also consistant supply of material. Even in the most of the recognised brands in the country it comes down to the delivery pattern. Logistics is another very important facet of the business. For a project taking place in Himachal Pradesh quality is equally important but cement plant from Tamil Nadu cannot deliver cement, because logistically it is not possible.
What is good or bad in FMCG that can be applied to the cement industry?
One good thing is that pricing in FMCG is very consistent, whereas in cement there is still price volatility. In FMCG, the price volatility is taken care [majorly] by the manufacturer, but in cement, price volatility is faced by the distributor most of the times.
A cement dealer is required to take risk to do business. In FMCG, the volumes are less but the element of risk of pricing always remain in the domain of manufacturer. But in cement, it is either shared or left for the disposal of distributors. They need to take a very big chunk of risk which is not there in FMCG.
What is good in FMCG is its geographic reach, and payment and collection system are much more organised. Whereas in cement, the orders worth of Crores are just given by the word of mouth. FMCG doesn´t operate that way.
In FMCG, it is the corporate which creates the brand and the channel partner gets the benefits, whereas in cement distribution, it is the dealer and his relationship with the customer that plays an important role.
What are your views on exclusive dealerships of a particular cement?
I was part of the exclusive dealership till some time back. It offers one-to-one linkage of cement in certain areas. At the same time, it offers price advantage while competing with other brands.
Is it legally valid to force someone for exclusive dealership?
No. Legally it is not enforceable. One can challenge that in court or with the Competition Commission of India. It will work in areas where the brand is stronger than the dealer but it will not work in the highly competitive environment.
Some of the companies are trying for shoppee concept, which is a indirect way of having an exclusive dealership. How far it has been successful?
The concept of shoppee might be working only in case of UltraTech. I don´t think there is in any other brand where the concept exists. Earlier, erstwhile Indian Rayon & Cement and ACC Ltd have also tried it. This concept may work in long run. It may work in place where there is not much competition. However in competitive market, this concept will not work.
Coming to wholesalers, is it necessary to have control over the transport of cement since majority of wholesalers have their own transport companies?
It is a service-oriented business, and to give better service it is always an advantage to have your own transport. The combination of marketing with logistics, and value-added services are the future of the business.