It is the traditional supply chain model which is used by almost all the FMCG companies in India for their distribution. It has been tradition by many factors ,but I feel the main reason is Geography of our nation Rural/Urban, multiple languages, etc . Consequently this is the only reason for higher logistics cost in India compared to European countries.
At present logistic costs around 15% of sale price .
Another cause of highly fragmented distribution network is high population density and the spread of this density,have to say HUL, Pepsi & Coke have surpassed all these intricacies . Clearly for new FMCG companies distribution is important for scaling up sales. However, within the limited outlets that they are able to reach out to initially, challenges exist in creating visiblity of the product’s uniqueness, if any, and generating repeat purchases so as to be to scale up revenues and thus, distribution to the next level – a cycle which doesn’t end.
I conclude India is still not one market, it is a country composed of many markets, not simply in the same way as one might say such a thing about Europe or the United States, but in a more profound sense; individuals across India are accustomed to local distribution and local pricing… it is cultural, and will not easily be supplanted by a one-size fits-all market scheme. it’s not a solution to the market for distribution that should be the focus, but a solution to the distribution of markets.
Every single successful FMCG company had to crack the distribution problem.