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Complex Distribution Networks
Traditional distribution channels are very complex. First the product leaves the factory to go to a central warehouse. From the central warehouse it goes to a regional stockist or a super stockist. And from a stockist it goes to a wholesaler and from there to a retailer. So marketing new products and expanding to rural hinterlands involves massive investments in asset heavy network. And, The brands become susceptible to high demand variability.
Add to these complex networks our shoddy infrastructure and it becomes easier to see why India spends 14% of it’s GDP on logistics much higher than Japans 11% or United States’ 9-10%. And, curiously the last mile logistics make up 50-55% of the total cost. While intercity logistics has seen some organized players coming up in the past two decades, the last mile segment traditionally was served by unorganized retail players.
On the flip side, the demand for delivery services is set to skyrocket as more consumers, especially rural, come online and as e-commerce platforms and brands make a stronger push to reach these new customers. Because the traditional distribution networks are asset heavy and are inflexible to address demand variability there is an acute need for new models which could resolve the last mile puzzle.
In this backdrop, imagine a network of over 100,000 kirana stores doubling as hubs to supply goods to other kirana stores and consumers directly. This allows FMCG brands and eCommerce platforms to directly access millions of rural consumers without having to invest heavily in distribution networks. This is exactly what ElasticRun has achieved. Today almost all top FMCG brands work with ElasticRun to distribute their products to the remotest regions of the country.
I was introduced to Sandeep Deshmukh, CEO & co-founder of ElasticRun by Rajesh Raju, MD of Kalaari Capital. Sandeep is a no-nonsense operator with a strong belief in staying grounded and focused on the problem. He would set the direction and let his team come up with appropriate solutions. At the same time he takes hiring very seriously and tries to interview every candidate for important roles still.
In this episode…
Sandeep talks about his small town childhood, his stint in the Silicon Valley, his MBA journey and starting up. I asked him about his recent USD 40 Million fundraise and the role his early investors Kalaari Capital and Norwest played. Catch this and many more interesting musings in this episode.