Insights and Trends - Innovations in Distribution Channels
Information on the subject is very limited, but there are a number of articles suggesting a few trends. Based on these few sources, trends around the innovative things large, multinational brands are doing to distribute their products more effectively or efficiently, especially in Latin America, include teaming up with an unconventional distribution partner, making distribution more sustainable, personalizing distribution, and distributing on a compact footprint.
Teaming Up with an Unconventional Distribution Partner
- It appears that teaming up with an unconventional distribution partner, such as an industry outsider, to distribute products more effectively and efficiently is being explored.
- For example, Diageo, a multinational alcoholic beverage manufacturer, recently replaced its long-time distribution partner in Chile, wine producer Concha y Toro, with two Coca-Cola bottlers, Coca-Cola Embonor and Coca-Cola Andina. According to Alberto Gavazzi, president of Diageo in Latin America and the Carribean, it is the first time they have entered into such a partnership.
- Gavazzi says they are currently testing said partnership in Chile, and results, so far, are encouraging for both Diageo and Coca-Cola. If results continue to be positive, Gavazzi says it is likely they will take a similar approach in other places.
- While it is common for a global brand expanding into a region to partner with a brand that already has an established distribution network in the region, it is quite unconventional and innovative for a brand to team up with a brand outside its industry. In the case of Diageo, however, partnering with Coca-Cola makes sense as Coca-Cola has a wide and established distribution network, likely broader than that of Concha y Toro, and Coca-Cola, though not an alcoholic beverage manufacturer, is a key player in the beverage industry.
- If Diageo's partnership with Coca-Cola turns out to be a complete success, it is likely that other companies, inside and outside the beverage industry, will follow suit and enter into non-traditional distribution partnerships as well.
Making Distribution More Sustainable
- It appears that using more sustainable sources of energy to power distribution centers and fleets, and make distribution more efficient and environment-friendly, is being explored.
- For example, Ambev, another multinational beverage manufacturer, recently invested $140 million in the construction of 31 solar plants that will supply renewable energy to all of Ambev's 94 distribution facilities in Brazil.
- Ambev also announced the addition of 1,600 Volkswagen electric trucks to the transportation fleet of its logistics operators in Brazil by 2023.
- Given that environmental concerns and evolving consumer preferences are prompting companies to take sustainability more seriously, it is likely that more sustainable distribution practices will emerge. Ambev's recent moves to improve the sustainability of its distribution processes are part of its parent company's goal to have 100% of its operations supplied by renewable energy by 2025. Anheuser Busch InBev is Ambev's parent company.
- It appears that personalizing distribution through the use of advanced technologies such as artificial intelligence is being explored.
- For example, Mexico-based Coca-Cola FEMSA, the biggest public Coca-Cola bottler in the world, has recently started using Victoria, its "automated learning machine for prescriptive analytics," to enhance the accuracy of demand projections. Victoria is capable of studying different sources and understanding what is taking place in different markets.
- Coca-Cola FEMSA has already seen a 5% improvement in accuracy after using Victoria in Mexico for over six months. It hopes that, with the tool, it will be able to offer personalized attention, higher resource utilization, and improved driver safety to its distributors.
- Coca-Cola's most modern facility in Latin America, which demonstrates Industry 4.0, was recently opened in Rio de Janeiro. The facility was one component of an investment that includes the construction of a modern distribution center. Considering the rise of artificial intelligence and other advanced technologies, it is likely that more and more companies will employ such technologies in distributing their products more effectively and efficiently.
Distributing on a Compact Footprint
- It appears that distributing on a compact footprint, to penetrate dense, urban areas with little or no open space, is being explored.
- For example, Ikea, which is known for its huge warehouses in city outskirts, has started considering stores with smaller footprints. There are indications that Ikea's distribution model is evolving.
- The first indication was Ikea's announcement that it will launch its first store in Paris in the heart of the city, while the second indication was Ikea's announcement that it will open stores in Mexico and is considering sites in Mexico City, Monterrey, and Guadalajara, which are all dense cities with insufficient open space.
- That Ikea itself is rethinking its distribution model and is willing to distribute on more compact footprints to enter emerging markets is a sign that companies planning to enter emerging markets are likely to take into account the available space and be open to more compact store or distribution formats.
Since distribution channel innovation was defined as things companies are doing to distribute their products more effectively/efficiently, we did not limit our research to new distribution channels. As distribution channels have long been categorized into wholesalers, distributors, retailers, and the Internet, and distributing through online stores is hardly an innovation in this time and age, we figured we could include trends around innovative distribution partnerships and innovative practices among distribution channels, as long as they are trends surrounding how companies improve product distribution. We quickly found, however, that trends surrounding these topics, especially those specific to Latin America, are not readily available. Articles and reports directly covering the topic do not seem to be available.
As we could not locate any source in the public domain that readily lists these desired trends, we decided we could identify these trends by looking at what top global brands in Latin America are doing recently to improve their product distribution. Only the top global brands in the world and the top FMCG brands in Latin America appear to be available, so we referred to these lists in identifying the brands to prioritize in our research. Researching brands one by one and using Google Translate as necessary enabled us to find relevant articles, including those published by Just Drinks, LAVCA, Seeking Alpha, Reuters, and Fashion Network. From these articles, we were able to learn what Diageo, Ambev, Coca-Cola, Ikea, Colgate Palmolive, and Grupo Bimbo have been doing lately to distribute their products more efficiently and effectively. Since innovations are of interest, we ruled out news where the brand only opened a new store/distribution facility or streamlined its distribution network.
To find additional information, we looked at the countries that make up Latin America and tried to research each key Latin American country separately. This strategy proved ineffective, however, as it only led us to Spanish or Portuguese versions of the articles we already found. We found one unique article about Coca-Cola, but it touched on distribution only very briefly. There were a number of articles covering how brands such as Samsung, Amazon, and Natura, have opened their largest distribution center in Mexico, but opening a distribution hub or store in a strategic location is hardly innovative. The trends presented above were based on the limited information we have gathered from the articles we mentioned in the previous paragraph.