What is Retail Distribution – Best Strategy & Process

Retail distribution is one of the important aspects of the logistics industry. It involves the movement of inventories from the manufacturer or seller to the retailer stores so that goods can be sold to the customers. Accuracy and on-time delivery are the most important aspects of retail distribution. Inaccuracy and delays can result in business losses for both retailers and manufacturers. Retailers may face stock shortages, leading to lost sales and dissatisfied customers, while manufacturers risk damaged relationships and potential revenue loss due to inefficiencies in the supply chain.

Retail distribution can use various channels for product distribution, such as wholesalers or vendors. Choosing the right retail distribution strategy is key to the business’s success.

What Is Retail Distribution?

Retail distribution is a strategy of delivering products from manufacturers to retailers. The strategy makes sure that goods are delivered to retailers in good condition and on time. It minimizes delays and maintains product quality.

The global retail distribution network will reach $22 trillion by 2032. It is in high demand because it bridges the gap between production and consumption and ensures that products reach customers efficiently and on time.

Now, let’s discuss this with an example. Nike is a globally famous brand. It sells its products not only through online stores but also through wholesalers, retailers, and D2C stores. The direct-to-customer stores account for 42 % of the company’s total revenue, which explains the importance of a retail distribution network.

An efficient retail distribution strategy involves planning, coordination, and logistics activities such as warehousing and transportation.

Transportation plays a major role in the retail distribution network. It involves product movement from manufacturing Companies to retail stores. The transport mode is chosen based on the product, the distance needed to be traveled, and many other factors.

Retail Distribution Process – How Retail Distribution Works?

Retail distribution involves various steps, listed below:

1. Product Procurement – Retailers should collaborate with reliable suppliers. This ensures that they will provide products on time.
2. Warehousing and Storage – Products arrive at the warehouse or retail distribution center and are inspected thoroughly. They are then kept in their designated places according to their size and demand.
3. Selection Of Distribution Channel – Businesses choose the right distribution channel based on product demand, type, and target customers. There are various types of distribution channels.

For example, if the business chooses an indirect channel, the products are first transported to the wholesalers, then to the retailers, and then to the customers. The business can even choose an omnichannel fulfillment strategy. In this strategy, businesses can sell products in physical and online stores.

4. Transportation – In this process, products are shipped from warehouses to wholesalers, retailers, or customers.
5. Retailer Store Delivery – The retailer will receive products and store them in physical stores or supermarkets.

Different Types of Retail Distribution Channels

There are four types of retail distribution channels, which are listed below.

1. Direct To Customer

This strategy involves procuring goods from the manufacturer and selling them to customers through physical stores or online marketplaces. D2C distribution (direct-to-customer distribution) does not involve intermediaries such as third-party stores or supermarkets.

This retail distribution channel has various benefits, including a direct relationship with customers. Businesses can make high profits with this type of retail distribution channel strategy because they don’t have to pay commissions to retailers or shopkeepers.

However, the business manages its own sales team or online facilities. It even requires a strong 3PL logistics network to efficiently move goods to customers. Expanding the business across various geographical areas may become challenging for the D2C distribution strategy.

2. Retail Store

Here, the brand sells the product directly to the retailer or through a distributor. If the product is present in physical stores, customers can easily access it, which increases brand awareness in the market. Daily-use products like beverages and toiletries benefit when kept in retail stores.

However, the brand needs to maintain strong and good relationships with the retailers. This increases the chances of premium shelf space in the retail stores for the brand products. The brand should also restock the product on time to prevent stockout issues.

Let’s discuss this with an example. A beverage company can partner with a grocery chain and ensure that its beverages are always in stock on its shelves. This can meet customer demands everytime and increase the reputation of the beverage brand among customers.

3. Wholesalers

Wholesalers will purchase products in bulk quantities from the manufacturers at a discounted price and then sell them in small batches to multiple retail stores based on demand. After that, customers finally purchase these goods from the retail stores.

Let’s discuss this with an example. A brand produces kitchen appliances and sells its products to wholesalers. These wholesalers distribute the products to large departmental stores or home stores. So, the brand does not have to manage various retailers for its profit or market awareness.

It is particularly beneficial for brands that want to quickly become popular in multiple retail stores.

Product distribution to various retail stores involves complexities and challenges. Wholesalers usually collaborate with various retail stores and can manage the complexities of product distribution. So, large manufacturers should collaborate with wholesalers.

Simultaneously, businesses that deal with seasonal products or holiday decor should collaborate with wholesalers so that their products can reach retail stores quickly.

However, wholesalers usually give priority to manufacturers who maintain strict and consistent quality standards while manufacturing any product. The manufacturers should supply the products on time to the wholesalers. Moreover, they should produce products in bulk quantities to meet the demands, especially in peak seasons.

Best Strategy for Retail Distribution

There are three types of retail distribution channel strategies.

1. Intensive Distribution

Intensive distribution strategy prioritizes to maximize the product availability in various retail stores by using any available retail channels. It attracts customers and improves brand awareness in the market.

Let’s discuss an example of the Coca-Cola brand’s intensive distribution strategy. Cokes are available in supermarkets, grocery stores, or vending machines. They are available almost everywhere, making it easy for customers to buy their products.

Intensive distribution strategy is best for inexpensive products like toiletries, soap, and toothpaste. Customers will not mind trying another brand product if their favorite brand product is not available on the shelf.

This strategy has some pros and cons.

Pros

• Increases visibility of the product.
• Improves brand awareness

Cons

• Difficulty in controlling so many distribution channels

2. Exclusive Distribution

Here, businesses will sell their products through limited retail to maintain the image of the brand. This strategy aims to reach customers who want to pay high prices for branded products. For example, branded clothes or cosmetics are available only in certain retail stores.

An exclusive strategy has some pros and cons, which are underlined below.

Pros

• Retailers provide better product knowledge.
• Improves brand loyalty.
• Businesses can easily manage as they collaborate with limited retailers.

Cons

• Limited market reach compared to intensive strategy.
• High dependency on the selected retailers.

3. Selective Distribution

Here businesses choose few distributors and retailers for selling products based on location or service capabilities. It works best for products that target specific customer segments.

Some electronics, home appliances, or furniture brands use this strategy to improve their brand image and customer satisfaction.

For example, Sony TV is available only in certain stores in your cities. You need to purchase a Sony TV only after visiting the store.

Selective distribution has certain pros and cons, which are listed below.

Pros

• Strong brand control
• Expanding your business in new markets will be easy if a business collaborates with the selected retailer of the particular area.
• Improves visibility as selected stores are chosen to display the product.

Cons

• It’s not easy to find selected distributors.
• You need to understand the target customers thoroughly.

How to Choose the Right Retail Distribution Partner?

1. Consider the Product Type

Each product requires a different retail distribution strategy. Before selecting the correct strategy, consider the product price, usage, and demand.

For example, a business dealing with affordable products that are used almost daily by people then they should use intensive strategy. For example, a business dealing with toothpaste should use an intensive strategy.

Again, if a business deals with special products with moderate prices, then it should follow a selective distribution channel strategy.

A business dealing with highly exclusive products and requiring too much consideration, like a luxury bag or car, then it should follow an exclusive distribution channels strategy.

2. Measure Customer Interest

You should understand your target customers before choosing a retail distribution strategy.

For example, if your target audience is interested in buying products anywhere, such as supermarkets, departmental stores, and grocery stores, then it’s better to follow an intensive strategy.

Simultaneously, if the targeted audience wants to buy products only from prestigious places, then you can follow a selective distribution strategy. You should use an exclusive distribution strategy if you want to target affluent customers.

3. Do An Analysis Of Your Business Goals

You should thoroughly analyze your business goals and objectives and then decide on the retail distribution channel. For example, if you want to spread your brand to a large audience, you should follow an intensive strategy. But if you wish to have more control over sales, you should prefer a selective strategy.

Tips For Improving Retail Distribution

There are a few tips that can improve the retail distribution strategy.

• A business should develop good relationships with suppliers and distributors. They will support marketing activities that increase their profit.
• A business should leverage advanced technology. It can track orders, manage inventory, and set up a low stock threshold so that it can be replenished with new stock within a certain time. You should choose reliable software that can reduce human errors, streamline various processes, and enhance retail distribution efficiency.
• You should consistently adjust the distribution strategy according to the market demand.

Conclusion

Do you want to expand your business? If yes, then considering various retail warehouse and distribution channels can increase your brand popularity, bring new opportunities, and increase profit. Various retail distribution channels may confuse you. So, you need to assess a few factors, such as your business objectives, product type, target audience, and where they want to buy while deciding the retail distribution strategy.

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