New Delhi: ITC Ltd is building an exclusive supply chain for online retailers that will leverage the company’s extensive network of retailers and wholesalers to drastically cut the time to deliver its products, according to two company executives familiar with the development.

Trials for the model are already underway and it is expected to be rolled out by early next financial year.

The lead time for a delivery is typically between two and four hours for most online grocers such as Bigbasket and Grofers, the quicker the better.

ITC plans to supply its range of packaged food and personal care products through the new supply chain.

Under ITC’s new e-commerce-only distribution model, 1,550 wholesalers and some of its two million retailers that are part of ITC’s direct distribution network will turn into sourcing centres for companies such as Bigbasket.

“Point of sourcing will be decided by ITC depending on the point of delivery. The company’s newly developed technology back-end will automatically identify the closest distributor or dealer or retailer, and the e-commerce company will be directed to pick up the product from that particular outlet for delivery, backed by analytics on real-time feeds and insights," said one of the two executives cited above, asking not to be named.

Under this model, online retailers will not have to invest in distribution centres and can reduce the time for sourcing and delivery, the executive said. Currently, e-commerce companies either store fast-moving products at their distribution centres or source them from the nearest wholesalers.

The Kolkata-based company, with interests in cigarettes, packaged food, personal care, apparel, hotels and information technology, is among the first movers in the fast-moving consumer goods (FMCG) space to develop a separate distribution model for e-commerce.

E-commerce accounts for just 1-2% of ITC’s revenue from consumer products, excluding cigarettes. But the market is growing fast. By 2020, e-commerce is projected to account for 10-15% of sales of consumer goods companies, according to a December study by lobby group Confederation of Indian Industry (CII) and consulting firm Boston Consulting Group (BCG).

“The e-commerce revolution is going to have far-reaching implications for business as we know it. The FMCG industry will have to... invest in digital technologies to both remove mundane physical tasks and improve the effectiveness of its workforce," said B. Sumant, divisional chief executive (FMCG trade marketing and distribution), ITC. He declined to comment on the company’s e-commerce-exclusive distribution model.

Given ITC’s distribution and retail reach, the model will benefit e-commerce firms. Besides its 1,550 wholesalers, its products reach 4.3 million of the estimated nine million retail stores in India.

ITC has been focusing on the packaged foods and consumer goods segment to cut its dependence on cigarettes. In the year ended 31 March, the company’s revenue from packaged food products stood at 6,411.27 crore, overtaking Hindustan Unilever Ltd’s (HUL) revenue from the food business ( 5,522 crore). ITC’s gross revenue was at 49,964.82 crore. Of this, cigarettes accounted for 30,452.38 crore, while revenue from packaged consumer goods stood at 9,038 crore.

The company aims to reach 1 trillion in revenue from its cigarettes and packaged goods business by 2030.

While e-commerce is growing fast, most consumer goods firms are yet to come up with a sustainable strategy to leverage the opportunity, said Abheek Singhi, senior partner and director of BCG in India.

“While the digital space is attracting a lot of private equity and venture capital funding, most (consumer packaged goods) firms are unclear on the opportunity," he added.

ITC may be an early mover, but it is not alone.

Dabur India Ltd has also established separate delivery mechanisms for some categories of e-commerce players.

“We have dedicated stockists to meet the specific needs of big e-commerce platforms. These dedicated stockists maintain the inventory and meet the specific needs of these platforms. The needs of some others are serviced through our network of key local grocers. This strategy has been put in place keeping the specific needs of e-commerce players," said George Angelo, executive director (sales), Dabur India.

Kolkata-based Emami Ltd has also appointed dedicated distributors to service online marketplaces such as Bigbasket, Grofers, Snapdeal, Amazon and Shopclues, said a spokesperson at Emami.

The country’s largest consumer packaged goods company Hindustan Unilever Ltd, Marico Ltd and biscuit maker Britannia Industries Ltd declined to comment for this story. E-commerce is expected to account for $53 billion of global consumer packaged goods sales by 2016, an increase of 47% from $36 billion in the year ended 31 March 2014.

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