Dubai: Abu Dhabi Vegetable Oil Company (Advoc) recently introduced the concept called ‘down market' as it strives to remove the middleman from the supply chain and pass on the cost benefits to the consumer, a top official told Gulf News.
The move is aimed at reducing distribution costs with the consumer in mind. The way the system operates, consumers can buy products at cheaper rates.
"Down market is an unorganised sector with very little shelf space and the company has to be very careful in picking up the right brand at an affordable price," Raisur Rahman, national sales manager of Advoc, told Gulf News in an interview. "It requires weekly or fortnightly coverage and one has to educate the grocers to keep the right pricing and be selective on brands."
The UAE has been a leading importer of edible oil. But the global recession and economic uncertainty have resulted in a highly volatile market situation that has affected the country's edible oil refineries.
Rahman adds that dealers such as the grocery stores play an important part in the entire marketing and promotional cycle as they themselves act as the middleman between the manufacturer and the consumers.
Liquidity benefits
"Because of the cost-efficient distribution structure," Rahman says, "cash flow and risks are much less in the down market, allowing the company to generate cash liquidity at a faster pace."
One of the consequences of the down market concept is that it increases competition among small retailers, while traditional wholesale and exclusive agency operators are also under pressure as more and more retailers move to sourcing direct from manufacturers.
The combined edible oil refining capacity in the UAE is now about 700,000 tonnes per year and the installed filling or packing capacity is about 1 million tonnes. Aside from Advoc, other refineries operating in the UAE are Emirates Refining Company, United Food and Al Ghurair Foods, among others.
According to figures from Oil World, the UAE has a very high per capita consumption of edible oil compared with the world and Middle East averages. Domestic consumption, however, is relatively small compared with the total production and import levels in the UAE, which reflects the export orientation of the UAE edible oil industry.
How it works
Down-market (or low-end) products are consumer goods that are mainly sold to low-income people, according to sources. These products are designed to appeal to or designed for low-income consumers.
Down-market coverage strategies can be implemented through distribution channels. This would involve evaluating and deciding the optimal distribution outlet for a particular product.
Selling of down-market products can be classified under the following segments:
- Undifferentiated selling: Focuses on the consumer needs in the marketplace and relies on presenting one product for all markets or presenting all of a company's products in one market.
- Differentiated selling: Several market segments are targeted during the marketing campaign with separate promotional offers for each market in view of varying consumer behaviour.
- Concentrated selling: Focuses on one small part of the marketplace and is implemented by a concentrated product display that seeks to gain a large share of the small market. Market coverage strategy can also be applied to product/brand distribution describing the number of distribution outlets in a given market through which the product is available. Strategy would apply to the methods of evaluating and deciding the distribution outlets for a particular product/brand.
- Wholesale factor: The company saves a lot from undercutting when this segment is less dependent.
