ISSUES IN

DISTRIBUTION

(FMCG PRODUCTS)

1
FORMAT OF SESSION

UNDERSTAND HOW CONSUMERS’

BUYING BEHAVIOUR IS AT THE HEART
OF EVERY DISTRIBUTION DECISION.
UNDERSTAND THE KEY VARIABLES.
COMPONENTS OF A DISTRIBUTION
SYSTEM?
2
 COMPONENTS

TRANSPORTATION & LOGISTICS.

CHANNEL DESIGN.
CHANNEL MEMBER MANAGEMENT
FIELD FORCE MANAGEMENT.

3
 COMPONENTS

BUYING CHARACTERISTICS SHOWN

BY CONSUMER WHILE BUYING FMCG
PRODUCTS?

4
 BUYING BEHAVIOUR

LOW LEVEL OF INVOLVEMENT.

BOUGHT AS A BASKET OF GOODS.
IMPULSE.
PERISHABLE/TIME BAND.
LOW VALUE/VOLUME RATIO.

5
 ERGO?

WHAT BECOMES CRITICAL WITH

SUCH VARIABLES?

6
THE KEY RESULT AREA

THE MOST CRITICAL VARIABLES ARE

AVAILABILITY AND VISIBILITY– AND
THESE BECOME KEY RESULT AREAS
WHICH SEPARATE THE GOOD
COMPANIES FROM ORDINARY ONES.

7
 CHANNEL DESIGN

THE OBJECTIVE FUNCTION: TO GIVE

EASE OF AVAILABILITY – DEPTH AS
WELL AS WIDTH.
CONSTRAINT LINE 1: GEOGRAPHIC
DISPERSION IS HIGH.
CONSTRAINT LINE 2: LARGE NUMBER
OF OUTLETS, LOW TICKET SIZE OF
TRANSACTION. ERGO?
8
 IMPLICATION

THE CHANNEL HAS MANY LAYERS

AND MANY INTERMEDIARIES.

9
 INTERMEDIARIES
CLEARING & FORWARDING AGENTS.

THIRD PARTY GODOWN FACILITY.

DOES NOT TAKE TITLE OF GOODS.
PAID HANDLING CHARGES.
PERFORMS “BULK BREAKING”.

10
 INTERMEDIARIES
STOCKIST/DISTRIBUTOR

THIRD PARTY BRANCH OFFICE.

ON A COMMERCIAL CONTRACT.
A SYMBIOTIC RELATIONSHIP.
PROTECTING HIS ROI IS IMPORTANT.

11
 INTERMEDIARIES
WHOLESALER

A FREE BIRD IN THE CHANNEL WHO

SELLS TO RETAILERS.
THIN MARGINS, HIGH TURNOVER.
USES PRICE BUNDLING.
USES CREDIT TO ENSURE DEBT
TRAPS.

12
 INTERMEDIARIES
RETAILER

SELLS TO END CONSUMER.

SMALL PARTIES – USUALLY IN A BIND
FOR WORKING CAPITAL.
LOW BARGAINING POWER – UNLESS
YOU ARE A SUPERMARKET.

13
 TYPES OF SALES

PRIMARY SALE = SALE BY COMPANY

TO STOCKIST.
THIS IS WHAT COMES IN THE
COMPANY FINANCIAL STATEMENTS.

14
 TYPES OF SALES

SECONDARY SALE = SALE BY THE

STOCKIST TO WHOLESALER OR
RETAILER. THIS TRANSACTION
APPEARS IN THE BOOKS OF THE
STOCKIST – NOT THE COMPANY.

15
 TYPES OF SALES

OFFTAKE = SALE BY THE RETAILER

TO CONSUMER. THIS TRANSACTION
APPEARS IN THE BOOKS OF THE
RETAILER – NOT THE COMPANY.

16
 DATA

DATA ON PRIMARY SALES AND

SECONDARY SALES IS ACCURATE.
DATA ON OFFTAKE IS BASED ON
ESTIMATES (NIELSEN RETAIL AUDIT).

17
 IMPORTANCE OF
PROTECTING ROI

YOU ARE ONE OF THE INVESTMENT

ALTERNATIVES FOR THE STOCKIST.

18
 IMPORTANCE OF
PROTECTING ROI

THE STOCKIST IS INVESTING IN YOUR

BUSINESS (VEHICLES, GODOWN
SPACE, STOCK AND RECEIVABLES).

19
 IMPORTANCE OF
PROTECTING ROI

THE STOCKIST IS INVESTING IN NON-

MONETARY ASPECTS (TIME AND
EFFORT) – WHICH REPRESENT AN
OPPORTUNITY COST.

20
 IMPORTANCE OF
PROTECTING ROI

LACK OF CONTINUITY CAN CAUSE

PROBLEMS FOR THE COMPANY – AND
MAY LEAVE GAPS FOR COMPETITION
TO EXPLOIT.

21
 MAXIMISING ROI

HOW CAN WE MAXIMISE THE

STOCKIST’S ROI?

22
 HOW ROI IS
MAXIMISED
BRAND PULL.
VISUAL MERCHANDISING.
MARGINS AND INCENTIVES.
QUALITY AND FREQUENCY OF
SERVICING.
CREDIT.
PROTECTING TERRITORIAL
INTEGRITY.
23
 THE SENSITIVITY

LET US TAKE AN AVERAGE STOCKIST

TO ILLUSTRATE THE PAYOFFS FOR
EACH METHOD. LET US TAKE A
STOCKIST OF HUL.

24
 THE SENSITIVITY

AN AVERAGE HUL STOCKIST HAS A

TURNOVER OF RS. 80 LAKHS A
MONTH. PAT IS TYPICALLY 2.5%.
HUL HAS A MARKET SPEND OF 12.82%
(OR RS. 1025 PER SECOND!) AND A
PAT OF 4.51%, ON A TURNOVER OF
RS. 25,209 CRORES.

25
 THE SENSITIVITY

A 0.5% INCREASE IN MARGINS TO

STOCKISTS MEANS AN ADDITIONAL
REVENUE OF RS. 40,000 PER MONTH OR
20% OF EXISTING PAT.
IF THIS IS DONE ACROSS THE BOARD THE
MARKET SPEND GOES UP BY RS. 126
CRORES (UP BY 3.9%). ADDITIONAL
TOPLINE HAS TO JUSTIFY THIS.

26
 THE SENSITIVITY

INCREASING CREDIT BY ONE DAY

REDUCES THE WORKING CAPITAL
REQUIREMENTS OF THE STOCKIST BY
RS. 2.67 LAKHS.
THE WORKING CAPITAL REQUIRED BY
HUL WILL GO UP BY RS. 69 CRORES.

27
 TERRITORIAL
INTEGRITY?

LET US TRY AND UNDERSTAND WHAT

IS MEANT BY TERRITORIAL
INTEGRITY.

28
 TERRITORY

A STOCKIST SELLS STOCK IN

ANOTHER STOCKISTS’ AREA. THIS IS
KNOWN AS “POACHING”.

29
 TERRITORY

A STOCKIST SELLS TOO MUCH STOCK

TO WHOLESALERS – WHO WILL SELL
WHERE THEY WISH TO. THIS FINDS
ITS WAY INTO OTHER STOCKIST’S
AREA. CALLED “OFFLOADING”.

30
 FINANCIAL IMPACT

TAKE 2 NEIGHBOURING STOCKISTS

WITH SALES OF RS. 80 LAKHS EACH
(PER MONTH).
EACH GETS A GROSS PROFIT OF RS.
5 LAKHS AND A PAT OF RS. 2 LAKHS.

31
 FINANCIAL IMPACT

IF A STOCKIST (SAY, STOCKIST A)

RESORTS TO RAMPANT POACHING
OR OFFLOADING AND HIS SALES
BECOMES RS. 120 LAKHS. THE OTHER
STOCKIST(SAY, STOCKIST B) WILL
SHOW SALES OF RS. 40 LAKHS. HIS
ROI GOES FOR A TOSS.

32
 FINANCIAL IMPACT

STOCKIST B NOW HAS SALES OF RS.

40 LAKHS, A GROSS MARGIN OF RS.
2.50 LAKHS AND HIS OPEX PLUS
OVERHEADS ARE RS. 3 LAKHS.

33
 FINANCIAL IMPACT

ERGO, HE EITHER KEEPS TRYING – IN

WHICH CASE HE LOSES MONEY.
OR GIVES UP.
OR STARTS POACHING HIMSELF.
SOON, THE BUSINESS BECOMES
UNVIABLE FOR ALL STOCKISTS.

34
 WHAT THE ASM
MONITORS

AS AN ASM, IT IS VITAL THAT YOU

SPEND TIME IN MARKET COVERAGE.
AS TIME IS SHORT, YOU NEED TO
FOCUS ON THE KEY TASKS. AND
UNLIKE ALICE IN WONDERLAND,
KNOW WHAT YOU ARE LOOKING FOR.
DATA SHOWS THE DIRECTION.

35
 WHAT THE ASM
MONITORS

THE FIRST DATA POINT IS STOCK IN

THE PIPELINE.

36
 WHAT THE ASM
MONITORS

TAKE SALES FOR A MONTH (IN

LAKHS).
PRIMARIES: 57, 63, 65.
SECONDARIES: 47, 60, 74.
OFFTAKE: 45, 60, 74.
WHAT DO WE INFER?

37
 WHAT THE ASM
MONITORS

PIPELINE WITH STOCKIST IS: 10, 13

AND 4. WHICH IS 6.4, 6.5 AND 1.6 DAYS
OF STOCK.
PIPELINE WITH RETAILER IS: 2, 2, 2.
ERGO?

38
 WHAT THE ASM
MONITORS

STOCK PRESSURE ON STOCKIST IS

QUITE HIGH. CHANCES OF STOCKOUT
IN LAST MONTH.
RETAILER – VERY STRONG CHANCES
OF STOCKOUT.
HENCE, SCOPE EXISTS FOR
STOCKIST TO INCREASE STOCK
PRESSURE ON RETAIL.
39
 WHAT THE ASM
MONITORS

TAKE SALES FOR A MONTH (IN

LAKHS).
PRIMARIES: 54, 60, 64.
SECONDARIES: 48, 59, 69.
OFFTAKE: 45, 48, 50.
WHAT DO WE INFER?

40
 WHAT THE ASM
MONITORS

PIPELINE WITH STOCKIST IS: 6, 7 AND

2. WHICH IS 3.8, 3.6 AND 0.9 DAYS OF
STOCK.
PIPELINE WITH RETAILER IS: 3, 14, 33.
WHICH IS 2.0, 8.8 AND 19.8 DAYS OF
STOCK.
ERGO?

41
 WHAT THE ASM
MONITORS

STOCKIST IS EITHER:
 DUMPING STOCK ON RETAIL OR
WHOLESALE FROM MONTH 2, LEADING TO
HUGE STOCK BUILD UP AT RETAIL LEVEL.
PRIMARIES WILL DRY UP DOWN THE LINE.
 OR, THE STOCK BUILD UP IS ILLUSORY AS
THE STOCK HAS MOVED TO ANOTHER
TERRITORY.

42
 WHAT THE ASM
MONITORS

TAKE SALES FOR A QUARTER (IN

LAKHS).
PRIMARIES: 57, 62, 60.
SECONDARIES: 56, 49, 49.
OFFTAKE: 49, 56, 65.
WHAT DO WE INFER?

43
 WHAT THE ASM
MONITORS

MONTH 3, WHERE THE OFFTAKE IS

MORE THE THE SECONDARIES –
INCLUDING PIPELINE STOCK CLEARLY
INDICATES THAT THIS TERRITORY IS
GETTING STOCK FROM ANOTHER
TERRITORY.

44
THE LAST MILE EFFORT

THE LAST MILE IS THE SERVICING OF

RETAIL OUTLETS BY THE FEET ON
STREET.
THESE CAN BE ON THE ROLLS OF THE
STOCKIST (WHICH IS USUALLY THE
CASE). SOMETIMES, COMPANY
SUPPORTS THIS.

45
MONITORING THE LAST
MILE EFFORT

NUMBER OF UNIQUE BILL CUTS =

COVERAGE.
TOTAL CALLS = CALL FREQUENCY.
PRODUCTIVE CALLS = TOTAL BILL
CUTS = QUALITY OF CALLS.
TOTAL VALUE OF ORDERS BOOKED.

46
MONITORING THE LAST
MILE EFFORT

OUTLETS = 1,500
UBC = 780 (52%).
TC = 2,289 (2.93)
PC = 1,654 (72.2%)
ORDERS BOOKED = RS. 23.68 LAKHS
(RS. 1,431).

47
MONITORING THE LAST
MILE EFFORT

OUTLETS = 1,500
UBC = 960 (64%)
TC = 2,954 (3.08)
PC = 2,165 (73.3%)
ORDERS BOOKED = RS. 38.27 LAKHS
(RS. 1,768)

48
MONITORING THE LAST
MILE EFFORT

OUTLETS = 1,500
UBC = 1,200 (80%)
TC = 4,456 (3.71)
PC = 1,165 (26.1%)
ORDERS BOOKED = RS. 8.94 LAKHS
(RS. 767).

49
 WHAT THE ASM
MONITORS

WHAT INFORMATION WILL YOU SEEK

IN A RETAIL OUTLET – WHICH CAN BE
GATHERED IN 5 MINUTES? YOU MAY
NOT HAVE THE LUXURY OF ASKING A
QUESTION.

50
 VARIATIONS IN
CHANNEL

WE HAVE BEEN DISCUSSING MATURE

DISTRIBUTION CHANNELS TILL NOW.
LET US LOOK AT VARIATIONS IN
CONSUMER BUYING BEHAVIOR AND
LESS MATURE CHANNELS.

51
 VARIATIONS IN
CHANNEL

WHAT ASPECT MAKES ITC TOBACCO

DIVISION DIFFERENT FROM OTHER
FMCG COMPANIES?

52
 VARIATIONS IN
CHANNEL

THE BREAD AND BUTTER OUTLET IS

THE PAN SHOP. ERGO?

53
 VARIATIONS IN
CHANNEL

LARGE GEOGRAPHIC DISPERSION.

LOW OFFTAKE PER OUTLET.
VERY LOW CASH AVAILABLE WITH
THE RETAILER. HENCE, FREQUENT
SERVICING NEEDED.
HUGE CREDIT RISK.
ERGO?
54
 VARIATIONS IN
CHANNEL

MECHANISED TRANSPORT FOR THE

LAST MILE MAY BE TOO COSTLY.
USAGE OF HAWKER SALESMEN FOR
THE LAST MILE.

55
 VARIATIONS IN
CHANNEL

CONSIDER SOME NICHE, URBAN

CATEGORIES SUCH AS OLIVE OIL,
PROBIOTIC DRINKS ETC.

56
 VARIATIONS IN
CHANNEL

THESE ARE CATEGORIES WHERE

AWARENESS AND USAGE HAS YET TO
PERCOLATE DOWN TO RURAL AREAS.
WHAT OPTIONS ARE AVAILABLE FOR
THEM?

57
 VARIATIONS IN
CHANNEL

CONCENTRATE ON MODERN TRADE.

THREE TYPES:
 NATIONAL BRANDS.
 REGIONAL AND LOCAL BRANDS WHICH
HAVE CHAINS.
 STAND ALONE GENERAL STORES WHICH
ARE OVER 600 SQ.FT.

58
 VARIATIONS IN
CHANNEL

THESE COMPANIES USE KEY

ACCOUNT MANAGERS (KAM).
THE KAM MONITORS A DISTRIBUTOR
WHO HAS GOOD LINKAGES WITH
SUCH MODERN TRADE OUTLETS.

59
 VARIATIONS IN
CHANNEL

CONSIDER SMALLER COMPANIES

WHO HAVE YOUNG BRANDS AND LOW
SPEND ON ADVERTISING. WHAT IS
THE IMPACT ON THE CHANNEL?

60
 VARIATIONS IN
CHANNEL

ROI/EFFORT OF THE STOCKIST KICKS

IN.
THE FIELD FORCE OF THE STOCKIST
WILL BE ON YOUR ROLLS.
CONCEPT OF THE DDM.

61
 ADVERTISING

PRESSURE ON THE CHANNEL IS A

FUNCTION OF THE SUPPORT FROM
PROMOTION (ATL/BTL).
THE SPEED OF YOUR GO TO MARKET
IS A FUNCTION OF THIS.

62
 PRODUCT
PENETRATION

THE PRODUCT PENETRATION

INFLUENCES DEPTH AND WIDTH OF A
CHANNEL. FOR EXAMPLE, STAPLES
SUCH AS RICE, PULSES, ATTA, BESAN
ETC.

63
 INNOVATIONS

UNILEVER’S “URBAN EXTENSION

UNITS”.

64
 INNOVATIONS

MERCHANDISING IDEAS FROM THE

FIELD FORCE.

65
 INNOVATIONS

FEEDER WHOLESALERS AND SUPER

STOCKISTS.

66
 INNOVATIONS

CURBING INTER-STATE POACHING.

67
 INNOVATIONS

CURBING INTER-STOCKIST
POACHING.

68
 THE CULPRIT?

WHO IS THE BIGGEST CULPRIT

BEHIND POACHING?

69
 MEA CULPA!

AREA MANAGERS. USUALLY ARMED

WITH MBA DEGREES.

70
 THE CHANGES.
SUPERMARKETS ARE CHANGING THE
FACE OF DISTRIBUTION.
THEY ARE RETAILERS WITH HIGHER
OFFTAKE AND MORE DATA. THUS,
THE BARGAINING POWER WITH THE
COMPANIES IS HIGHER.
THEY STILL REMAIN A SMALL BUT
GROWING SPECK ON THE MAP IN
FMCG.

71