fmcg distribution basic model

8/11/2019 FMCG Distribution Basic Model

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FMCG Distribution Basic Model

By

Korak K Majumder


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Channel partner classification Summary of recommendations

Cater to low potential markets in a

coverage

Return on Investment in each type

on Investment)

recruitment in smaller towns and

recruitment criteria

Key issues identified Recommendations Potential Impact/ benefits

5 type of regions in West Bengal account for themajor market opportunity (Metros, Large UrbanAgglomerations, Major Towns, Small Towns andDense/ Affluent Rural areas)

Number of stores, store density and affluencelevels vary across these. Each type of regionhence requires a different distribution model

Further, even in Metros/ Large UrbanAgglomerations, there are pockets where thetraditional Channel Partners (CPs) will not be ableto penetrate. Supplementing CP

coverage with Van Distributors in these cities couldhelp address this.

Use 6 distinct distributor models, tocater to these markets:

High potential urban Channel Partners for large cities Medium Potential Urban Channel

Partners for mid size towns Van distributors for small towns (In

addition, Van distributors can also be

used to supplement coverage in Metros/Large Urban Agglomerations) Rural CPs/ Rural Penetration Distributors (RPDs) Rural Van Distributors Resellers

Each of these will have experience/capabilities, retailer relationships,investment ability and infrastructurethat are optimal for the type of marketthey serve

Appoint experienced CPs with highinvestment capabilities in high potentialmarkets

cost efficient manner to increase

Ensure adequate Channel Partner

of region (At least 30-40% Return

Facilitate ease of Channel Partner

rural areas, through less stringent


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PRIVA TE AND CONFIDENTIAL

Channel par tner c lass i f icat ion The potential market for Haldirams in West Bengal is spread across 5types of Target Regions

Overall Population in Target Region Definition

population of West consumption potential

15,355,000 16.8 34.0Million

1,581,000 2.6 5.9 Agglomerations 500,000 to 1 Mn.

5,692,000 6.2 5.9100,000 to 500,000

7,505,000 8.2 3.9between 60-100,000

population density over 2,478,000 6.8


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Channel par tner c lass i f icat ion 5 types of Channel Partners will be used in different regions

very small towns and sparsely populated

Distributors covers

~80 stores, in ready

larger area

coverage to lower

case to case basis

Core distribution models To be leveraged on opportunistic basis

Category 1 High Potential Urban CP

Markets served: Metrosand Large UrbanAgglomerations (Population >0.5

Million)

Coverage: 480 to 720 storesspread over 40-60 Sq. Km., Use motor van fordelivery. Weekly coverage forsales and delivery.

Rationale: These are highsales potential areas; RequireCPs with high investmentcapacity, market capabilitiesand good infrastructure

Category 2 Medium Potential Urban CP

Markets served: LargeTowns with population of1 Lakh to 5 Lakh

Coverage: Around 240stores spread over 30Sq Km. Use motor van fordelivery. Weekly coverage forsales and delivery.

Rationale: These aremedium sales potential areas;Require CPs with reasonableinvestment capacity andmarket capabilities

Category 3 Urban Van Distributors

Markets served: Low densityLarge towns with maximumpopulation150,000 (Population density


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Channel partner classification Annual Return On Investment (ROI) Computation

Threshold number of stores for each type of territory and type of distributor (CP, RPD or Van distributor) has been determined based on sales per store, margins, and hence effective CP earnings/ ROI

Minimum number of stores for a

Average sales per store: Rs 8,000

Average margin: 8%

expenses (min stores): Rs 0.52

Implied ROI range: 22% - 24%

are spread: 40 Sq Km

Small Towns (Indicative for Medium Potential Urban CP) Minimum number of stores for a CP: 200 Average sales per store: Rs 22,000 PA Average margin: 7% Annual CP earnings net of expenses:(min stores) Rs 2.29Lakhs Implied ROI range: 38% - 40% Typical area over which 200 stores are spread: 30 Sq Km

Small Towns (RPD/Van distt) Minimum number of stores for an RPD: 100 Average sales per store: Rs 10,000 PA Average margin: 8% Annual CP earnings net of expenses(min stores): Rs 0.80Lakhs Implied ROI range: 34% - 36% Typical area over which 100 stores are spread: 25 Sq Km

Rural Areas (RPD) Minimum number of stores for a CP: 80 Average sales per store: Rs 8,000 PA Average margin: 8% Annual CP earnings net of expenses(min stores): Rs 0.52Lakhs Implied ROI range: 24% - 26% Typical area over which 80 stores are spread: 50 Sq Km

Small Town and Rural (Vans)

CP: 80

PA

Annual CP earnings net of

Lakhs

Typical area over which 80 stores

Metro (Indicative for High Potential Urban CP) Minimum number of stores for a CP: 240 Average sales per store: Rs 26,000 PA Average margin: 7% Annual CP earnings net of expenses(min stores): Rs. 3.92Lakhs Implied ROI range:48% - 50% Typical area over which 240 stores arespread: 15 Sq Km

Large UA (Indicative for High Potential Urban CP) Minimum number of stores for a CP: 240 Average sales per store: Rs 26,000 PA Average margin: 7% Annual CP earnings net of expenses:(min stores): Rs3.77Lakhs Implied ROI range:46% -48% Typical area over which 240 stores arespread: 20 Sq Km

Large Towns (Indicative for Medium Potential Urban CP) Minimum number of stores for a CP: 240 Average sales per store: Rs 26,000 PA Average margin: 7% Annual CP earnings net of expenses:(min stores) Rs3.77Lakhs Implied ROI range: 46% -48% Typical area over which 240 stores arespread: 25 Sq Km


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Retailer classification and Targeting Summary of recommendations

type of store and geography.

Key issues identified Recommendations Potential Impact/ benefits

Category A and B stores (Grocery/ Kirana Stores) havehigh sales potential per counter. Focused sales efforttargeted at such stores can result in disproportionatebenefits:

Sales potential of Rs 3,000 to 4,000 per month, ascompared to Rs 400 to Rs 1,200 for other counters

Products and SKUs purchased vary significant acrossstore categories and geographies:

Category A and B stores tend purchase a largervariety of products and SKUs

Smaller Category C and D stores tend to purchase asmaller range of products, and prefer smaller SKUs

Identify counters with high currentsales and high sales potential. Developa Key Account and Key DevelopmentAccount Management policy for suchcounters.

Define focus products for each storecategory and geography, andcommunicate these clearly to the sales

force.

Recruitment, retention and increase inshare of spend for high sales potentialcounters

Optimize sales effort for each


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Retailer classification and Targeting Sales potential and time spent on detailing varies significantly by retail store category

Average monthly sales across

4 600

3

2

1

0 1000 2000 3000Rs/mo n

th

4000 5000 6000

Source: Sample DSRs from ISEs, Beat visit feedbacks

S t o r e

c a

t e g o r y

Less competition from un-organised 1600 sector, higher value SKU s

3600

store categories Store Category based onappearance

Store category based onmonthly average off-take

A (Well maintained Kirana)

B (Kirana store)

C (Cigarette shop with good

structure)D (Makeshift Cigarette shop)

1 (sales > Rs 4000/ Month)



4 (sales > Rs 400/ Month)Small to medium value SKUs sold, morenumber of customers,

5200

Higher value SKUs sold, more number ofcustomers, larger sales value per customer,wider SKU range

The average sales potentialfrom different store categories vary

significantly


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PRI VATE AND CONFIDENTIAL

Reta i le r Incent ives and prom ot ions Recommended incentives and promotions policy

Volume d i scoun t

than Rs 6000 per month than Rs 6000 per month more than Rs 3000 per than Rs 3000 per month

Service s tandards

Max delivery time of 1 day Max delivery time of 1 day Max delivery time of 2 Max delivery time of 2 days

New product ac t ivat ions

in launch period (Eg. First 3 in launch period (Eg. First 3

Seasonal offers

Bundle new products with Bundle new products with to increase trial increase trial

Seasonal Priority delivery in case of Priority delivery in case of Bundle new products Bundle new p roducts with promotional offers stock out stock out with seasonal products seasonal products to

seasonal products to seasonal products to increase trial increase trial

Discount policy to Trial pack for sampling Trial pack for sampling Trial pack for sampling Trial pack f or sampling generate trial 2% additional cash discount 2% additional cash discount

months) for high priority new months) for high priority products new products

Service standards Can permit order taking twice Can permit order taking Order taking only once Order taking only o nce a policy a week and phone order twice a week a week week Access to key account Access to key account days manager for high value m anager for high valuestores stores

Volume related Cash discount of 1% for Cash discount of 1% for Cash discount of 1% for Cash discount of 1 % for discount policy purchase amount of more purchase amount of more purchase amount of purchase amount of more

2% for amount above Rs 2% for amount above Rs month Free mercha ndise based on10000 per month 10000 per month Free merchandise volume sal es based on volume sales

Store category Category A/ Key Accounts Category B/ Development Category C/ Category D/ Others Accounts Maintenance


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Merchandising Promotion planning

New product launch

Extent and terms of discounts to be given:Higher dealer margin (7%-8%) and volumebased discount of 1% for above average salesto be provided

Categories of stores and regions applicableto: Category A/B stores, Metros/UAs andClass 1 stores

Timelines for the same: 3 6 months

Stakeholders to be involved: Keyaccount stores, ASMs/SEs for promoting newproducts at Key Acct stores, TSEs/DSEs,CPSMs

Process to be followed: Target Key accountstores (modern trade, Category A/B), newproduct launch leaflet with details ofmerchandising and volume discounts to bemade available to retailers. Display boards,pamphlets etc to be used for promoting thesame

Seasonal offers

Extent and terms of discounts to be given:Volume discount based on increase overprevious years sales value. Discountsranging from 1-4% to applied by Sales &Operations team, based on demand-production gap

Categories of stores and regions applicableto: All stores through which bulk sales of

seasonal products happen, like Kesar Ladduin Poila Baisakhiseason (might not include lower categoryD stores)

Timelines for the same: 15-30 days

Stakeholders to be involved: SEs, TSE &DSEs,CPs

Process to be followed: The volume discountto be announced 2 weeks prior to thematerial booking date and delivery, CPs tomake bookings based on the volumediscount pattern. Display boards to be usedto announce the special promotions.

Other periodic promotions

Extent and terms of discounts to be given:Cash discount of 0.5% to 1% on order valuein case of Cat A/B stores and modern tradestores, while free merchandise in case of catC/D stores. Combination pack promotion alsocould be undertaken

Categories of stores and regions applicableto: All categories of stores and regions

Timelines for the same: 1- 2 months

Stakeholders to be involved: ASMs, SEs, CPs,retailers

Process to be followed: Products which needsa sales boost to be identified by ASMs,discount/combination policy to be identifiedand notified to CPs


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CP (modern trade)

CP (IRCTC, CDS etc.)

Modern Trade Channel Strategy for sales to modern trade needs to be reworked

for merchandising

stores

Key Account Manager to handle the CPsand the relationship with modern traderepresentatives

TSEs/DSEs to track SKU demand andensure timely delivery to procurementpoints

Continuous interaction with moderntrade store representatives to identify thespecific SKUs needed for the store format Speed up the SKU listing process for eachof the stores

Modern trade stores Modern trade

procurement points

Production facilities

Merchandising officer

and arrangement in

Separate packing, quality control and logistics system for modern trade New SKUs to be designed forhypermarkets, super-markets and up-market hyper stores separately Low-priced SKUs, combo-pack SKUs to be introduced


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Modern Trade Strategy to be followed in different store categories

Low price and volume to drive business

Medium and high price SKUs in addition to

Spencer s Reliance Fresh

Target medium to high income groups

low price ones to drive sales High, medium or low volume to be expected Service oriented with personalized services andlow advertising Introduce customer loyalty programs inassociation with stores

Up-market supermarkets & specialty stores

Big Bazaar Arambagh s Food Mart

Target low to medium income groups

Heavy advertising to draw attention to discounts and combo offers Heavy foot -fall and high customer traffic in thestores Wide range of products

Hypermarkets & Supermarkets

fmcg distribution basic model

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