Tarun KumarEPGP 04C-103

Case: Candy and Chocolates India: Last Mile Distribution Challenge

Question 1: Why CCI should invest in rural? What are the opportunities in rural markets for CCI?

Answer: The case provides that there were huge opportunities for growth in the rural market in the confectionary and chocolate segments. Also, as CCI earns 75% of its revenues from confectionaries, there is a veritable case in investing in rural market as given out below:

Penetration of chocolates stood at just 10% in rural markets vs 85% in the urban markets. More than 68% of India’s population lived in rural areas, and their per capita consumption would accelerate at

5.1% CAGR; with 70% of this consumption coming from rural households earning Rs. 90,000 to Rs. 200,000 a year.

The government of India was running several projects to attract industry, create employment opportunities and improve infrastructure in rural India.

The confectionary market in rural India was increasing at about 30% compared to 18% in big cities and towns. The urban penetration of confectionary products stood at 75% compared to only 10% in rural areas, by 2010 The rural market penetration of chocolates was only about 2%, whereas sugar candy penetration was over 15% Chocolates were growing faster in rural markets than in urban centers.

Therefore rural India was a valid and highly attractive market segment for CCI to invest into.

Question 2: What are the barriers for CCI to distribution in rural markets?

Answer: There were many barriers to distribution in general and for CCI’s distribution in the rural markets. Some of these were:

The infrastructure was undeveloped and inefficient in rural India, with only 33% of villages connected by roads in 2010. The mobile phone penetration had increased to 45% by end of 2011-12, but landline penetration lagged behind.

The rural market was also difficult to penetrate, particularly in the majority of villages where population was less than 10,000 (exhibit 8). A large number of these villages had zero to four retail shops.

While CCI expanded its coverage in the rural market, a big challenge for it was to avoid increased competition among stockists as their revenues shrank.

Question 3: Describe confectionary market in India. How is the market different in urban and rural India?

Answer: Some of the features of India’s confectionary market are given below:

The overall confectionary market was divided into branded and unbranded categories. The unbranded category of local players supplied 35% of India’s total confectionary consumption.

Branded confectionary market had revenues of Rs. 6.5 billion in 2010 and was growing at a CAGR of 12% - with sales expected to reach 11 billion in 2014. Kraft, Nestle and CCI were key players.

Chocolates made up 46% of the confectionary market in 2010, while sugar candies contributed 34% and chewing or bubble gums the remaining 20%. Sugar candies included mints, sugar, hard boiled sweets and cough lozenges.

In 2010, chocolates grew at 20%, sugar candies at 5% and gums at 9%. The market was primarily driven by monopacks (single servings) that were priced in the range of Re. 0.50-1 for

sugar candies, Rs. 2-10 for chocolates and Rs. 1-5 for gums. More than 67% of sugar candy sales occurred at the price point of Re. 1.

Differences in the market in Rural and Urban areas

The confectionary market in rural India was increasing at about 30% compared to 18% in big cities and towns.

The urban penetration of confectionary products stood at 75% compared to only 10% in rural areas, by 2010 The rural market penetration of chocolates was only about 2%, whereas sugar candy penetration was over 15% Chocolates were growing faster in rural markets than in urban centers. As chocolates were planned purchases, urban consumers (especially children) were drawn to brand quality,

whereas those in rural areas were driven by price.

Question 4: Does the case have any hero (case protagonist), a dilemma or potential solutions?

Answer: The case actually has two protagonists in Akhilesh Gupta (Director of Sales and Marketing) and Naren Shah (Associate Director of Sales and Marketing), as both are facing the dilemma of choosing the right Route-to-market (RTM) strategy to grow rural business for CCI.

The case actually outlines the dilemma as designing the future of CCI’s RTM and finding an RTM that matched the vision and objectives of the company, cost-effective, scalable and easy to operationalize. Gupta and Shah had to find an appropriate RTM that engaged customer interest while making chocolates and candies available at rural markets.

Question 5: Identify the criteria on the basis of which evaluation and comparison of alternatives (or potential solutions) for distribution should be made?

Answer: The following criteria are chosen for evaluation and comparison of alternatives (the top three are given in the case):

Cost effective: The confectionary business was built on lower product margins and lean distribution cost structures. The chosen alternative therefore should not add unwarranted costs.

Scalable: It should expand to cover the larger market. The rural market was difficult to reach because of distances and poor infrastructure. Therefore, a channel or alternative with maximum reach would get higher favourability.

Easy-to-operationalize: The selected channel had to be easy to operationalize without a long gestation period High product visibility: Confectionaries and sugar candies in particular are an impulse purchase; therefore the

chosen alternative had to support high product visibility at a time when consumers were ready to buy. Brand Promotion: Along with distribution, brand promotion and activation features were necessary in the

selected channel or route to market

Question 6: Evaluate the alternatives for distribution on the basis of chosen criteria and find out which among the available options is best for CCI?

Answer: We can evaluate each of the six alternatives against the criteria defined above:

Superstockist model: The superstockist and substockist model had achieved success with more than 1,500 villages with a population of 10,000 or more directly served by 2012. CCI had penetrated 37% of all such villages through this model and it could help CCI penetrate the rest too. However, this model’s efficacy in reaching the bulk of rural India – people who lived in villages of population less than 10,000 – was not confirmed. Nevertheless, this model would have to serve as an integral part of future strategy.

Haats are a very good choice from generating consumer engagement and promoting sales, also it is given that consumers prefer haats compared to retail outlets. However, Haats can be costly when activated via vans. On the other hand, using Self Help Groups (SHGs) to activate haats can be both cost-effective and yield high rewards.

Van Sales: These were primarily used for brand activation and were expensive- and therefore used only selectively.

SHGs: These were a convenient and cost-effective channel to reach population of large and low demand villages. However, a matter of concern was whether selling confectionary would appear attractive to SHGs. Also, SHGs were more concentrated in the south India compared to the north.

Mobile Traders: These were again a cost-effective way to reach villages with population of 10,000 and less – where roads were poor. Mobile traders also served their communities effectively and were already marketing other FMCG products like cigarettes, confectionary, soaps etc. Therefore, they were a highly attractive channel.

Tie-up with India Post: This was again more of a channel for brand activation and straightforward distribution and was not easy to operationalize. Therefore, not a good choice.