RURAL DISTRIBUTION STRATEGIES

FOR HUL AND P&G

2

Introduction

Problem Statement

Study the rural distribution models of HUL and P&G and analyze their strategies to

increase reach and reduce costs of their distribution processes and systems in rural India.

Introduction and overview of the two

firms

Rural Campaigns

run by HUL ad P&G in India

Rural Penetration

Model of HUL and P&G

Challenges in Rural

Marketing The BIG Word

Presentation Flow

Project

Objectives

Understanding of the rural distribution models of HUL and P&G

To understand financial structure of channel members and role of technology

Gain perspective on the challenges in rural distribution and Channel conflicts

3

Snapshot of the two companies

Consumers 700 million 650 million

Direct Outlets 2 million 1.3 million

Consumer Categories 20 10

Brands 35 13

4

P&G – Rural Penetration Model

Ensuring direct

coverage Strategic

Focus

Sub-Distributor Model

Winning in the

market place

> 50 km from existing branch or

difficult to reach

Increasing reach in villages with < 20,000 population

What is it?

Salient Features

Typical sales = Rs. 5-10

lakhs

1 sales exec. per Sub-D

350 stores per Sub-D

Future of Rural Model at P&G

Power Villages Focus on Rural Bihar

• Identified 70,000 villages

• Cost to serve < 10% of Revenue

• Current reach = 10% of such villages

• Plans to increase 5-10% per year

• Target power villages = 7,086

• Current Business = Rs. 11.2 Cr./month

• Added 25 new Sub-D in Bihar

• Total ACV of Power Villages = 54.1%

5

HUL – Rural Penetration Model: Project SHAKTI

Project

Shakti

Reach of 3 million households

Recruit micro-entrepreneurs – Shakti Ammas and Shaktimaans–

to act as salespeople & brand ambassador

Make and sell HUL’s health & beauty care products to low-

income rural consumers

Redistribution Stockist (RS) responsible for delivering till Shakti Point

Shakti Ammas/Shaktimaans purchase the goods and deliver & sell to thousands of

villages Business

Model Shakti point given 3% margin on retail landing price reimbursed by RS (1.25)& HUL

((1.25))

20-40 Shakti points per RS

Current Future

Shakti Ammas 45,000 100,000

No. of villages 135,000 500,000

Population reach 150 million 600 million

6

Future of Rural Distribution at HUL

• Increase Shakti Ammas &

Shaktimaans

• Launch in other

states

Challenge:

• Lack of control over the distribution of

stock

• Inventory being

resold in retail stores

owing to rate

cutting

• Increase reach to

uncovered retail

stores by providing

a fixed payment to Redistribution

Stockist (RS)

Challenge:

• Rampant fake

billing

• Inability by

additional stores to

purchase stock on

regular basis owing to small size

• Give a fixed lump-

sum pay to retailers

to serve additional

retailers in the nearby areas

Challenge:

• Lack of control over distribution of stock

• Fake billing

• Pilot project with

India’s largest bank

SBI

• Create joint

distribution model

by partnering with

banks & telecom companies

• Cover 6.38 lakh

villages; create economies of scale

• Started in

Maharashtra; plans to expand to Bihar

& UP

Extend Project Shakti Maha Coverage

Model

Project

Columbus

Project Gateway

to Rural

7

Financial Structure

P&G Sub-Distributor HUL Shakti

Cost Parameters % of Sales

Fixed Cost 4.00

Commission 1.00

DSE Salary 2.50

App. Salaries 2.63

Wholesale Margin 0.60

Others 1.00

Total 11.7%

Cost Parameters % of Sales

Margin of Redistribution Stockist 4.76

Additional margin to Shakti Point 3.00

Reimbursed by RS -1.25

Delivery till RS point 1.00

Total 7.51%

8

Campaigns in Rural India

•Turns rural men and women into entrepreneurs

•48,000 women across 135,000 villages

Project Shakti

•Awareness on the importance of washing hands with soap

•Reached around 120 million people in over 50,000 villages

Lifebuoy Swasthya Chetna

•Began in UP in 70s with 5 villages; grew to over 200 villages within 10 years

•Helped increase milk supply in the region

Integrated Rural

Development

•Live demonstration on use of products like diapers

•Coverage of 40,000 villages in 2010

Increasing product

awareness in rural areas

•Make products more affordable for rural consumers

•Reduction in price of whisper to Rs.25

Reduction in SKU size

•Launch of Tide Naturals in 2010

•Increase in pack size without increasing price

Introduction of more

affordable brands

HUL P&G

9 9

CREDIT

PRICE CUTTING

HUL

• Credit to wholesalers – 15 Days

• Credit to retailers – 7 to 15 Days

P&G

• Credit to wholesalers – 7 Days

• Credit to retailers – 7 Days

HUL

• 3% Discount at Shakti point

• 1.5-2% Discount at Wholesale point

P&G

• Same Rate across outlets (1.5% discount to

wholesaler)

• Still 4 Products available cheaper in City Wholesale Market

Challenges in Rural Distribution - Channel Conflict

10

Challenges in Increasing Distribution - Logistics

• Lack of Pukka Roads

• Narrow roads (only certain vehicles

can reach these places)

• Problems during rainy season

• Uneven Terrain

• Lack of warehouses to lease

• Pilferage

• Safety of products

• Legal requirements (only specified

value of products allowed per vehicle)

• Rising fuel costs

11

Other Challenges

Additional Personnel Requirement to Increase Reach

Restricted Purchase Power

Lack of Awareness - Promotion (Sales Promotion and Advertising) Strategy

12

Technology to Reduce Challenges

Both companies also leverage geo-tagging (GPS) technology to map individual retailers and to find the approximate distance and time required to reach these shops from the nearest highway

Both P&G and HUL leverage the hand-held wireless PDA device in rural areas to take orders; this helps the company to get real time information on demand patterns and trends, manage inventory and production better, as well devise efficient sales promotion programs to drive sales

13

Recommendations

P&G

• P&G is a relatively new entrant in the Indian FMCG market vis-à-vis HUL.

Therefore, the company has been focusing on a high cost, high quality

model direct reach model in rural India.

• In low throughput regions, the company should focus on sub-distributors

regions to decrease costs

• In high throughput regions, P&G should look to increase the number of

distributor branches to increase its reach

• Multiple sales executive per sub-distributors will help reduce fixed costs and

will help increase total margins

• The company should also make sure that the incentives of the employees are linked to shops covered

– Moreover, the fake billing problem can be reduced by ensuring that GPS based billing is adopted across the organization

14

Recommendations

HUL

• The company should limit the sales per Shakti point to ensure that price

cutting and forecasting of stock to wholesales is reduced

• The company should extend project UNIFY in rural areas to make sure that

the data is available till the retail store

• The company should continue the shift in Shakti model from a women self

help group model to a rural retailer model especially in UP and Bihar

• The company should also make sure that the incentives of the employees

are linked to shops covered

– Moreover, the fake billing problem can be reduced by ensuring that GPS based billing is adopted across the organization