Distribution Strategy- Maninder Ppt

7/30/2019 Distribution Strategy- Maninder Ppt

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Introduction In rural India, availability determines volume and

market share amongst 111.5 million households Infrastructure

60 %villages - connected by all-weather roads 73 %villages - electrified >35000 branches of commercial banks 35 lakh outlet for consumer goods

3.8 lakh fair price shops 68% of rural market still lies virtually untapped


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Challenges and Dilemma Large number of small markets Poor road connectivity Large number of intermediaries leading to higher costs

Poor availability of suitable dealers High demand for credit by retailers Poor storage systems Credit driven market and low investment capacity of

dealers Poor display of products at outlets Low media coverage


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Coverage Status in Rural India 52.5% of rural India resides in villages with population of

2000 and more (17% of the villages). They contribute to60% of the rural wealth

Hardly any shops in villages with population of500 or less

(38% of villages) Rural shops mainly cater to FMCG with 90% of the

durables being purchased from Class II and III towns

Villages Number of Shops

Pop. Strata None 1 - 4 5 - 15 16+

Up to 500 26% 56% 15% 3%

501-2000 7% 41% 41% 10%

2000+ 2% 8% 43% 46%

Source: RMP 1990 IMRB


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Channels of Distribution

Level1

Level 2

Level 3

Level 4

Level 5

CHANNEL LEVEL

Company Depot /CFA State

Distributor/Van/Super Stockist

District HQ(May cover 2 to 4)

Sub-distributor/stockistSub stockist/Star seller

DistrictHeadquarters

WholesalersNGOs Vans

Tehsil HQFeeder Towns

RetailersVillageHaats

Most Companies have direct presence up to Level 3

Approaching Layer 4 requires prior selection of feeder towns and large

villages to feed peripheral villages


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CFAs

Normally employed by FMCG Companies tosupplement their own depots

Cost of CFAs is lower than running own depots They provide space and are involved in the order

processing from distributors/stockists The orders are booked by the Company

representatives and passed on to the CFA for

execution


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Distributors They are the main link between the Company and the

rural channels. They have vans and a sales force to cover the rural

retailers. Cover about 30% of the rural retailers and are located

at district headquarters. Some companies also have a next level of sub-

stockists (also called star sellers) who are located atthe tehsil (thana) level.


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Wholesalers

Wholesaling: More than 70% of rural market is stillout of reach of direct distribution

50% of rural consumption through wholesalers

located nearby. The reasons of wholesaling in Indiaare:

Limited product availability to feed the channel

Company focused on large number of retailers in urbanareas

Neglect of rural market due to low density of retail outlets& small off-take per retailer

Wholesalers are seen as speculators and exploit thecompanies and the retailers


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Retailers Also act as money lenders in rural areas.

They play a significant role: Credibility Influence leader Brand promoter Relationship marketer Harbinger of change


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Retailers Average monthly sales per outlet in rural

is Rs.5000 Customers prefer buying from haats Infrastructural constraints:

Insufficient space Inadequate power supply Improper storage

Shops in rural largely on ownedpremises

SKUs 115 in large villages and 50 ininterior villages

For toiletries feeder villages keep 2 to 3months stocks while in smaller villages itis 1 month

Shop SizeSq. Ft.

Rural Urban

Up to 100 71 64

101-250 25 28

251-1000 4 7

> 1000 0 1

Source: A C Nielsen Shop Census 1999-2000


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Distribution

TO

The Outlet

Number of brands inrural 42 vs. 92 in urbanHigher penetration required

Companies have to investinto display and storagesystems

If our brands are notavailable in the rightquantity, form and qualitythen it will not sell

DistributionIN

The Outlet

Stocks will not sell if thestock is there but notvisible to the consumers.

Rural Distribution Priorities


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Retailers Report 2008 Average floor area of rural outlets is 140 sq. ft. Majority of them are in 76 to 100 square feet. On an average the number of categories in rural

outlets is 19 against 25 in the urban segment. Number of brands 42 vs. 92 The most widely stocked categories are food items. Cosmetics and toiletries has the largest number of

products.

The most widely stocked products are beedis andcigarettes (nearly two thirds stock them)


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Retailers Report 2008 Amongst groceries the most widely stocked is

sugar (49%) followed by edible oil (41%). Rice isonly at 33% and wheat at 22%

The penetration of stationery items is 39% Other reasonably widely stocked categories are

bulbs (25%) and batteries (15%) Clothes/footwear account for only 6.4% and

durables even lower

The popular durables are pressure cookers, fansand wrist watches Agri-input s are stocked only by3.7%


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RetailersVillage

PopulationLevel

Villages(%)

% ofpopulation

which is rural

RetailOutlets

Thousands

RetailOutlets

(%)

Up to 1000 61 21 84 21

1001 to 2000 22 25 130 33

2000 to 5000 14.0 32 130 32

Over 5000 3.0 22 55 14

Source: Francis Kanoi Report 2008


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Retailers

ZoneRural

population(millions)

% of populationwhich is rural

Retail OutletsThs.

Retail outletsper Thousand

Population

AverageMonthlyTurnover(Claimed)

NORTH 218.0 76.8 1328 6.09 9962

EAST 207.5 81.8 1102 5.31 13390

SOUTH 149.1 66.5 718 4.82 13365

WEST 149.2 64.9 871 5.84 12967

TOTAL 723.8 73.0 4019 5.55 12154

Source: Francis Kanoi Report 2008


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Van Operation

Coverage of rural markets by stocking products intopainted vans

Vans used for sales and promotion Eveready Example

Master Van Programme of12 X 2 days per month

Frequency - Weekly, Fortnightly, Monthly

50-60 avg. calls per day Exclusive area of operation

Van Running Cost subsidized

Success lies in training, systems and controls


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Rural Mobile Traders Selling wares on bicycles, mopeds or handcarts Cover 1 or 2 villages per day and cover 30 to 40

households Goods normally picked up from wholesalersVillages are normally population of less than 2000 Most however sell fake brands but can be

encouraged to sell the genuine stuff


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Haats Haats periodic markets A place for political, social, and

cultural contact Most of these are held once a week;

others twice a week Total Haats 47,000 Average number of visitors 4,600 Average sale per day Rs. 2.25 lakhs Number of stalls/Haat300+ Villages covered perHaat 15 to 20 88% are regular visitors

77% of the participants attend 4haats every week

32% own permanent shops invillages

Categories of Outlets %

Agricultural products 39.5

Manufactured goods 24.3

Processed foods 13.2

Handlooms and handicrafts 8.4

Services 3.3

Fish, meat and poultry 3.2

Forest products 2.1

Others 6.0

Source: MART study


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MandisMandis agricultural markets set up by state

governments to procure agricultural produce TotalMandis6,800 Most agricultural areas with population more than

10,000 haveMandisAverage population catered to eachMandi1.36 lakhs


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Public Distribution System System for distribution of essential commodities at

subsidised prices through 3.8 lakh outlets in rural Products distributed through Food Corporation of

India offices, depots The shops are run by individuals Cooperatives

Involved in distribution of agricultural inputs 34% of fertilisers sold through this channel


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Channel Behaviour Credit facilities to customers a common phenomenon in

rural Pricing by the channel at a premium to cover costs Reason for stocking a product/brand more on pull than

push Seasonal pattern of stocking to coincide with harvest Wholesaler is the main information source and influence

on the retailer

Purchase source of the retailer normally from wholesalersin nearby small towns Channel credit for larger retailers Purchasing cycle normally once or twice a week Channel promotion through quantity discounts


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Consumer Purchase Behaviour andChannels

Shift from purchase from nearby towns to local

purchase Loyalty to retailer stronger than loyalty to brand Supplementing of van operations with mobile traders

will help


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Prevalent Rural Distribution Models Smaller companies operate through wholesalers

while larger companies service the retailers throughstockists/sub-stockists and/or vans

Distribution Model 1 Common CFAs with separate distribution for urban

and rural Rural distribution through distributors to sub-

distributors. Smaller retailers through distributors towholesalers

National companies follow this model Used by companies with higher number of SKUs


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Distribution Model 2 No separate channel for rural Minimises distribution costs Better margins to channels Push strategy Used by companies with

limited SKUs and high salesvolumes

Preferred by new entrants

Company

CFA/Depot

Distributor

Retailer(Local)

Wholesaler

Retailer


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Distribution Model of Durables Sold mainly in small towns and hence lower levels Not sold in villages because of:

Limited space High level of investment High transportation costs

Some low cost durables are however sold in rural


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Distribution of Fake Products Manufacturer to wholesaler/retailer in big city or small

town, or directly to customerWholesaler in big city to wholesaler in smaller cityWholesaler in small town to village retailer/mobile

trader/haats


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Emerging Distribution Models Self Help Group Model Satellite Distribution Model Syndicated Distribution Model NYKS model use of NGO manpower for

distribution of Colgate Use of IT kiosks ITC E-Choupal Cooperatives Public Distribution System Petrol Outlets 7000 in ruralAgricultural Input dealers


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Reaching the smaller villages with conventional distribution modelunviable for the stockist

Self Help Groups formed in villages with population less than 5000 Group of10-15 women come together to form a mutual thrift society

Inculcates savings, discipline and self worth amongst women

formed by the Govt or NGOs

micro credit from the rural banks to set up enterprises

Micro Credit from banks and a meaningful income generationactivity offered by HLL(creating affluence) to stimulate demand/

consumption Self-help Groups to operate like a Rural Direct to Home team of

sales women (access, awareness, changing attitudes, selling)

The Idea


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Shakti - The Model

The principal customer of HLL is an individual from an SHG works as a HLL distributor and is known as a Shakti Entrepreneur Receives stocks at her doorstep from the HLL rural distributor Sells direct to consumers as well to the retailers in the village Each Shakti Entrepreneur services 4-6 villages in pop strata 500 to

1500 Selling Rs. 10,000 - 20,000 per month; gross profit of Rs. 700 - 1500

per month (~7%)

Doubles her household income


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Project Shakti

Launched in Nalgonda, AP, to cover 50 villages in 2000 As on date covers

15 states 385 districts 39,880 female entrepreneurs (Shakti Ammas)

100,000 villages


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Satellite Distribution Model Stockists are appointed in feeder towns for financing,

warehousing and sub-distribution Retailers in and around the towns are attached to

these stockists Manufacturer supplies goods to stockists on cash and

carry or credit or consignment basis Bigger retailers are elevated to stockists over a period

of time creating newer satellites


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Syndicated Distribution Two or more companies come together for joint

distribution of productsA prerequisite is that the companies do not deal in

the same products Some of the problems in the model:

Markets for coverage of the two companies are different Different payment terms

Product push by lead company at expense of other Lower emphasis on collections for other company

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Distribution Strategy- Maninder Ppt