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8/11/2019 FMCG Distribution Basic Model
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FMCG Distribution Basic Model
By
Korak K Majumder
8/11/2019 FMCG Distribution Basic Model
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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)
2 (sales > Rs 3200/ Month)
3 (sales > Rs 1200/ 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