Sales and Distribution Management

To study the Trade Channel Structure of the confectionery business of Godrej Hershey Limited and determine its effectiveness
Group B4 Abhishek Sharma 121 Ankur A. Jain 124 B. Goutam Kumar 132 Gurveen S. Taneja 140 Nakul Khanna 150

Table of Contents
Objective and Scope of the Project .............................................................................................................. 2 Objective ................................................................................................................................................... 2 Scope ......................................................................................................................................................... 2 Methodology................................................................................................................................................. 2 Indian Confectionery Sector ......................................................................................................................... 3 The Candies & Toffees head also known as the Sugar Confectionery Segment....................................... 3 Godrej-Hersheys presence in Sugar Confectionery Segment .................................................................. 4 Distribution in Indian Confectionery market ................................................................................................ 4 Trade Channel ............................................................................................................................................... 6 Structure and Functioning: ....................................................................................................................... 6 Salient Characteristics ........................................................................................................................... 6 Rationale: .............................................................................................................................................. 7 Intermediaries:.......................................................................................................................................... 8 Sales Structure ............................................................................................................................................ 14 Trade Promotions ....................................................................................................................................... 16 Schemes .............................................................................................................................................. 16 Visibility elements ............................................................................................................................... 17 Issues Identified: ......................................................................................................................................... 18 Appendix ..................................................................................................................................................... 19 Appendix 1: ......................................................................................................................................... 19 Appendix 2: ............................................................................................................................................. 21 Appendix 3: Contact Information ........................................................................................................... 26

Objective and Scope of the Project

Objective
To study the Trade Channel Structure of the confectionery business of Godrej Hershey Limited and determine its effectiveness

Scope
Study the trade channel structure of the confectionery business of GHL and identify its various characteristics Gauge a deep understanding of the factors/activities which are responsible for the effectiveness of the trade channel. For eg: o o o o Role of the intermediaries Distributor operations Terms of Trade between GHL and the intermediaries Merchandising Activities

Determine the positive / negative impact of the above factors on the trade channel effectiveness and reasons for the same

Methodology
Interaction/ Interviews with various people from the sales force of GHL (Area Sales manager, Salesman, Sales Officer, Territory Sales in-charge etc.) Interaction/ Interviews with various channel partners : intermediaries (Distributors, Wholesalers, Retailers) and facilitators (Merchandisers)

Indian Confectionery Sector

The Sector is divided into the following broad heads:

The Candies & Toffees head also known as the Sugar Confectionery Segment
This is the largest confectionery sector in India both in value and volume terms. Accounting for about half of the total confectionery market, the sugar confectionery segment is also showing healthy growth, primarily due to the low-price strategies and discounts offered by the main players. Toffees/caramels/nougats segment is by far the largest, followed by sugar boiled sweets and mints.

Godrej-Hersheys presence in Sugar Confectionery Segment

Brand

Category

Nutrine Lollipop

Lollipop

Chocolate eclairs Toffee

Kokanaka

Candy

Honeyfab

Candy

Nutrine Aasay

Toffee

Maha Lacto

Toffee

Distribution in Indian Confectionery market

The Indian food distribution system is characterized by a large number of intermediaries and relatively poor infrastructure, such as transportation, storage, and refrigeration facilities. It has low levels of efficiency, with the costs of distribution being rather high. Manufacturers and importers rely heavily on the middle man for the distribution of confectionery products in India. Most importers rely on distributors or wholesalers to reach retail outlets, while confectionery manufacturers often rely on C&F agents or dealers to work with the wholesalers and distributors. Indias retail sector is highly unorganized, as small independent stores are the main outlet for consumer purchases. Nevertheless, the retail sector is changing and the organized sector is gaining ground with the emergence of supermarkets and hypermarkets in metropolitan India.

Confectionery products are predominantly purchased in small independent food stores, known as kiranas (see Figure below). However, over the last five years, convenience stores, supermarkets, and hypermarkets have played an important role in the distribution of confectionery products.

Indias organized retail sector remains the preferred distribution channel for branded and imported products, including confectionery. Although this sector is thought to be in its infancy, rapid growth is expected over the short to medium-term, creating greater opportunities for imported confectionery products.

Trade Channel
Structure and Functioning:
The structure of the Trade Channel for Godrej Hersheys Limited can be depicted as shown in the following diagram:

Manufacturing Plant

CFA/ Depot

Distributor

Distributor

Wholesaler

Retailer

Retailer

Consumer

Consumer

Salient Characteristics The trade channel structure for GHLs confectionary division resembles a typical 5- level FMCG structure which is o Manufacturer->Carrying & Forwarding Agent->Distributor->Retailer->Consumer

For areas, which are inaccessible and highly fragmented in nature, GHL follows a 6-level distribution structure, wherein distributor services an independent distributor rather than directly to retailers. The retailer in turn service the end consumer

There is one Carrying and Forwarding Agent (Depot) in each of the states services by Godrej Hersheys limited. Depending upon the geography, demand and market fragmentation, the

number of distributors can vary from 8-10 in small states with limited demand and concentrated markets to about 35-40 in bigger geographies with fragmented markets. On an average a distributor services 300-350 Retail outlets and about 30 wholesale outlets. Hence total retail outlets in a state could range from 3000 to 10000 In Haryana, o o The CFA is located in Ambala There are 15 distributors in south Haryana ( Gurgaon, Faridabad, Rewari, Jhajjar etc.)

In Gurgaon, there are two distributors responsible for distribution of GHL confectionary products. The combined retail store coverage (direct) in Gurgaon is about 700 stores majority of which are located in semi-urban areas

Rationale: The target segment for GHL confectionary segment is semi-urban and rural areas. Hence, there are only two Distributors in Gurgaon which service mainly Old Gurgaon These penetration levels are quite low as compared to the competitors One of the major advantages of having a 5-level structure is bulk breaking which takes place in the following manner: o Primary Sales: Sales occurring from GHL to Distributors o Minimum order Quantity = 1 case (3500-6000 units)

Secondary Sales: Sales occurring from Distributors to Retailers/Independent WS 7

Minimum Order Quantity = 1 Jar/ 1Pouch (80-750 units)

Tertiary Sales: Sales occurring from Retailers to End Consumer are called Tertiary sales Minimum Order Quantity = 1 Unit

For Nutrine Eclairs, 1 Case = 70 pouches or 15 Small Jars or 6 Big Jars 1 Pouch = 90 units 1 Small Jar = 225 units 1 Big Jar = 750 units

Intermediaries:
1. Carrying and Forwarding Agents: Key Role: A CFA is a contracted agent. There is one CFA located in each state and is responsible for keeping custody of goods and supplying them for fulfilling Primary Sales. The CFA does not take the ownership of the product, so the invoice generated for Primary sales are in the name of GHL. 2. Distributor: Key Role: A distributor is responsible for holding inventory and passing it onto a retailer or an independent Wholesaler. The major functions include: They provide market coverage by reaching customers who are fragmented in nature They are responsible for carrying out the Secondary sales They are responsible for holding buffer inventory

 They provide facilities to customer like bulk breaking, credit/financial assistance, delivery etc. Profile: GHL distributor is primarily a merchant wholesaler who engages in buying, taking title to and reselling goods to businesses who resell it further. A GHL distributor was not an exclusive distributor and was engaged in distribution of several other brands. The Gurgaon Distributor (Yadav Traders Ltd.) had agencies of a total 7 brands including GHL Nutrine. The other 6 were: o o o o o o Lehar Cremica Fruitchill Tzinga Royal Choice Pickles Shaktibhog : Big Biscuit

GHL Nutrine forms a small part of his portfolio with a monthly turnover of about INR 1.5 lakhs out of a total turnover of about INR 12 lakhs. The leading brand is Lehar with a monthly turnover of about INR 5 lakhs Distributor services the retailers in the following two ways : 1. Order taking followed by delivery the next day 2. Ready stock delivery: in which the order taking and order fulfilment happened simultaneously Infrastructure: The distributor owned 3 auto-rikshaw as delivery vehicles 9

 The distributor had 5 salesmen. These salesmen were responsible for order taking as well as order servicing (next day or Ready Stock Delivery) Since GHL forms a small part of the distributors portfolio there is no dedicated salesman responsible for order taking of GHL. 1 out of the 5 Distributors salesmen sells GHL Nutrine through Ready Stock Delivery. In contrast, Lehar has two dedicated salesman Terms of Trade: The following are the terms of trade between distributor and GHL: Margin : 7% Credit to Distributor : 0 days Inventory : Has to maintain inventory equivalent to 15 days of sales Service Frequency : usually once a week but is flexible and can increase or decrease according to demand Stock Replacement : Complete replacement in case of : i. ii. iii. Expiration Product handling damage or packaging damage No replacement for Rat-Bite Damage

Target: Distributor gets 1% additional margin on target achievement. His targets are set as follows : 1. Value target : Total Sale target equal to 3 month running average + 5% 2. Brand-wise target: Total brand-wise sales target (criterion unknown)

Economics: The following is an estimate of Distributors Profit and Loss account as provided by GHLs Nutrine. Assumptions: Expenses allocated to Nutrine GHL are in proportion to the resources dedicated 10

Number of Shops Average Bills per retailer Average Bill Value Turnover Margin Gross Income Expenses Rent Unit Expenses Salary Market Discounts Administrative Net Income Investment Market Credit Company Credit Stock Investment Investment in Claims Total

300

2 per month 250 150000 7.00% 10500.00 350 210000 7.00% 450 270000 7.00%

14700.00 18900.00

2500 2000 2500 210 52.5 3237.50

2500 2000 2500 294 73.5

2500 2000 2500 378 94.5 2% of gross income 0.50% of gross income

7332.50 11427.50

35000 0 75000

49000

63000 7 days

105000

135000 15 days

10000 120000

14000 168000

18000 2 days 216000

ROI

2.70%

4.36%

5.29%

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ROI for 3 different scenarios has been calculated since average bill value was not clear. Clearly, ROI increases considerably with increase in average bill value. Note: Expenses might also increase with increase in Average bill value because more resources might have to be allocated. Here, it has not been accounted for Clearly, GHL Nutrines significance is low as the net income generated is quite low. Hence, an exclusive distributor or allocation of dedicated resources from the distributor is not possible. 3. Retailer Key Roles:

The retailer acts as the final POS for the customer In an impulse buy like toffee, the role and the positioning of the retailer is very important for Making a sale The channel is generally intensive in nature. So, the presence and the visibility of the product at the retailer is very important Relevance of Toffee to the retailer 1) Retailer typically sells about Rs.3000-6000 of toffees depending on the size. The margin on the product varies from 12% to 18 %. 2) Retailer typically makes a profit of Rs. 450-600 on toffee. The product is relatively fast moving for the retailer.

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Profile: The Retailers could be divided into: 1. Small Retailer : Stocking limited products and having a closed counter (D-Shape) 2. Big Retailer : Stocking a large variety of products and brands and having an open counter (L-Shape) 3. Kiosk/ Paan-Beedi shop: Small roadside shops Terms of Trade: Margin : 12-18% Credit : upto 1 week; can avail 1% discount if payment on cash (credit term varies from market to market and retailers relationship/credibility etc. are not standardized) Service Frequency: Once per week
Stock Replacement : Complete replacement in case of : Expiration Product handling damage or packaging damage No replacement for Rat-Bite Damage

Schemes : May get additional schemes like 1 pouch free on purchase of 5 pouches or one big jar etc.

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Sales Structure
Sales Structure of GHL Confectionary can be depicted as shown in the following figure:

RGM

Third Party
ASM
RGM: Regional General Manager ASM: Area Sales manager ASE: Area Sales Executive SO: Sales Officer TSI: Territory Sales Incharge DSM: Distributors Salesman

ASE

SO

SO

TSI

Distributor

Distributor

Distributor

DSM

DSM

1. RGM There are 5 regional general managers in India for GHL who take care of sales according to their territory 2. ASM Area Sales managers report to RGMs. Each RGM oversees work of 4 to 5 ASMs depending upon the requirement & territory they overlook. ASMs are concerned with managing Primary Sales and supervising and tracking Secondary Sales of their area. 3. ASE Area Sales Executives are required in areas which are relatively inaccessible. It plays the role of an ASM in these smaller territories following in the bigger territory of the ASM the ASE is reporting to

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4. SO Sales Officers are responsible for carrying out the primary sales and supervising secondary sales They are GHLs direct contact with Distributors Each SO overlook operations of 10-15 distributors depending upon the territory An SO may report to an ASE or directly to an ASM in case an ASE is not deployed in that area SOs are also responsible for training and providing targets to Territory Sales Incharge (T.S.I.) Generally, a Sales Officer would not take orders but in certain extraordinary situations or to open new retail outlets SOs also take up the job of Sales Call along with the TSI or DSM 5. TSI Territory Sales Incharge is a third party recruited employee and reports to an SO His most important responsibility is to generate secondary sales by taking up sales call A TSI may do sales call alone or along with a DSM in case of Ready Stock Delivery A TSI typically executes up to 40 calls a day He is also responsible for merchandising activities that may be needed to carry out and communicating schemes to retailers 6. DSM Distributors Salesmen are responsible for generating secondary sales and also order fulfilment to the retailer. A DSM is rarely an exclusive GHL salesman and usually takes order for other brands which his distributor stocks.

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Trade Promotions
Trade promotions, is a major thrust for GHL with frequent trade schemes and activation programs in different parts of the country. Considering that candy is a push product, as majority sales through retailers happen through Push, hence this is a very important element in the sales structure. Where it lacks though is creating triggers for invoking impulse purchase at the Point of Sale. The merchandising elements and visibility elements are missing for GHL. Schemes

Targeted at

Month

Brand

Theme

Activity
Drive Gold Eclairs availability

Gold Retail/WS Jan-March Eclairs

Special Offer across channel through a highly Pen free profitable offer

Quantity Wholesale March-Apr Maha Purchase Quantity Retail/WS Present Eclairs Purchase 1 big jar 1 pouch free on purchase of Mahalacto Pouch Gift QPS

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Visibility elements

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Issues Identified:
1. The penetration level in urban areas is low 2. Facing stiff competition from well-known brands in the upper segment due to their brand value and better service levels. For a competitor analysis w.r.t. Service Levels offered to retailers see Appendix 3 3. In the lower segment it is facing stiff competition from the local brands which work on high push by passing on extremely high margins to retailers 4. Lack of merchandising activities. Besides low amount of activity, the activity is carried out by TSI who does not receive any training for such jobs. 5. No formal channel for regular up gradation of knowledge and selling skills of salesmen and TSIs

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Appendix
Appendix 1: Questionnaires: Retailers Observing what brands, products he stores Listing down brands that occupy a significant display space Note of any unique/ new / interesting packaging Listing which brands in Jars and which in pouches Understanding why retailers keep those brands Whether consumers are brand conscious or buy based on display How responsive are consumers to schemes, promotions Whether retailers prefer schemes/discounts from wholesalers Whether direct/ indirect channel How frequent does the company come and service the retail stores Understand why retailers store/ dont store Nutrine candies Issues/ problems with nutrine candies What drives their choice for direct/indirect channel participation What acc to the retailer is the meaning of Fast moving goods? 10/5/15d? 19

How the retailer talks/ thinks about margins. What is his exp from selling a jar/pouch or offtakes/brand?

Distributors Understanding what product sells more and which area Purchase patterns of wholesalers/ retailers The servicing frequency to retailers (thus indicating sales) Asking what key issues they face o o o o o o If flaw in product then what is that they expect What credit period they give and on what criteria Whether jars/pouches sell more Are the Wholesalers/ retailers brand conscious? Do they face accessibility problems? Do they face sales force issues?

Talk to common/ competing distributors to understand their dynamics, their offers, their issue

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Appendix 2:
Competitor analysis with respect to service levels offered to Retailers:

ITC Big Retailer Small Retailer PaanBeedi Shops

There is very little presence amongst the big retailers due to less bargaining power. The major product is candy-man.

Candy man is forced through the channel along with cigarettes by the distributor.

Very high presence due to the immense bargaining power of ITC. Again Candy man is forced through the channel along with cigarettes by the distributor.

Products Visibility Big Retailers Small Retailers Paan-Beedi Shops SKUs

Candyman Low Medium High

Flavours- Wild Banana, Pineapple Punch, Orange Josh and Mango Delite 1) 768gm jar with 258 toffees

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2) 3612gm jar with 1300 toffees Price 1) 768gm jar with 258 toffees Rs 110 2) 3612gm jar with 1300 toffees Rs 570 Margin 1) 768gm jar with 258 toffees 17.27%(Mark up)

2) 3612gm jar with 1300 toffees 14.03%(Mark up)

ITC strategy at retailers is primary divided into 2 parts 1) It has opened small paan beedi outlets for some retailers and they are loyal to ITC. They keep and sell only ITC candies 2) Privately owned shops are forced to keep ITC candies otherwise they wont be serviced with cigarettes as well. 3) They have common distributor for both cigarettes and candyman chocolates so they have a huge presence amongst the small retailers.

Perfetti Big Retailer Perfetti Serviced by the distributor directly Small Retailer Serviced by the distributor directly PaanBeedi Shops Serviced by the distributor directly

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Products Visibility

Alpenliebe Big Retailers Small Retailers Paan-Beedi Shops Medium High High

Center fresh Medium High High

SKUs

Flavours- Rich Milky Caramel Toffee, Creamfills Butter Toffee, Coffee Toffee 1) 840gm jar with 310 toffees 2) 729gm jar with 270 toffees(Creamfills Butter Toffee)

Flavours- Spearmint, peppermint and Sweet mint 1) 555gm jar with 175 choclates

Price

1) 2)

840gm jar with 310 toffees- Rs. 135 729gm jar with 270 toffees Rs. 115

1) 555gm jar with 175 choclates Rs 155

Margin

1)

840gm jar with 310 toffees 12.9.%(Mark up)

1) 555gm jar with 175 choclates- 13%(Mark up)

2)

729gm jar with 270 toffees 17.39%(Mark up)

Perfetti 1) At the paan beedi shop center fresh is most famous because smokers have a tendency to buy chewing gums after smoking a cigarette. 2) At the small retailer shop it the best-selling chewing gum as compared to boomer and orbit.
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Wrigleys Big Retailer Wrigleys Small Retailer PaanBeedi Shopsa The distributor directly services these shops on a two day basis(replenishing the inventory). Solano is again the most selling product.

Wrigleys have a decent Solano has a heavy presence amongst the big retailers. The distributor mostly provides orbit in this channel presence amongst this channel member. It is only second to candyman.

Products Visibility

Orbit Big Retailers Small Retailers Paan-Beedi Shops Medium Medium Low

Boomer Low Medium

Solano Medium High

Low

High

SKUs

Flavours- Peppermint, RaspberryMint,strawberry,lime, spearmint,bubblemint 1) 24pieces in one pack

Flavours-Strawberry 1) 40gm pack with 24pieces in one pack

Flavours-Smooth butter Candy 1) 600gm pack with 150 toffees

Price

1)

24pieces in one pack Rs 102(Rs4.25 per piece)

1) 40gm pack with 24pieces in one pack-

1) 600gm pack with 150

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Rs123(Rs5.12 per piece) Margin 1) 24pieces in one pack 17.6% (markup) 1) 40gm pack with 24pieces in one pack17.07%(mark up)

toffees-Rs 130 per pack 2) 600gm pack with 150 toffees15.3%(Mark up)

14 12 10 8 6 4 2 0

13 8 5 2 5 4

Number of Retailers

Figure 1- Retail presence of different toffee brands

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Appendix 3: Contact Information

Area Sales Manager: Rajendra Singh (+91 98100 23943) Sales Officer: Ajay Bhatta (+91 98919 11479) Territory Sales Executive: Laxman (+91 98719 21238) Distributor: Mahendra Yadav, Yadav Traders (+91 92130 27911) Wholesaler: Ramesh, Pahuja Enterprises (+91 98712 13888) No of retailers contacted for survey: 18

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