CHAPTER I

INTRODUCTION

FMCG IN INDIA

SCOPE OF THE SECTOR

GROWTH PROSPECT

BUISCUITS INDUSTRY IN INDIA

MARKET SHARE OF ITC, PARLE &

BRITANNIA

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OBJECTIVE OF THE STUDY

LIMITATION OF THE STUDY

INTRODUCTION OF FMCG SECTOR

FMCG is an acronym for Fast Moving Consumer Goods, which refer to things that we buy

from local supermarkets on daily basis, the things that have high turnover and are relatively

cheaper.

A major portion of the monthly budget of each household is reserved for FMCG products. The

volume of money circulated in the economy against FMCG products is very high, as the

number of products the consumer use is very high.

Various FMCG Products and Categories are as follows:

Competition in the FMCG sector is very high resulting in high pressure on margins.

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FMCG companies maintain intense distribution network. Companies spend a large portion of

their budget on maintaining distribution networks. New entrants who wish to bring their

products in the national level need to invest huge sums of money on promoting brands.

Manufacturing can be outsourced. A recent phenomenon in the sector was entry of

multinationals and cheaper imports. Also the market is more pressurized with presence of

local players in rural areas and state brands.

FMCG in INDIA  

The Fast Moving Consumer Goods (FMCG) sector in India has been growing at a healthy

CAGR of 11 % over the last decade Riding on the back of increasing demand and changing

consumer preferences, thanks to higher disposable incomes and the retail revolution, the sector

has been posting double Digit growth over the past couple of years

The Industry is volume driven and is characterized by low margins. The Products are branded

and backed by skilled marketing, heavy advertising, slick packaging and strong distribution

networks

Also, Raw material prices play an important role in determining the pricing of the final

product Modern Retail formats too have contributed in major way in pushing the growth in the

FMCG Sector. With Rising income levels and the spread of modern retail, the FMCG

industry’s future prospects look bright which is expected to further boost sales. Growth In the

sector is led by higher urban and rural demand Going Forward The government’s growing

support to agriculture will drive long term growth in consumption from the rural sector In Our

view, amongst all the FMCG segments, the food segment will outperform over the coming

years.

Scope of the Sector

The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in

the economy. A well-established distribution network, intense competition between the

organized and unorganized segments characterizes the sector. FMCG Sector is expected to

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grow by over 60% by 2015. That will translate into an annual growth of 10% over a 5-year

period. Hair care, household care, male grooming, female hygiene, and the chocolates and

confectionery categories are estimated to be the fastest growing segments, says an HSBC

report. Though the sector witnessed a slower growth in 2002-2004, it has been able to make a

fine recovery since then.

BISCUIT INDUSTRY IN INDIA- an overview

The total production of biscuits in India is estimated to be around 30 lakh MT, the

organized sector accounts for 65% and the unorganized sector accounts for 35% of the

total industry volume.

The organized sector is valued at above Rs 8000 crores.

The biscuit industry is estimated to grow over 15-17% in the next few years.

The per capita consumption of biscuits in India is 2.0 kg.

India is ranked 3rd after US and China amongst the global biscuits producers.

The imports are not significant amount as compared to the total consumption.

The penetration of biscuits in urban and rural market is 85% and 55% respectively.

The Biscuit industry employs almost 3.5 lakh people directly and 30 lakh people

indirectly.

Annual Growth

The biscuit industry in India witnessed annual growth as below:-

2004-05 - 14%

2005-06 - 14%

2006-07 - 13%

2007-08 - 14%

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2008-09 - 16%

2009-10 - 14%

2010-11 - 11%

2011-12 - 11%

2012-13 - 09% (April-September 2012)

While the growth rate has been stagnating during last 4 years, it picked up momentum during

the 2008-09 mainly on account of exemption from Central Excise Duty on biscuits with MRP

up to Rs.100/per kg, as per Union Budget for 2007-08. However growth further declined from

2009-10 to 2011-12 and the first half of 2012-13.

Annual Production:

The organized biscuit manufacturing industry‘s annual production figures are given below:

(In Lakh Metric Tonnes)

2004-05 - 12.55

2005-06 - 14.29

2006-07 - 16.14

2007-08 - 16.85

2008-09 - 17.50

2009-10 - 18.50

2010-11 - 19.00

2011-12 - 20.50

2012-13 - 10.50(April to September 2012)

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Segments:

The organized and unorganized sector of the biscuit industry is in the proportion of 70%:30%

ratio.

EXPORTS of Biscuit was 14% of the annual production during the year 2010-11 which

declined to around 12.5% in 2011-12.

 

·         IMPORTS of biscuits into India (mainly high end products) has not shown any

significant growth during the last five years and has not affected production/sales by the

Indian Biscuit industry.

Rural-urban penetration of Biscuit:

• Urban Market : 75% to 85%

• Rural Market : 50% to 65%

• Marketing:

Wholesale and Retail marketing in the Biscuit industry is carried out with a network of C & F

Agencies (for States and specific Districts), Dealers / Wholesalers and Retail shops.

HIKE IN COST OF PRODUCTION

Biscuit Industry especially the Small & Medium Sector, consisting of around 275 units are

facing erosion in their profitability and competitive capability, due to steep hike in cost of

production on account of increase in prices of major raw materials, i.e. Wheat Flour Veg. Oil,

Sugar, Milk, Packaging Materials, Fuel. Wages, etc. Recent increase in prices of Petrol/Diesel

in May 2008 has further resulted n cost push

PER CAPITA CONSUMPTION of Biscuits in the country is only 1.8 kg, as compared to 2.5

kg to 5.5 kg in South East Asian countries and European countries, and 7.5 kg USA

Pattern of Biscuit Consumption(On Zonal basis) in the country are as below:

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Consumption of biscuits is even across the regions

Northern Zone - 25%

Western Zone - 23%

Southern Zone - 24%

East and North

East Zone - 28%

(Including N.East)

Market share of ITC, Britannia & Parle

.

Indian Biscuits Industry seems to be the largest among all the food industries and has a

turnover of around Rs.3000 crores. Indian subcontinent is known to be the second largest

manufacturer of biscuits, the first being USA. The industry is classified under two sectors:

organized and unorganized.

ORGANISED UNORGANISED

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SECTOR SECTOR

70% 30%

Fig: Market share sector wise

Parle, whose dominance of the glucose category was under threat from Sunfeast and Tiger, is

now regaining market share. While Britannia’s market share in the glucose category (value

terms) has fallen to 9 per cent in the year 2012 from 11.6 per cent two years ago, ITC has seen

its market share drop in the glucose segment to 8.6 per cent in 2012 from 9.4 per cent in 2010.

As glucose segment has been growing significantly lower than biscuit market growth rates in

the last couple of years. Consumers are upgrading to better options - superior in sensorial

delivery or superior in nutrition delivery to the ordinary glucose biscuit. Growth rates for the

glucose segment are around a third of the biscuit market growth rates. Meanwhile, Parle

Products has seen an increase of market share in glucose category to 78 per cent in 2012 from

74.7 per cent in 2010.

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Fig: Percentage of market share in revenues of 2011-12

Britannia enjoys four times relative market share of its next competitor in health-focused

biscuits (Nutrichoice) and is neck to neck with ITC in the premium cream segment. In volume

terms in glucose segment, Britannia has seen a drop in market share to 8.6 per cent in the year

2012 from 12 per cent in 2010. Similarly, ITC has seen a dip in share to eight per cent in 2012

from 9.2 per cent in 2010. Parle Products has increased in market share (volume) to 79.3 per

cent from 75 per cent in 2010.

In value terms, glucose category has increased by 7.5 per cent in 2012, cream and cookies

have increased by 39 per cent and 15.5 per cent respectively. While glucose category has

declined 1.5 per cent in 2012 (in volume term), cream and cookies categories have increased

by 21.8 per cent and 5.5 per cent, respectively.

DIFFERENT BISCUITS

Britannia ITC Ltd Parle Priyagold

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Tiger

Nutrichoice Junior

Good Day,

50 50,

Treat

Pure Magic,

Milk Bikis

Good Morning.

Sunfeast

Marie

Dream cream

Milky Magic

Fit kit

Choco Nut

Butter Nut

Parle-g

Krack-Jack

Monaco

Kreams

Hide and Seek

Milk Shakti

Butter Bite

Classic Cream

Butter Lite

Big Boss

Marie Lite

Magic Gold

OBJECTIVES OF THE PROJECT

PRIMARY OBJECTIVE

To study distribution practices of ITC& contrast with Britannia Industries Limited.

SECONDARY OBJECTIVES

Ensure visibility and availability of Sunfeast Biscuits in the retail shops

To identify factors influencing retailers’ brand choice.

To examine comparative service quality across retailer base.

To provide suitable recommendations to enhance working of ITC WDs.

To provide suitable recommendations to increase retailer base of ITCs Sunfeast biscuits

LIMITATION OF THE STUDY

Out of the total respondents surveyed some of them were not cooperative due to which

accurate prediction was not possible

The responses given by the respondent are assumed to be true however chance of

getting false and biased information can’t be over look fully

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Time constrain is the big limitation of the study. A comprehensive study could not be

made due to paucity of time. All the data and information had to be collected within

the limited days.

Not all type of retailers could be covered, kiranawalas and other small retailers were

not considered in the report. This could lead to wrong result as major pie of retail

sector is still unorganized.

SWOT ANALYSIS OF FMCG SECTOR

Strengths:

1. Low operational costs

2. Presence of established distribution

networks in both urban and rural areas

3. Presence of well-known brands in

FMCG sector

Weaknesses:

1. Lower scope of investing in technology and

achieving economies of scale, especially in small

sectors

2. Low exports levels

3. "Me-too" products, which illegally mimic the

labels of the established brands. These products

narrow the scope of FMCG products in rural and

semi-urban market.

Opportunities:

1. Untapped rural market

2. Rising income levels, i.e. increase in

purchasing power of consumers

3. Large domestic market- a population

of over one billion.

4. Export potential

5. High consumer goods spending

Threats:

1. Removal of import restrictions resulting in

replacing of domestic brands

2. Slowdown in rural demand

3. Tax and regulatory structure

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CHAPTER II

LITERATURE REVIEW

MECHANISM OF DISTRIBUTION

IN FMCG

DISTRIBUTION CHANNEL OF ITC

FLOW CHART OF ITC

DISTRIBUTION SYSTEM OF ITC

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LITERATURE REVIEW

Titus R., Sengupta D. (2013) conducted a research work to get an understanding of the

distribution process of ITC and also that of its competitors. The distribution process, although

being quite similar, differs in the schemes and offers provided to the retail outlets. The tough

competition in the FMCG sector makes it important to constantly revise the schemes as per the

market conditions. Understanding the taste and preference of the consumers provide the useful

insight into the market conditions and helps companies devise their schemes accordingly.

The taste of the consumers change constantly and they need a change or newness in the

products that they use. They also look for value for their money and want the companies to

provide them with the best deals possible. Little differences in the products make the

consumer choose one product over the other and so the companies need to provide their

consumers with the best deals so that they increase their customer loyalty towards their

product and get more and more consumers to choose their product.

In the biscuit segment the major players are Britannia, Parle, Cadbury and ITC. Britannia and

Parle have the advantage of time as they have been in this sector for a very long time and

people relate to their brand due to this. ITC is a fairly new company to enter this sector but

their products have gained popularity and continue to do so.

The major findings based on information collected from the distributors, projects that

Britannia has a good hold on the market in terms of distribution strategies and also that

Britannia has managed to get a good market share in the biscuits category. People also

perceive Britannia as a very reliable brand. They provide the retail outlets with better offers

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and also they have popular biscuits in the healthy snack section. When it comes to a

comparison with competition, the distribution process of Britannia, Parle and Cadbury is

pretty much the same as that of ITC. Orders are taken daily and the delivery is done the next

day. Daily remittances are paid to the company. The credit period allowed to the outlets is also

roughly a week. The distributors give training to the salesmen for their better performance.

The salesmen are taught how to talk to the outlet owners and how to convince them on buying

larger quantities of goods. There are a few stores that get more profit for the companies as

compared to the others and they are paid more attention to. Britannia takes order twice a week

for them and gives special discounts. Cadbury is focusing on only one biscuit variant i.e. Oreo.

It is mainly targeting the kids. Whereas Britannia and Parle have a lot of variants, targeting

people of all ages, and they also have ‘Nutri Choice’ and ‘Actifit’ which is more of a healthy

snack made out of ingredients like Wheat and Ragi. Britannia and Parle also have milk cream

biscuits whereas the competitors like ITC and Cadbury do not have milk cream biscuits. The

brand ‘Britannia’ is very popular and the consumers already have a positive perception about

it. It is the most popular biscuit brand at present.

Jain M. (2012) in his research paper aims to study the Brand preferences and the factors

affecting Brand preferences of the age group 07-14 years. Findings of this research paper will

help marketers of FMCG industry in understanding behavior of the age group 07-14 years as

consumers and to design suitable marketing strategies.

Based on research most preferred brands among following product categories i.e. Toothpaste –

pepsodent, Biscuits – sunfeast, Health drinks – bournvita, Chips – lays. Prominent factors

driving brand choices in different product categories are advertisements, packaging, taste,

flavour and brand image. Kids today are exposed to plenty of brands through peer pressure,

kid’s empowerment (parents providing them enough pocket money to spend), and

advertisements whose objectives are: building brand preference, encouraging switching to

your brand & changing customer perceptions of product attributes.

Dala M. (2013) in his article, ”ITC Foods expanding distribution network in small towns &

villages” describes the various opportunities exist in the rural India. ITC Foods, the fastest

growing business of cigarette maker ITC Ltd, is aggressively expanding distribution in small

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towns and villages, where it trails rivals such as Britannia Industries Ltd and Parle Products

Ltd. It makes Sunfeast biscuits and Bingo chips, expects increased distribution in rural areas

and new product launches in biscuits and snacks to help it grow sales by 28-30% this year.

According to Chitaranjan Dar, chief executive ITC Foods, “We’re going to make products

available in small towns and rural areas, which were earlier confined only to cities. For

example, if we had 1,000 stocking points in a region, we’ll now have 3,000 stocking points”.

We’re appointing new wholesalers, stockiest. Our strategy is to intensely market our products

in rural areas.ITC Foods gets about 30-35% of its business from the villages. The number

would increase to 35-40% in two years. It’s not that growth in urban is saturated, it’s just that

the opportunity in rural areas is immense and consumers there are premium zing (trading up).

He also added, the increasing distribution in rural areas is important for ITC Foods, which

likely accounted for over 11% of ITC’s sales last year, to keep up its strong growth rate as

Parle and Good Day maker Britannia are aggressively promoting their brands. ITC is India’s

third-largest biscuits maker after Parle and Britannia. For distribution clout, ITC Foods can

also tap into its parent company’s e-Choupal network, which involves working directly with

farmers on obtaining materials and delivering products.

Apart from Sunfeast and Bingo, ITC Foods’ brands include Kitchens of India packaged food,

Aashirvaad flour, minto and candyman sweets and Sunfeast Noodles. These brands likely

brought in sales of over Rs.4,700 crore in the year ended March.

Dar said the unit will launch this year new brand variants under Sunfeast biscuits, its largest

business. It will also launch new products in chips and confectionary.The whole idea behind

launching new products in biscuits is to strengthen the Sunfeast brand at the premium level.

They are also looking at getting into the dairy business, which will be launched in a year from

now.

Bhushan R. (2010) in his article on “Parle surges ahead of Britannia to become leader in the

Indian biscuit market” describes Parle stronger distribution and ability to reach consumers

faster at lower distribution costs than Britannia.

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Indians spend more on biscuits than on toothpastes, skin-care products, shampoos and instant

noodles put together, and Parle Products has surged ahead of Britannia Industries to become a

clear leader in the Rs 11,000-crore-plus market, say Nielsen data. The country spent Rs 11,295

crore on biscuits in the 12 months ended March 2010 compared with Rs 2,300 crore on

toothpastes, Rs 3,500 crore on skin-care products, Rs 2,400 crore on shampoos and Rs 1,300

crore on instant noodles. And in the first half of the current financial year, it has already spent

Rs 6,320 crore on biscuits, according to The Nielsen Company, the country's largest market

researcher.

Parle Products has played a better volumes game, backed by stronger distribution, especially

in rural markets, and more competitive pricing. Parle has had stronger distribution and has the

ability to reach consumers faster at lower distribution costs. They have also converted single

pack size consumption into snacking options. The Rs 11,000 crore-plus and growing Indian

biscuit market is set for increased competition with an assortment of brands entering the

category, from established players such as Parle, Britannia and ITC, to new entrants such as

GlaxoSmithKline and United Biscuits, the world's third-largest biscuit maker. Companies

have been targeting volumes and aggressively pushing biscuits priced at Rs 5 and Rs 10 to

counter inflationary pressures and prevent consumers from switching to cheaper brands.

A low-margin business, price hikes in the category are rare because even a marginal increase

negatively impacts consumer off take. Glucose is the largest-selling biscuit segment, followed

by cookies and cream.

MECHANISM OF DISTRIBUTION CHANNELS IN FMCG

The FMCG sector is witnessing demand growth again, driven by improving reach, organized

retail and innovative channels, higher usage – driven by affordability and rising incomes

driving aspiration levels.

The supply chain of products in the FMCG market in India is one of the longest supply chains

an industry could really have. There are as many as 5 levels of intermediaries involved in the

entire supply chain through which a product passes before reaching the end consumer.

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What has been observed is that even though these FMCG companies are big multinationals

and Indian but face a major challenge of making their products available in the market in the

right quantities and in the right time. This is simply because these companies don’t really have

a wide network of sales agents and other force which is required and is ideal for catering their

products to the markets. This aspect is taken over by distributors, wholesalers and retailer

whose margins on these products actually double the price of these products when a final

consumer buys it.

The margins kept by these intermediaries range from 2% to 5%.

The products in this industry are transported from manufacturing units via c & f agencies or

warehouse to distributors who further sell the same to wholesalers or stockiest who finally sell

it to the retailers in the market. These products are transported either via roadways or railways

within the domestic markets and normally don’t take more than a week to reach the retailers.

FMCG products are normally a high volume ball game and products have to essentially be

available in the market at all given points of time and at all given points of purchase and

therefore the distribution activities are highly volatile and dynamic.

Since it’s a volume game, manufacturers make all possible efforts to boost sales and promote

their distributors to earn more and more orders from the retailers and wholesalers.A close

check is maintained on the flow of the products on a daily, weekly, fortnightly and monthly

basis to determine the trend in the business and flow of products and consumption. This

activity also helps to find out drawbacks of the distribution system, if any, and rectify them

within time.

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DISTRIBUTION CHANNEL OF ITC

ITC provides products and services of superior quality and value by sourcing its technologies,

equipment and inputs from reputed international and Indian manufacturers and suppliers.

Common values, relating to human rights performance, are shared across the entire supply

chain because ITC is committed to the importance of a socially responsible and accountable

supply chain.

As a large and multi-product enterprise whose products are benchmarked nationally and

internationally, ITC's main supply chains can be grouped as follows:

1. For all its operations, technology, machinery and equipment are sourced from reputed

and globally benchmarked suppliers/vendors who are expected to follow

internationally accepted norms and standards on human rights.

2. ITC's major businesses are vertically integrated across several Divisions. A substantial

part of the supply chain is therefore internal through strategic backward linkages.

Common values relating to human rights performance are shared across this supply

chain.

3. Being a major agric-based company, the agriculture sector is a major supplier of inputs

for its operations. The bulk of agricultural commodities are procured from state

controlled trading platforms and the open market.

A very small proportion of ITC's business consists of supply chains comprising local vendors

and suppliers. The policy framework for such entities is enunciated separately in 'Policy to

Ensure Respect for Human Rights across the Supply Chain'.

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DISTRIBUTION CHANNEL OF ITC

19

FLOW DIAGRAM

20

DISTRIBUTION SYSTEM

ITC uses FIFO method to reduce the wastage of goods due to expiry.

They also keep the good on constant move from low sales area to high sales area.

The company collects all the expired goods four times a year, and destroys them.

Retailers must return expired or damaged products within six months after the date of

expire.

Adjustment for them is done in three months time.

ITC provides their retailers with racks, hangers, etc to display the products.

The benefits received by the retailers depend upon their sales volume and also the

location of their shops.

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ITC has hired IMRB to do the market research.

The ace up the sleeve of ITC's newest foods venture is its extensive distribution reach

Taking stock of the FMCG block is tobacco and hotels giant ITC Ltd. A few years ago it

climbed onto the retail bandwagon, leveraging existing strengths to diversify into areas from

greetings and gifts to lifestyle retail. While it's got a long way to go to challenge Hindustan

Lever, ITC is banking on the two mainstays of consumer goods that it does possess - a strong

brand equity and a wide distribution network.

The game plan is all about strategic synergy. A year ago the company's newest division,

Bangalore-based ITC Foods, moved into the branded packaged foods market and is leveraging

the parent company's agricultural products division for sourcing, as well as ITC Welcome

group's specialist cuisine knowledge and its packaging division.

The ace up ITC's sleeve, however, is the company's established distribution network that

includes the e-choupal system - a two-way sourcing and distribution system for farmers in

remote villages, as well as its cigarette and paan network.

With this infrastructure in place ITC Foods has launched into four branded foods areas -

ready-to-eat, staples, snacks and confectionery. Its Kitchens of India brand sells packaged

gourmet Indian cuisine, which offers recipes from ITC Welcome group Hotels. "We picked up

popular recipes and put them into cans", says CEO Ravi Naware. "This is five-star food

prepared by our chefs and targeted at connoisseurs of good food". The brand is marketed

through upmarket retail chains in Delhi, Mumbai, Bangalore, Chennai and Ahmadabad, and

select clubs in Kolkata.

The selling point is that no preservatives are added, and through 'retorting' technology the

shelf life of these foods is close to one year. ITC Foods has a contract manufacturing facility,

where quality is supervised with focus on ingredients and recipe. A panel tastes it and

approves it before processing takes place. The canned Kitchens are present in 48 towns (of

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over 500,000 population) and the group plans to export its products after is has established the

brand nationally.

The group sees high growth potential in the staples segment. "The consumption of aata is 45

million tonnes in India". "Only 2 per cent of this is branded". ITC's branded aata is customised

to cater to different tastes, to suit markets in the north, west, and south. To differentiate each

type, the package is colour-coded - the main variant in each area is coded red, while its

Ashirwad Select is coded orange. Essentially an urban phenomenon, it covers 27 cities in

India. The company plans to have its staples available all over India by March this year - and

next on the agenda is branded rice and salt. "There's a need to consolidate, to establish the

business and the brand, and then fill up the portfolio", says Naware. Gopal G.V.R., a

supervisor at Foodworld in Bangalore, notes: "You just can't compete with Lever's Annapurna

or Godrej's Pillsbury". However, he does point out that the awareness and demand is picking

up for ITC's aata. Kitchens of India, on the other hand, are doing well with an elite segment of

consumers, while the orange Minto confection is taking off.

Minto helped to generate quick volumes in four months, says Naware. Acquired from Candico

in March 2002, Minto was reengineered and the flavour variant - orange - introduced. "We got

into the untapped potential of the mint market", says Naware. "We brought novelty to this

segment - orange mint is 50 per cent of consumption". ITC Foods' product development centre

in Bangalore is working at bringing added-value products across segments. The bid to be

different "to create a buzz in the market", says Naware, also led to the wild banana variant in

the Candyman range of sweets. The flavour was one of the two (the other being mango)

chosen after a sampling of six flavours by 3,600 schoolchildren. Here the distribution makes

use of the tobacco network: ITC services 1.1 million outlets at average frequency of three days

down to villages of population 2,000, and has 1,000 wholesale dealers.

"ITC's distribution philosophy is that of channel-tailored support. ITC and its distributors use

different sales forces to cater to the separate channels of convenience outlets, grocers, and

supermarkets", says Naware. "ITC services trade channels and not specifically one kind of

outlet alone. Thus for impulse purchases like confectionery, the bulk of our sales come from

23

convenience outlets. However, categories like aata, ready-to-eat foods, and snack foods are

directly distributed to grocers and key accounts, in addition to some convenience outlets".

ITC directly services more than a million outlets all over India. It has depots in key states and

the depots are geographically dispersed to optimise logistics costs, according to Naware. He

points out that for high-bulk; low-weight items (such as the most recent launch of snack brand

I Bischips), specific retail stocking and display solutions use floor and air space for ease of

placement and high visibility.

The other advantage is ITC's backward integration with the parent company's $155 million

international business division (IBD), which markets agricultural products abroad. IBD's e-

choupal system, which sources directly from the farmers through 1,286 kiosks across 9,000

villages, also helps to develop markets and brands for ITC's consumer goods. As a distribution

channel, the two-way-functioning e-choupal is cost effective, with the added scope of

increasing in range as more kiosks and more farmers are tagged on to the sourcing network.

The e-choupals and the storage hubs - the company has a strategically located hub in each

state - function as centres where ITC and the firms it partners can market FMCG goods that

range from agricultural products to household items.

The company also uses local paanwalla networks to help to boost its brands. Cash-rich and

networked, the company is cashing in on the potential of a 2.5 million-strong force of such

retailers. The group's experience in cigarettes has sensitised the system to fine-tune stock

control mainly because cigarettes are a high-value product with high inventory carrying costs.

At an individual retail outlet level the company has a supervision process that ensures stock

outs overstocking do not take place.

ITC's frequency of retail servicing is one of the highest in the consumer-goods business.

Consequently it does not need to resort to dumping of stocks at an outlet as an insurance

against stock out situations but can sell only as much as the retailer can dispose of and top up

stocks whenever and wherever necessary. This also makes the group manage its working

capital better.

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Timing and data-gathering regarding stocks is crucial. "We have a fully online ERP-based

logistics system linking our distributors, godowns, and marketing branches to head office and

factories, continuously feeding in data of sales and stock positions across the entire supply

chain", says Naware. "This enables us to track pipelines and sales in real time and keep control

over all elements of the supply chain, be it raw material, packaging material, work-in-process

inventory, or finished goods."

To leverage its network and distribution reach, and to centralise the data flow between various

divisions, ITC has installed Project Infobahn, a companywide hybrid network using a virtual

private network (VPN) through an Internet service provider. This comprises 69 leased lines,

103 ISDN lines, 10 radio frequency devices, and four new VSAT links. This lets staff,

wholesale dealers, and partner companies access data and transact business over the Internet.

It also leverages the existing network to 'cross-sell' and 'up-sell' the company's own business

offering and enables it to market offers from other business houses through a secured

distribution network. The network spans 110 locations and all ITC divisions.

ITC complements its distribution effort with consumer research. According to Naware, it

spends Rs12 crore on consumer research. He says that a study showed that 48 per cent of

annual household expenditure goes on buying food. Branded food comprises 5 per cent of this

and the percentage will increase as the economy improves. Naware believes expenditure on

food will touch Rs100 core in five years' time.

Meanwhile, how is ITC gearing up to take on Hindustan Lever, Nestle, and others in the foods

business? Says Naware : "Competitive advantage will come from distribution strength,

servicing of outlets, product quality, relevance, and differentiation. These constitute the

mainstay of our business strategy. We hope to leverage our brand development capabilities

and establish ourselves in the market place." Naware also points to ITC's abilities in "building

consumer brands, in distribution, in unmatched servicing of retail in India to even villages of

2,000 population as well as its ability to deal with agricultural products".

Clearly, with branded packaged foods emerging as a focus area of growth for companies like

Hindustan Lever, well-equipped ITC still has a tough battle ahead.

25

The Distribution Channel Network: Parle

The Channel Members of the Distribution Network of Parle

The Parle distribution network for biscuits has essentially four levels as enlisted below:

Parle Depots

26

Manufacturing Unit of Parle at Various Locations

Parle Depots

Wholesalers and Distributors

Retailers

Procurement: Customers

Wholesalers and Distributers

Carry Forward Agents (if required)

Retailers

The Channel Members and Logistics

Parle has nearly 1500 wholesalers, catering to 425000 retail outlets directly or indirectly. A

two hundred strong dedicated field force services these wholesalers and retailers. Additionally,

there are 31 depots and C&F agents supplying goods to the wide distribution network. Parle

has level 1, level 2, level 3 distribution channels levels.

Level 1:

Availability of Parle biscuits at all departmental stores across the length and breadth of the

country.

Level 2:

Since it's an FMCG product this channel exists for customers scattered throughout the country.

Level 3:

Mass consumption and suitable for National and International coverage. For e.g. Parle's

international operations consist of serving markets in the Middle East, Africa, South America,

Sri Lanka, Australia and North America for which the 3 level distribution channel exists.

Supply Chain Entities

The Supply Chain entities of Britannia can be shown through the following-

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CMU(Central Manufacturing Unit)

Depot

Distributor

Retailer

Customer

Britannia: Supply Chain

The supply chain of Britannia is primarily based on two products. These are

A) Imported products B) Domestic products. The Imported product Supply chain can be explained by taking the following example -

Crude Palm oil comes fromIndonesia and Malaysia

Shipped to Kandla Port

Refining of Crude Oil

Traders supply refinedpalm oil to Britannia

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The Domestic product Supply Chain can be illustrated by the following example -

Supplier(Wheat)

ProcurementCycle

Replenishementand

manufacturingCycle

Supplier Supplier(Sugar) (Butter)

Company/CPC N’Fagent

Distributors

WholesalerRetailers

CustomerCycle

Customers

Distribution Model

The distribution system of Britannia can be well illustrated through the following-

Distribution SystemBritannia Factory

Distributor(Institutional)

InstitutionsEg. Hospitals

Distributor(Retailer)

Retailer

Customer

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Britannia – An Intensive Distribution FrameworkBritannia follows intensive distribution as biscuits and cakes need to reach the consumer at their nearest locations so this type of distribution channel is issued. This type of distribution helps customer looks for location convenience.

Britannia two different kinds of distribution networks one is for dairy products and other one is Bakery products. Here distribution network of bakery products has been discussed. In Bakery products Britannia applies two kind of distribution system. These are given below:

1) Mass Distribution 2)Selective Distribution

1. Mass DistributionBritannia use to produce general FMCG products which are in form of packaged food and which need not to have very special kind of distribution strategy. Like other FMCG companies Britannia also use mass distribution system. Since all almost all the products of Britannia are of low price, repeat purchase items, and does not require much of effort from customer side. So ultimately these products are sold on mass distribution basis.

There are four C&F of Britannia in NCR region:1)Mudka – Bahadurgarh2)Bakoli3)Gaziabad4)Kundali- Sonipat

49 distributors are working under these four C&F.

Distribution NetworkThe distribution network of Britannia’s products from top to bottom is given below:First of all stock is sent to these C&F, and then this stock is sent to the various distribution canters of Britannia. All of these distribution centres do not contain products of any other brand. Now this supply of stock is based on full e-network. This system has been provided a particular terminology i.e. “UDAAN PACKAGE”. In this system the accountant who is in distribution centre submits an online order to the C&F. Then in C&F the order for a particular distribution centre is automatically generated and further fulfills by C&F.Britannia has established these C&F at very appropriate locations. As soon as there is a demand generated in any distribution centre These C&F are able to fulfill the demand within four to six hours. So it is clear that C&F provides quick delivery to the distribution centre. But in order to meet this demand the C&F also has to keep some inventory with it.Now if we talk according to the distribution point of view we will find that Distribution Centre has to also make some inventory in order to meet any kind of scarcity or instant demand. Under this distributor five sales men work and they cover the entire area which is mentioned above. Here the distribution is again divided into two parts -A). General Shops

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Distribution to general shops is done by two sales men. They cover 30 to 40 outlets every day. Now the number of these outlets is not content, it varies time by time as they are not very loyal to the company and also does not contribute to very prominent sale.

B). Key Account Outlets (KAT)These outlets are covered by two sales men and they take order from these outlets biweekly. These sales men visit twenty to twenty five outlets every day. These outlets are very much loyal to the company and provide prominent business to the company. So from the sales point of view these outlets are very important. Now the stock is moved from distributor to the retailers. For selling the stock on the retail outlets there are two processes:

a). Order BookingThere are separate sales teams who perform this task. For example one sales team has to go for order booking. In this process the salesman first go to shop to shop and book the orders from there. On the other day or some times on the same day the delivery van goes every where in order to fulfill the orders. Now due to this method distributor not only gains the sales as well as looses the sale. Order booking process is done in Britannia on Biweekly or Weekly basis. Sometimes Order Booking and Ready Stock both the task are performed by the same sales man.

Benefits of Order BookingIn this process the distributor always remains in better position to forecast the demand. As the sales man has already an order list. This helps not only to the distributors but also to the C&F as well as finally to the factory in order to make more realistic demand. Since the sales man does not have to do more but to book the order, it enables the sales man to search out the new opportunities in the market. It helps not only to the company but also to the sales man as sales man gets special rewards from the company side. Since during this process the sales man gets extra time in which he/she gets enough time to interact with the retailer which is again very important. Actually the retailer does not want only profit but also a better respect and courtesy from the salesman. So in such situations if the retailer is getting good time with the salesman, surely he will be more loyal to the company. Also during this period the sales man could increase the visibility of its products in the shelves of the shop keeper.Drawbacks of Order BookingAlong with all these benefits there are some drawbacks also involved in this advance booking process. Some times sales man takes orders from the shopkeeper and assures him that the order will be fulfilled on next day. But during this period the sales man of other company comes and provides the same product at some discounts or with some schemes in this condition the shopkeeper takes the stock from that sales man.

b). Ready StockIn this process the sales man carry the team along with him which contain a delivery van, a driver, and one or two helpers. The sales man takes order from the shops and also places the order at the spot. There are following benefits and drawbacks of this method. Almost thirty to forty outlets are visited by this way.

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Benefits of Ready StockThe retailer gets stock on the spot without any delay. The sales man does not give a chance to the retailer to switch any other brand. The defected stock is replaced on the spot.

Drawbacks of Ready StockThe sales man does not get enough time; he simply dumps the stock and moves from one store to another store. Even then he does not cover many retailers, as the delivery process takes a lot of time. What amount of stock should be carried by the sales man is also can not be predicted. The sales man moves to pre decided path and could not find new shops, so the market penetration by the sales man is also very rare in this case.

2. Selective DistributionSelective distribution is done for premium products of Britannia. There are eight SKUs, for which Britannia uses selective distribution. These brands are:a) Chochlor Intoxicationb) Almond Addictionc) Chocolus AddictionThese products are very costly and lie between the prices ranges of Rs. 150 to Rs. 200. Now these products are not supplied by the distribution centre but directly from C&F. These distributions are done through the Merchandiser Team.

32

CHAPTER III OBJECTIVES

RESEARCH METHODOLOGY

METHOD

SAMPLE SIZE

PRESENTATION TOOLS

LIMITATIONS

33

RESEARCH METHODOLOGY

3.1 Research Objectives

Primary Objective

To study distribution practices of ITC in contrast with Britannia and Parle Industries Limited.

Secondary Objective(s)

To identify factors influencing retailers’ brand choice.

To examine comparative service quality across retailer base.

To provide suitable recommendations to enhance distribution practices of ITC,

Britannia and Parle.

To provide suitable recommendations to increase retailer base of ITC, Britannia and Parle.

To know how the distribution strategies of ITC, Parle and Britannia are effective in comparison to each other.

3.2 Type of Research: Descriptive

A descriptive design was followed. Parameters were derived from the personal

interaction with the retailers. Parameters were also derived from the secondary data analysis of

various research papers. In this the research process was formal and structured set of questions

in the form of questionnaire was there.

3.3 Methods of Data Collection

There are two types of data collection method – Primary and Secondary.

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Primary Data

This data is original in nature and is generated from results of personal interaction with

various retailers or respondents (in case of questionnaire).

Secondary Data

Secondary data was acquired through various research publications done in this particular

area.

Area Covered

Noida sec-51

Noida sec-44

Atta market

Noida sec-50

3.4 Sample Design

Sampling Unit: -

Departmental Stores

Kirana Stores

Convenience Store

Sample Size: - The sample size is 50.

Sampling Technique: - Normal Convenience sampling technique was followed.

3.5 Instruments Used

Questionnaire :

Nominal scale

Structured questions.

Analysis :

Pie Charts

Bar Graphs

Tables

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3.6 Limitations

Though this study was taken up with sincere efforts to accomplish the objectives, there

were certain factors which created hurdles in accomplishing the work.

These factors are:-

1. Out of the total respondents surveyed some of them were not cooperative due to which

accurate prediction was not possible

2. The responses given by the respondent are assumed to be true however chance of

getting false and biased information can’t be over look fully

3. Time constrain is the big limitation of the study. A comprehensive study could not be

made due to paucity of time. All the data and information had to be collected within

the limited days.

4. People were hesitant to disclose the true facts.

5. Environmental constraint.

6. Retailers did not cooperate when asked about their policies regarding credit policies with the direct salesmen.

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CHAPTER IV

DATA ANALYSIS & INTERPRETATION

FINDINGS AND ANALYSIS OF

QUESTIONNAIRE

37

Que.1. Which brand of biscuits do you stock in your store?

Inference:

The chart explains that Out of the total 50 retailers visited. Sunfeast was present in 92% &

Parle was present in 94 % of total stores visited. Britannia is 88% in stores because of low

demand in some areas. All of them presence was highest being 99 % of the total visited stores.

Ques.2. Product Portfolio:

ITC (Sunfeast) BRITANNIA PARLE

Glucose 50-50 Parle-G

Nice Tiger Krack Jack

Mikly Magic Good Day Milk Shakti

Dark Fantasy Treat Hide & Seek

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Dream Cream Marie Gold Monaco

Snacky Little Hearts Coconut

Marie Light Nice Time Marie

Rank the companies according to your preference which has the best varieties of biscuits?

(1 = Best, 2 = Good, 3 = Average)

Inference:

Out of 50 samples surveyed, 42% retailers consider ITC as best in varieties of biscuits because

of the large variety of biscuits in its product line. While 38% considers Britannia & 20%

considers Parle as best in varieties of biscuits.

39

Inference:

Out of 50 samples surveyed, 44% retailers consider Britannia as good in varieties of biscuits.

While 40% considers ITC & 16% considers Parle as good in varieties of biscuits.

40

Inference:

Out of 50 samples surveyed, 50% retailers consider Parle as average in varieties of biscuits.

While 30% considers Britannia & 20% considers Parle as average in varieties of biscuits.

Ques.3. How often does a Distributor salesman visit you?

Inference:

The chart shows that the Distributor salesman of every company visits the Retailers Once a

Week. But on some shops the Distributor salesman of both ITC & Britannia visits once in

Two Weeks. Whereas Distributor salesman of PARLE visits twice a week in some areas,

while distributor salesman of ITC & Britannia visits some retailers on fortnightly basis.

4. Rank the following companies according to the easiness in placing the order. Give reasons

(1 = Most easy, 2 = Easy, 3 = somewhat easy)

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CHAPTER V CONCLUSIONS

SUGGESTIONS

42

CONCLUSION:

All DS should be provided with the mobile phones so that in case of Stockouts in retail

shops the retailers can contact DS and place their orders. So buying of substitute

products by the retailers can be avoided.

ITC needs to improve its working primarily on the service and delivery front. The

company is also suffering as OTIF levels are very low, and this lack of regular supply

is turning retailers against our products.

During the visit into the market, it was found that in most of the shops, the complaints

against old stock being delivered were registered, which constitute a major portion of

the D&D stock. So, to get rid of it, ITC should work upon their logistic system and

stock reach the market soon and will also reduce dissatisfaction level among the

retailers as well as consumers against expired stock.

POP & Display activities should be on regular basis.

It was also found during the market-visit that many retailers complained that they are

not getting the stock what they ordered previous day, so before the market-visit, it

should be strictly checked that DS’ palm-top are feed with proper SOH.

ITC is facing still competition from parle G in particular because of its low price and

high awareness in lower segment of customers.

SUGGESTIONS

Work Processes

A daily attendance record to be maintained for salesman at the WD point. This would

help in tracking the time the DS spends at the WD point before leaving for the market

and help to minimize the wastage of time and inefficiencies while issuing stocks.

A daily stock chart should be displayed and feed into the Palm-top carried by DS, that

would provide information as regard the SOH for various categories and the expected

arrival time for the next set of deliveries. This would make the DS aware of SOH of

various categories and facilitate accurate order booking. This is important, as a large

43

number of respondents feel that our DS undertake orders without being aware of

supply of stocks and hence we have low OTIF levels at retail outlets.

Delivery chart to be prepared the previous evening and stocks to be sorted accordingly.

This would help to minimize time for loading of stocks into the delivery vehicle the

next morning.

DS Incentive should be at the end of the month on basis of TLSD, especially for slow

moving categories.

D&D tracking should be undertaken for retail outlets also. This would help to ascertain

outlets where are stocks are not moving and also help to understand the stock trends

for particular routes.

DSR should be monitored on a weekly basis by the AE.

Display space should be purchased in big retail outlets and volume class A & B

outlets. These outlets have a high visibility potential and also have higher off take for

slower movers such as creams and Marie.

Recruitment & Training of DS

Care needs to be taken as regards recruitment of DS and also their training as the salesman is

the face of the company at the retail outlet.

Basic guidelines should be provided for recruitment of new DS. Also the minimum

criteria should be specified for qualification.

Area Executive should play a supervisory role in the recruitment and selection of new

DS.

AE to provide training inputs to new DS on the following aspects :

Range-selling

Merchandising

Time-planning

Objective setting

Target setting

Rapport building with trade

Accurate order capture

44

BIBLIOGRAPHY

WEBSITES

www.google.com

http://www.naukrihub.com/india/fmcg/overview/cosmetics-toiletries/

www. itc portal.com/foods/foods_sunfeast.html

economictimes.indiatimes.com/.../ITC...biscuit.../4493619.cms

www.financialexpress.com/.../itc...biscuits.../328459/ - Angola

www.flex-news-food.com/.../ ITC / itc -foods-plans -own-facility- biscuits .html

http://im.rediff.com/money/2006/jun/28spec.htm

en.wikipedia.org/wiki/ITC_Limited

NEWSPAPERS

The Times of India

The Economic times

45

ANNEXURE

Retailer questionnaire

Outlet Name: _______________ Location: ________

1. Which brand of biscuits do you stock in your store?

ITC Britannia Parle Priyagold Others

2. Which brand of biscuits you prefer to stock?

Britannia Parle ITC Priyagold Others

Why? (Give triggers: consumer demand, schemes, price differential, variants, etc)

________________________________________________________________________.

3. How often does a DS visit you?

ONCE A

WEEK

TWICE

A WEEK

THRICE A

WEEK

OTHERS

ITC

Britannia

Parle

46

4.Is the DS knowledgeable? Able to answer all your queries about the product?

Yes No

ITC

Britannia

Parle

5. Does the DS redress your grievances satisfactorily?

Yes No

ITC

Britannia

Parle

6. What is the time gap between order capture and delivery?

Same Day 1 Day 2 Day 3 Day More than 3 days

ITC

Britannia

Parle

47

7. How is the order delivered to you?

ITC:

Hawker Delivery Van Others

Britannia:

Hawker Delivery Van Others

Parle:

Hawker Delivery Van Others

8. Are there any other company products being carried by the DS/Delivery Van?

Yes No

If Yes, then which products? _________________________________________

9. Are your orders always received OTIF?

Yes No

ITC

Britannia

Parle

If No, then what is the delay in receiving complete order

1 Day 2 Day 3 Day More than 3 days

ITC

Britannia

Parle

48

10. What are the payment terms you get from the company?

Only Cash Only Credit Cash + Credit

ITC

Britannia

Parle

If Cash, do you get Cash Discount?

Yes No

If yes, then how much CD you get? ___________________________________

If Credit, then what is the Credit period?

1 Week 2 Weeks 3 Weeks 4 Weeks More than 4 Weeks

ITC

Britannia

Parle

11. How long does the stocks lasts?

1 Week 2 Weeks 3 Weeks 4 Weeks More than 4 Weeks

ITC

Britannia

49

Parle

12. Do the companies provide any stock replacement?

ITC: Britannia: Parle:

Yes No Yes No yes No

If yes, what are the replacement norms? ______________________________________

_______________________________________________________________________

13. How do you manage stock outs?

Contact DS Contact WD directly Buy from SWD Others__________

How long does the replenishment take?__________________________________________

50