Godrej Hersheys Distribution in India

7/27/2019 Godrej Hersheys Distribution in India

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Sales andDistribution

Management

To study the Trade Channel

Structure of the

confectionery business of

Godrej Hershey Limited and

determine its effectivenessGroup B4

Abhishek Sharma 121

Ankur A. Jain 124

B. Goutam Kumar 132

Gurveen S. Taneja 140

Nakul Khanna 150


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Table of ContentsObjective 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


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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 variouscharacteristics

Gauge a deep understanding of the factors/activities which are responsible for the effectiveness

of the trade channel. For eg:

o Role of the intermediarieso Distributor operationso Terms of Trade between GHL and the intermediarieso Merchandising Activities

Determine the positive / negative impact of the above factors on the trade channeleffectiveness 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)


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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.


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Godrej-Hersheys presence in Sugar Confectionery Segment

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.

Brand Category

Nutrine Lollipop Lollipop

Chocolate eclairs Toffee

Kokanaka Candy

Honeyfab Candy

Nutrine Aasay Toffee

Maha Lacto Toffee


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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.


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Trade Channel

Structure and Functioning:

The structure of the Trade Channel for Godrej Hersheys Limited can be depicted as shown in the

following diagram:

Salient Characteristics

The trade channel structure for GHLs confectionary division resembles a typical 5- level FMCGstructure 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 GodrejHersheys limited. Depending upon the geography, demand and market fragmentation, the

Manufacturing Plant

CFA/ Depot

DistributorDistributor

Retailer

Consumer

Wholesaler

Retailer

Consumer


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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 The CFA is located in Ambalao There are 15 distributors in south Haryana ( Gurgaon, Faridabad, Rewari, Jhajjar etc.)

o In Gurgaon, there are two distributors responsible for distribution of GHL confectionaryproducts. 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, thereare 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 Minimum order Quantity = 1 case (3500-6000 units)

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


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Minimum Order Quantity = 1 Jar/ 1Pouch (80-750 units)o Tertiary Sales: Sales occurring from Retailers to End Consumer are called Tertiary sales

Minimum Order Quantity = 1 Unito 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


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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 toand reselling goods to businesses who resell it further.

A GHL distributor was not an exclusive distributor and was engaged in distribution ofseveral other brands. The Gurgaon Distributor (Yadav Traders Ltd.) had agencies of a

total 7 brands including GHL Nutrine. The other 6 were:

o Leharo Cremicao Fruitchillo Tzingao Royal Choice Pickleso Shaktibhog : Big Biscuit

GHL Nutrine forms a small part of his portfolio with a monthly turnover of about INR 1.5lakhs 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 day2. Ready stock delivery: in which the order taking and order fulfilment happened

simultaneously

Infrastructure:

The distributor owned 3 auto-rikshaw as delivery vehicles


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The distributor had 5 salesmen. These salesmen were responsible for order taking aswell as order servicing (next day or Ready Stock Delivery)

Since GHL forms a small part of the distributors portfolio there is no dedicatedsalesman 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. Expiration

ii. Product handling damage or packaging damageiii. No replacement for Rat-Bite Damage

Target: Distributor gets 1% additional margin on target achievement. His targets are setas 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


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Number of Shops 300

Average Bills per

retailer 2 per month

Average Bill Value 250 350 450

Turnover 150000 210000 270000

Margin 7.00% 7.00% 7.00%

Gross Income 10500.00 14700.00 18900.00

Expenses

Rent 2500 2500 2500

Unit Expenses 2000 2000 2000

Salary 2500 2500 2500

Market Discounts 210 294 378 2% of gross income

Administrative 52.5 73.5 94.5 0.50% of gross income

Net Income 3237.50 7332.50 11427.50

Investment

Market Credit 35000 49000 63000 7 days

Company Credit 0

Stock Investment 75000 105000 135000 15 days

Investment in

Claims 10000 14000 18000 2 days

Total 120000 168000 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 theproduct 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 marginon the product varies from 12% to 18 %.

2) Retailer typically makes a profit of Rs. 450-600 on toffee. The product is relatively fastmoving 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 shopsTerms 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 onebig jar etc.


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Sales Structure

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

1. RGMThere are 5 regional general managers in India for GHL who take care of sales according to their

territory

2. ASMArea 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. ASEArea 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

RGM

ASM

ASE

SO

Distributor

DSM DSM

SO

Distributor DistributorTSI

Third Party

RGM: Regional General Manager

ASM:Area Sales manager

ASE:Area Sales Executive

SO: Sales Officer

TSI: Territory Sales Incharge

DSM: Distributors Salesman


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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. DSMDistributors 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

Retail/WS Jan-March GoldEclairs

Special Offer

Pen free

Drive Gold Eclairs availability

across channel through a highly

profitable offer

Wholesale March-Apr Maha QuantityPurchase

Mahalacto Pouch Gift QPS

Retail/WS Present Eclairs

Quantity

Purchase

1 pouch free on purchase of

1 big jar


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Visibility elements


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Issues Identified:

1. The penetration level in urban areas is low2. 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 pushby passing on extremely high margins to retailers

4. Lack of merchandising activities. Besides low amount of activity, the activity is carried out by TSIwho 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?


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How the retailer talks/ thinks about margins. What is his exp from selling a jar/pouch orofftakes/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 If flaw in product then what is that they expecto What credit period they give and on what criteriao Whether jars/pouches sell moreo Are the Wholesalers/ retailers brand conscious?o Do they face accessibility problems?o 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 Candyman

Visibility Big Retailers Low

Small Retailers Medium

Paan-Beedi

Shops

High

SKUs 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 toffeesPrice 1) 768gm jar with 258 toffeesRs 110

2) 3612gm jar with 1300 toffeesRs 570Margin 1) 768gm jar with 258 toffees17.27%(Mark up)

2) 3612gm jar with 1300 toffees14.03%(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. Theykeep and sell only ITC candies

2) Privately owned shops are forced to keep ITC candies otherwise they wont be servicedwith cigarettes as well.

3) They have common distributor for both cigarettes and candyman chocolates so they havea huge presence amongst the small retailers.

Perfetti

Big Retailer Small Retailer PaanBeedi Shops

Perfetti Serviced by the

distributor directly

Serviced by the

distributor directly

Serviced by the distributor

directly


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Products Alpenliebe Center fresh

Visibility Big Retailers Medium Medium

Small Retailers High High

Paan-Beedi

Shops

High High

SKUs Flavours- Rich Milky Caramel Toffee,

Creamfills Butter Toffee, Coffee Toffee

1) 840gm jar with 310 toffees2) 729gm jar with 270 toffees(Creamfills

Butter Toffee)

Flavours- Spearmint, peppermint

and Sweet mint

1) 555gm jar with 175choclates

Price 1) 840gm jar with 310 toffees- Rs. 1352) 729gm jar with 270 toffeesRs. 115

1) 555gm jar with 175choclatesRs 155

Margin 1) 840gm jar with 310 toffees12.9.%(Markup)

2) 729gm jar with 270 toffees17.39%(Mark up)

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

Perfetti

1) At the paan beedi shop center fresh is most famous because smokers have a tendency tobuy chewing gums after smoking a cigarette.

2) At the small retailer shop it the best-selling chewing gum as compared to boomer andorbit.


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Wrigleys

Big Retailer Small Retailer PaanBeedi Shopsa

Wrigleys Wrigleys have a decent

presence amongst the

big retailers. The

distributor mostly

provides orbit in this

channel

Solano has a heavy

presence amongst this

channel member. It is only

second to candyman.

The distributor directly

services these shops on a

two day basis(replenishing

the inventory). Solano is

again the most selling

product.

Products Orbit Boomer Solano

Visibility Big Retailers Medium Low Medium

Small

Retailers

Low Medium High

Paan-Beedi

Shops

Medium Low High

SKUs Flavours- Peppermint,

RaspberryMint,strawberry,lime,

spearmint,bubblemint

1) 24pieces in one pack

Flavours-Strawberry

1) 40gm pack with24pieces in one pack

Flavours-Smooth

butter Candy

1) 600gm packwith 150

toffees

Price 1) 24pieces in one packRs102(Rs4.25 per piece)

1) 40gm pack with24pieces in one pack-



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Rs123(Rs5.12 per

piece)

toffees-Rs

130 per pack

Margin 1) 24pieces in one pack17.6% (markup)

1) 40gm pack with24pieces in one pack-

17.07%(mark up)


toffees-

15.3%(Mark

up)

Figure 1- Retail presence of different toffee brands

0

2

4

6

8

1012

1413

5

2

5

8

4

NumberofRetailers


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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

Documents

Godrej Hersheys Distribution in India