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A Study on Distribution Management of Hindustan Unilever Limited
Prof. S Govindrajan
PRADEEP NARAIN SANJEEV KUMAR JHA SATADRU BAGCHI SOUMITRA DHALI g08075 g08086 g08088 g08090 g08095
TARUN KUMAR SAHA
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1. Introduction – Hindustan Unilever Limited 2. Distribution Network of HUL 2.1. Evolution over Time 2.2. Detail Overview 3. Channel Design
4. Initiatives taken to Improve the Distribution Network 5. Field Force Management 6. Analytical Framework 7. Financial Analysis 8. References
1. Introduction ‐ Hindustan Unilever Limited
Hindustan Unilever Limited (‘HUL’), formerly Hindustan Lever Limited (it was renamed in late June 2007 as HUL), is India's largest Fast Moving Consumer Goods company, touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. These products endow the company with a scale of combined volumes of about 4 million tonnes and sales of nearly Rs. 13718 crores. HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India. The mission that inspires HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life." HUL meets everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life. It is a mission HUL shares with its parent company, Unilever, which holds 52.10% of the equity. The rest of the shareholding is distributed among 360,675 individual shareholders and financial institutions. HUL's brands ‐ like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic, Pepsodent, Close‐up, Lakme, Brooke Bond, Kissan, Knorr‐Annapurna, Kwality Wall's – are household names across the country and span many categories ‐ soaps, detergents, personal products, tea, coffee, branded staples, ice cream and culinary products. These products are manufactured over 40 factories across India. The operations involve over 2,000 suppliers and associates. HUL's distribution network comprises about 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. We have analyzed the distribution network of HUL from the following aspects: 1. Evolution of HUL’s distribution network 2. Transportation & Logistics 3. Channel Design 4. Initiatives taken for channel member management. 5. Field force management 6. Analytical Framework 7. Financial Analysis
Distribution Network of HUL 2. Goods were sent to these markets. The most important benefit has been improved customer service to the RS. The company salesman still covered the market. a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C&FAs). with the company salesman as the consignee. demand simulation and screening for transit damages. The second characteristic of this period was the establishment of the "Company Depots" system. bulk breaking. providing warehousing facilities. The highlight of the third phase was the concept of "Redistribution Stockist" (RS) who replaced the RWs. reporting sales and stock data. The C&FA system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The first phase of the HUL distribution network had wholesalers placing bulk orders directly with the company. The company salesman grouped all these orders and placed an indent with the Head Office. This system helped in transshipment. The C&FAs act as buffer stock‐points to ensure that stock‐outs did not take place. implementing promotional activities. .1. canvassing for orders from the rest of the trade. In order to achieve this." a stock point for the company's products in that market. Large retailers also placed direct orders. increased the distribution reach of the company to a larger number of customers. The salesman then collected and distributed the products to the respective wholesalers. The Registered Wholesaler system. against cash payment. one wholesaler in each market was appointed as a "Registered Wholesaler. In the recent past. 4 2. and as a stockpoint to minimise stock‐outs at the RS level. He then distributed stocks from the Registered Wholesaler through distribution units maintained by the company. extending indirect coverage. The role performed by the Redistribution Stockists includes: Financing stocks. which spanned the decades of the 40s. The focus of the second phase. providing manpower. Evolution over Time The HUL’s distribution network has evolved with time. which comprised almost 30 per cent of the total orders collected. The RS was required to provide the distribution units to the company salesman. therefore. and the money was remitted to the company. was to provide desired products and quality service to the company's customers. providing service to retailers.
000 suppliers and associates serve HUL’s 40 manufacturing plants which are decentralized across 2 million square miles of territory. kiosks and general stores. There are 35 C&FAs in the country who feed these redistribution stockists regularly. and about 250 million rural consumers. providing innovative incentives to retailers and organizing demand generation activities among a host of other things. wholesale. Detail Overview The distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes. The most obvious function of providing the logistics support is to get the company’s product to the end customer. Around 2. covering 6.000 redistribution stockists. maintaining favorable trade relations. are distributed through a network of 4. Hindustan Unilever provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging self‐service stores and supermarkets. chemists.3 million retail outlets reaching the entire urban population. Distribution System of HUL HUL's products. 5 2. . The general trade comprises grocery stores.2. Each business of HUL portfolio has customized the network to meet its objectives.
To service this segment. (Fig. Hindustan Unilever is trying to circumvent the barrier of motorable roads. HUL assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. the network directly covers about 50.Under the Indirect .The team comprises an exclusive sales force and exclusive redistribution stockists. reaching 250 million consumers. scooters or the age‐old bullock cart. The company simultaneously uses the wholesale channel. through 6000 sub‐stockists.The team focuses on building superior availability of products. HUL launched this Indirect Coverage (IDC) in 1960s. This sub‐stockist distributes the company's products to outlets in adjacent smaller villages using transportation suitable to interconnecting roads.000 under one rural sales organisation. The most common form of trading remains the grassroots buy‐and‐sell mode. (Fig. 2 – Rural Distribution Model of HUL) HUL approached the rural market with two criteria ‐ the accessibility and viability. Thus. In the 25% of the accessible markets with low business potential. 1 – Schematic of HUL’s Distribution Network) Distribution at the Villages: 6 The company has brought all markets with populations of below 50. In rural India. HUL appointed a Redistribution stockist who was responsible for all outlets and all business within his particular town. This enables HUL to influence the retailers stocks and quantities sold through credit extension and trade discounts.000 villages. like cycles. suitably incentivising them to distribute company products.
commonly referred as 'Shakti Amma' receives stocks from the HUL rural distributor.000‐2. is becoming an extended arm of the company's operation in rural hinterlands. Project Shakti has already been extended to about 12 states ‐ Andhra Pradesh. Punjab.000 villages .000 of India's 638. Chattisgarh. Rajasthan. Generally the manufacturing site is located such that it covers a bigger geographical segment of India. The Shakti entrepreneurs are given HUL products on a `cash and carry basis. company vans were replaced by vans belonging to Redistribution Stockists. which serviced a select group of neighbouring markets. New distribution channels Project Shakti This model creates a symbiotic partnership between HUL and its consumers. After being trained by the company. and using that to buy our products. armed with training from HUL and support from government agencies concerned and NGOs. The SHGs have chosen to partner with HUL as a business venture. Each Shakti entrepreneur usually service 6‐10 villages in the population strata of 1. Project Shakti had enabled Hindustan Lever to access 80. In general. . a member from a SHG selected as a Shakti entrepreneur. the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Gujarat. Maharashtra and West Bengal. Armed with micro‐credit.' The following two diagrams show the Project Shakti model as initiated by HUL. The respective state governments and several NGOs are actively involved in the initiative. the goods are transported to RS’s by means of trucks and the products finally make the ‘last mile’ based on the local popular and cheap mode of transport.750 per month) taking micro‐credit from banks. which they will then directly sell to consumers. The model consists of groups of (15‐20) villagers below the poverty line (Rs.000. Karnataka. Started in the late 2000. From the C & F agents. Uttar Pradesh. Orissa. Madhya Pradesh. Distribution at the Urban centres: Distribution of goods from the manufacturing site to C & F agents take place through either the trucks or rail roads depending on the time factor for delivery and cost of transportation. Tamil Nadu. women from SHGs become direct‐to‐home distributors in rural markets. 7 Coverage (IDC) method.HUL's partnership with Self Help Groups(SHGs) of rural women.
is to be provided to rural trade as part of the new distribution strategy. 8 Project Streamline To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. who has 15‐20 rural sub‐stockists attached to him. Project Streamline being a cross functional initiative. Under Project Streamline. As a result. The diagram in the next page shows the model of Project Streamline. Higher quality servicing. the distribution network directly covers as of now about 40 per cent of the rural population. in terms of frequency. credit and full‐line availability. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than 2000 people with the help of rural sub‐stockists/Star Sellers who are based in these very villages. The sub‐stockists then perform the role of driving distribution in neighboring villages using unconventional means of transport such as tractor and bullock carts. . the Star Seller sells everything from detergents to personal products. Each of these sub‐stockists / star sellers is located in a rural market. the goods are distributed from C & F Agents to Rural Distributors (RD).
covering 80% of the urban population. depots and the key redistribution stockists. including the head office. 9 Hindustan Lever Network (HLN) It is the company's arm in the Direct Selling channel. HLN has already spread to over 1500 towns and cities. The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in addition to offering rewards like revenue sharing through the innovative concept of “pools” Mother Depot and Just in Time System In order to rationalise the logistics and planning task. Each of them has a minimum number of JIT depots attached for stock requirements.000 stockists.000 suppliers. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. 80 factories and 7. factories. The JITs draw their requirements from the MD on a weekly or bi‐weekly basis. They have also combined backend processes into a common Shared Service infrastructure. All these initiatives together have . branch offices. It already has about several lakh consultants ‐ all independent entrepreneurs. which supports the units across the country. one of the fastest growing in India today. It presents a range of customised offerings in Home & Personal Care and Foods. an innovative step has been the formation of the Mother Depot and Just in Time System (MD‐JIT). This sophisticated network with its voice and data communication facilities has linked more than 200 locations all over the country. backed by 42 offices and 240 service centres across the country. trained and guided by HLN's expert managers. This is possible because of IT connectivity across the extended supply chain of about 2. Certain C&FAs were selected across the country to act as mother depots. Leveraging Information technology HUL customers are serviced on continuous replenishment.
and the modern trade as a single concern. RS Net Initiative: The RS Net initiative. HUL is servicing the rural market. RS Net has come as a force multiplier for HUL Way.” tasked with increasing supplier/distributor responsiveness. HUL chose the Adexa iCollaboration suite for facilitating centralized monitoring of the SCM. With the aggregated view of data provided by the iCollaboration suite. despatches. Simultaneously. Information on secondary sales is now available on RS Net every day. It now covers stockists of the Home & Personal Care business and Foods & Beverages in close to 1200 towns and cities. 10 enhanced operational efficiencies. HUL identified improved supply chain management as a critical business priority and launched a comprehensive initiative. RS Net is one of the largest B2B e‐commerce initiatives ever undertaken in India. RS Net has enabled stockists to place orders on a Continuous Replenishment System. Project Leap begins with the supplier runs through the factories and depots and reaches up to the RSs. live customer /supplier collaboration. and optimizing planning and scheduling. the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. Leap also aims at reducing inventories and improving efficiencies right through the extended supply chain. RS Net is part of Project Leap. Adexa iCollaboration suite In 2000. key urban outlets. enables monitoring of stocks and secondary sales and optimises RS’s orders and inventories on a daily basis through online interaction on orders. improved the service to the customers and have brought us closer to the marketplace. It has also enabled RSs to provide improved service to retail outlets. and integrating demand and distribution planning with production scheduling. Together they account for about 80% of the company's turnover. This ensures HUL’s growth by ensuring that the right product is available at the right place in the right quantities and at the right time in the most cost‐effective manner. information sharing and monitoring. It provides linkages with the RSs’ own transaction systems. This in turn has unshackled the field force to solely focus on secondary sales from the stockists to retailers and market activation. HUL was able to combine sales and . reducing inventory buffers. “Project Leap. launched in 2001. the company's action‐plan to not only maximise the number of outlets reached but also to achieve leadership in every outlet. aims at connecting Redistribution Stockists (RSs) through an internet based system. The IT‐powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. Today.
2006) (Fig. shipments and customer orders on a daily basis with these software packages and can get a pulse on the market real time. which resulted in significant savings on the cost side for inventories and distribution. 3 – HUL’s Turnover Compared with Competitors. (Fig. 4 – HUL’s Market Leadership across various FMCG Categories) . 11 distribution efforts on the diverse product lines. HUL updates inventory positions.
Redistribution Stockists. 12 3. the model was not viable for small towns with small population and small business. Direct Selling Channel in the name of Hindustan Lever Network (HLN). wholesalers and retailers (as shown earlier). Hindustan Unilever's distribution network is recognized as one of its key strengths. Channel Design Hindustan Lever Limited (HUL) has two types of channel selling ‐ i. The HUL management realized certain problems with the existing sales model. First. HUL has a well entrenched high distribution model which comprises of C&FAs. ii. Its focuses on Product availability. Bistupur and Parsudih. The C&FA is a third party and gets servicing fee for stock and delivery of the products. HUL’s Sales Break‐up through different channels: Sales Break-up Through Different Channels 7% 33% 60% Modern Retail Urban General Trade Rural Areas Channel Structure (Special Focus is on Jamshedpur) Typically. . The company has its depot in every state of the country. In each town. In Jharkhand the C&FA is in Ranchi and Jamshedpur is serviced by 3 Redistribution Stockists at Sakchi (M/s Om Prakash Agarwal). there is at least a redistribution stockist (RS) who takes the goods from the C&FA and sells them to retail outlets. Brand communication. and higher levels of brand experience. HUL found it expensive to appoint one stockist exclusively for each town. Secondly. Large retail self service shops are becoming commonplace. Regular (traditional) retail channel. the retail revolution in the country has changed the pattern the customers shop. the goods produced in each of the HUL's 40 factories are sent to a depot with the help of a carrying and forwarding agent (C&FA).
detergents ‐ Cosmetics ‐ Food items ‐ 8% on MRP 10% on MRP 8% on MRP Wholesaler (gets 1.5 % max. Incentive schemes: Before 2000 holiday packages and tours but after 2000 no non‐monetary incentive for RS. Redistribution Stockists: Total number of RS in Jamshedpur = 3 (at Sakchi. The middle. This software needs to be synchronized daily and the system updates any information/ incentive schemes / sales figures etc to and from the common shared platform. distribution expenses to retailers. Retailers: Total retailer base in Jamshedpur: Approximately 1070. As a result of the new distribution plan the company has planned to reduce the number of RS in small towns. fatter part of the diamond represents the profit‐center based sales team. Sales Margin: 4.76% which includes cash discount. In the bottom of the pyramid is the rural marketing and distribution which accounts for 20% of the business. unloading expenses from depot. Selling Operations: RSs sells the goods to ‐ o o Wholesaler: Gets cash discounts and other schemes promoted by HUL (gets points under Vijeta Scheme). Bistupur. HUL redesigned its sales and distribution channel and the new system is known as 'diamond model' in the company. incentive schemes & other incidental expenses. Parsudih). Modes of transport used: Rickshaw. 13 In response of these problems. This is going to be reduced to only one with effect from next month of this year.3 (Developed by IBM & CMC). Areas of Operations: Marked for each of the RS. At the top end of the diamond. discount from RS) . Software systems and Information System: UNIFY 8. tempo. discount from RS) Retailers (gets 1.0% max. Sales Margin: Depends on the product o o o Soap. there are the self service retail stores which constitute 10% of the total FMCG market.
Account information is maintained on palmtops given by HUL. HUL has limited the network channel selling to categories of Home & Personal Care (HPC) and Food products with exclusive brands for this channel. we came to know that for the last two years. training is not being given at all to the sales force. at all times. During our research and informal survey of HUL field sales force. Revamping of its sales organisation in the rural markets to fully meet the emerging needs and increased purchasing power of the rural population.000 villages. The general trade comprises grocery stores. fully engage and service modern retailers as they emerge. HUL has set up a distribution network that ensures availability of all their products. providing innovative incentives to retailers and organizing demand generation activities among a host of other things. reaching about 250 million consumers through about 6. Incentive schemes: Company programs (Scheme Discounts + Cash Discounts) TPR schemes based on Sales (1 % to 4 %) Vijeta scheme is not for retailers. . and not available in the retail channel. wholesaler. specifically developed for the Direct Selling channel. in all outlets. HUL’s distribution network in rural India already directly covers about 50. Servicing Channel partners and customers with continuous daily replenishment. This includes. The important activities that HUL field sales force does are (i) target chasing and (ii) reporting on a daily basis. Delayering of sales force to improve response times and service levels.000 sub stockists. these particular brands (products) are all exclusive to HLN. Hindustan Unilever services each with a tailor‐made mix of services. Field Sales Force: 14 To meet the ever‐changing needs of the consumer. That is. Leveraging scale and building expertise to service Modern Trade and Rural Markets. kiosks and general stores. maintaining favourable trade relations. 4. Initiatives taken to Improve the Distribution Network HUL has taken the following initiatives to improve its distribution network: Setting up of a full‐scale sales organisation comprising key account management and activation to impact. chemists.
. and also includes a back‐end system connecting suppliers. particularly in rural areas by leveraging non‐conventional media like wall paintings. 15 Implementation of supply chain system that connects stockists across the country. with its very deep distribution reach through traditional retail. cinema vans. Finding out Innovative ways to reach out to its consumers.000 stockist salesmen. Initiating the concept of Super Value Stores (SVS) in urban areas to partner traditional stores to provide a range of services ranging from managing their inventory to setting up POS (point of sale) banners. This is to protect & maintain the competitive advantage that HUL has over its biggest competitors in the other markets (e. in line with the strategy to leverage the equity of its brands through relevant services.000 consultants across the country. In addition to this. modern retailing chains like Spencer’s. Launching of several promotional schemes for existing wholesalers and distributors. IT tools have been deployed for connectivity across the extended supply chains. HUL started restructuring some of the selected SVSs into the form of self‐service retail shops a la modern retails. Backend processes have been combined into a common Shared Service infrastructure. Launching of HUL Network to leverage the channel of direct selling by presenting customised offerings in 11 home and personal care and food categories. it already has a base of 300. weekly markets (haats). fairs and festivals. Under 'Project Dronacharya'. Starting of franchised Lakme Beauty Salons and Ayush Therapy centres to offer standardised services. HUL has also included several NGOs and state governments as the initiative helps rural women to improve their financial position. to boost up traditional retail in the face increasing in‐roads made by large. Launching of Project Shakti through which the company is able to extend its operations in villages. all company sites and stretching right up to stockists. . it has started the ‘Vijeta ‐ Rishta Jeet Ka’ scheme last year to provide a platform for the wholesaler and HUL to grow the business by earning points and redeeming them. Undertaking several initiatives for traditional channels in order to improve its capabilities at the front‐end by developing skills for stockists' sales force. the FMCG major continuously imparted training to over 10. Launching the Unicare scheme with upmarket pharmacies and retailers to sale its premium brands.g. Reliance Fresh etc (where HUL is squeezed harder for discounts). P&G). For instance. Started in 2003.
5) 4. While deciding the area for each member of the field force. Secondary Sale (Max points = 2. There are various methods used by the company to incentivize the field force ‐ Monetary and Non Monetary.5) 3.5) SECONDARY ECO QOC FCS FOCUS .5) 2. Field Force Management The working cycle of a typical HUL field force member is from 21st of every month to the 20th of the next month. To start with the field force member is given a particular area and his responsibility is to cater to all the retailers in that area. Eco (Max points = 0. 16 5. It consists of 4 components ‐ 1. Focus (Max points = 0. the company makes sure that the operating area of each field member doesn't overlap with his other colleagues. FCS (Max Points = 0. During this period he is given various targets that helps to achieve company objectives and gives him a chance to prove his performance relative to other. In HUL. the field force is evaluated using QOC (Quality of Contribution).
Focus / Depth Pack target – This is mainly used to increase the sales volume of certain products. Upon completion he gets additional 0. A typical ‘Focus’ target is given below: Lux International Life Buoy Wheel Breeze Soap – Rs 20. The concerned agent receives this target around 25th of each month and has to complete this target within the 5th day of next month.5 which is added to his QOC score. 27/‐. each member is given a specific target in terms of value (e. he looses the opportunity. Each scheduled visit per outlet is one per week. Field Capability Score (FCS) ‐ In this component. For example if there are 100 outlets within the operating area of a field person then the number of visit per week is 100 and total number of visit per month = 100x4 = 400. If this is achieved the retailer gets a discount of 1% on the billed amount and on the other hand the field person gets an additional score of 0.5 points which is then added to his overall QOC score. Based on this the Field person calculates number of packs he should sell to the retailers.5 points. Rs. These points are used to add to the total QOC score as well as linked to monetary incentive.g. 15 lacs) for the operating month (21st – 20th of next month). 17 Secondary Sale ‐ Based on the operating area.. if he achieves 95% target he gets 1. If he achieves 100% of the target he gets 2.5 points added to his QOC score along with monetary incentive associated with it.5 points.000 /‐ @ Rs 10/‐ per unit ‐ Rs 27.000 /‐ @ Rs 10 /‐ per unit This target needs to be achieved within 20th of next month.640 /‐ @ Rs 6/‐ per unit ‐ Rs 70. the field force persons are required to ensure that the scheduled visit/outlet billing is such that at least 15 items are demanded per order.220 /‐ @ Rs 10/‐ per unit ‐ Rs 99. Upon achieving the target the field person is awarded 0. ECO / Width pack Target – This is used for the penetration/reach of certain products in the existing market. However if this is not met within 5th. . The following is a typical ECO target assigned to a field force agent: Lux International Pears Soap Rin – 105 outlets x 1 SKU ‐ 135 outlets x 1 SKU ‐ 104 outlets x 1SKU ‐ 100 outlets x 1 SKU Breeze Soap The outlets mentioned are within the operating area of the person and 1 SKU = Rs.
management representatives from the regional office come to the zonal office to distribute the awards. A thorough analysis is done at the end of each month and based on that the weak products are identified or those for which the demand has weakened.5 – The person is eligible for 7 star award If QOC score > 4 – The person is eligible for 5 star award If QOC score > 3. 18 The sales person is required to achieve 90% success rate to get 0. The variables. of consumers. of channel intermediaries. 6. Based on the QOC various awards are distributed to the field persons at the end of every month. higher the no. Target Setting Mechanism and monitoring The regional office monitors the performance of various zones. Non Monetary Methods The other purpose of the QOC scores is to highlight the performance of the field person among his peers. their explanations and their impact on the HUL’s distribution network are given below – 1. If QOC score > 4. The photograph of the award winners is displayed in the office as a source of inspiration for other sales person.5 – The person is eligible for 3 star award In the event of exceptional performance. b) The sold item is immediately updated in the company information system. These awards are also known as ‘MOC Star’ awards. The implication of this is that there will be many layers in the channel in such a .5 points for his QOC score and at least 65% for a satisfactory performance. higher will be the no. MOC stands for Monthly operating Cycle. This solves basically the two purposes ‐ a) The field person is freed from the tedious task of maintaining cumbersome records and can then concentrate on the job (thus IT is replacing some of the field force or other channel members). This is the basis of setting ECO and FOCUS targets for the field persons. Each field person is given a palmtop wherein he can feed the entries on the spot where the transaction is done. Analytical Framework We tried to analyze HUL’s distribution network in the light of 20 most significant variables that affect the distribution part of channel management for any organization in the business of marketing & selling of goods. Number of Consumers In retail business dominated by traditional stores like Kirana Stores etc (Indian retail business falls in this category).
It’s said that HUL is able to touch the lives of about 2 out of every 3 Indian consumers. from distributor to retailers) increases manifold..3 million retail outlets reaching the entire urban population. the transport intensity increased further. 2.e. Frequency of Purchase If the frequency of purchase is high. which is built over a century focusing on traditional retail. With the introduction of smaller form factor packaging for FMCG goods (Re. pan‐Indian presence & market leadership can only be possible when products reach even the remotest parts of the country. 19 situation and managing such a complex distribution network by keeping tabs on every player will be a huge task. more so in a large. This achievement is due to the sheer strength of its distribution network (products should be good as always. Implication for HUL For a country as geographically diverse as India. HUL is India’s largest FMCG company with unmatched distribution network. then transport intensity in “the last mile” (i.1 /‐ shampoo sachets being a very good example). covering about 6. as a thumb rule we can take that the mean time between two purchases is ~ 90 days. Obviously the T&L management for such an organization would be critical to accomplish this. Geographic Dispersion of Consumers Again. more intermediaries and more layers are required in the distribution network so as to effectively reach the length & breadth of the country. HUL is very successful in achieving and maintaining this reach due to its distribution network. Moreover. and about 250 million rural consumers in India. For a comparison. 3. Transport & Logistics (“T&L”) support provided by the organization needs to be well organized. geographically diverse country like in India. Implication for HUL HUL’s key strength lies in managing its distribution network in India. With the increase in this dispersion level. HUL's distribution network comprises about 4. but not traditional retail. . For FMCG products. world’s largest FMCG major. Wal‐Mart).000 redistribution stockists. P&G. this is closely related with the previous variable. does not find its name in the list of top 5 FMCG majors in India as its strength lies in managing modern retail (biggest example. otherwise they will find no buyers in the long run).
are such that though these are needed. The JITs draw their requirements from the MD on a weekly or bi‐weekly basis and supply to stockists in that area. who supply to approx. distribution network of HUL does not require any expert field force to sell its products. For this kind of products. then the product will be easier to distribute. the overall tendency for the consumers is to postpone the purchases – these products/services can be termed as “necessary evil”. Since manufacturing is done at 40 plants around the country. Implication for HUL Since FMCG goods are very much familiar to consumers. Tendency to Postpone Purchase If the tendency to postpone purchase is lesser. sales field force becomes critical and use of “expert” field force is commonplace. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. Each of them has a minimum number of JIT depots attached for stock requirements. rationalizing the logistics and planning is a huge task. regular reinforcement in the minds of consumers becomes necessary. Certain C&FAs were selected across the country to act as mother depots. Level of Familiarity/Knowledge (of consumer) about the Product If the level of familiarity of consumer with the product is higher. Life Insurance etc. lower will be the importance of field sales force and higher will be the importance of channel. . 6. channel and its different members are very much important to HUL and field sales force’s function is mostly limited to channel management and ensuring availability of products. supply to retailers. in turn. Implication for HUL Since FMCG products are used regularly and these products are not “necessary evils”. For example. 4.3 million outlets across India. Only the recent diversification of HUL into Home Water Purification business (“Pure It” brand) needs dedicated field sales force. Implication for HUL 20 HUL has about 4000 redistribution stockists. An innovative step in that regard has been the formation of the Mother Depot and Just in Time System (MD‐JIT). who. products/services like Fire Extinguishers. 5.
. time & effort spent by the consumer) generally depends on the product cost. Personal Care products etc with strong brands with continuous “pull”. This stresses on the fact that T&L for these products becomes very important. Level of Involvement (LOI) Level of involvement (i. colas. Retailer’s ROI = M arg in × Rotation Investment For a FMCG player with a non‐established brand. 6. margins to channel members and point of sale (POS) advertising are both important. implying availability of these products are the most critical aspect for these to be sold and consumed. To increase this brand’s sale & market share. ITC as it’s eating into HUL’s market share continuously since it entered FMCG segment). HUL has less to worry about margins to channel members or POS advertising. toffees. Implication for HUL HUL has only one product in this impulse purchase category ‐ Kwality Walls (ice cream). But this situation can change considerably in the face of rise of a significant competitor having almost the same reach as HUL has (e.e. Detergents. visibility and consumer mind share has to be increased and improved as well. availability. efforts from the channel members can be much lesser for final off‐take to happen which in turn leads to lesser margins to the channel members for those products. 8. HUL is #2 after Amul in this FMCG segment. lower is the importance of availability and more critical is the . Purchased on Impulse The impulse purchase products like chocolates. retailers may not be averse to slightly lesser margins as rotation of the products is high and thus his/her ROI is protected. follow Say’s Law which states that “Supply Creates Demand”. 7.g. then less “push” will be required from the channel members to sell the products as there will be sufficient “pull” or demand from the consumers. For faster moving products (mostly due to brand pull). ice creams etc. This implies that for products with loyal customer base. If LOI is higher. Implication for HUL As HUL enjoys leadership position in many FMCG segments like Soaps. Degree of Brand Loyalty 21 If the consumers are more brand loyal..
Implication for HUL For FMCG products. soaps. then consumer buying behavior may become subcontracted and the expert influencer becomes another customer of the network.g. But companies try to associate brands with regulatory bodies/authorities and show advertising with experts commenting upon superior virtues of a product in an attempt to make the buying behaviour shift from picking/variety‐ . In that situation two groups of sales force are needed to cater to both the segments. 10. rather than supply of information. If present. Implication for HUL This aspect partly applies to HUL’s products as some products like shampoos. Efficient distribution network of HUL ensures availability of all such products at each selling point (individual retailer). apart from the end‐user. then the complexity of the decision making process is higher and greater is the importance of field sales force and the salespersons’ skill. Rice. detergents may fall in a basket. HUL has to bother more on ensuring availability of the products.g. Implication for HUL As FMCG products are generally Low Involvement Products. role of expert influencer is limited. speed of decision making is high. 11. Present of Expert Influencer in the Decision Making Process Roles of sales field force vary depending upon whether expert influencer (e. Cooking oil etc at the beginning of the month) are to be made available together for final off‐take. This means that for HUL. Speed & Complexity of Decision Making Process If the speed is low. Purchased as a Basket of Goods The products which are generally bought together by consumers as a basket of goods (e. complexity of decision making process is not there and so. knowledge and quality.. Implication for HUL For FMCG goods.. 9. doctors) is present in the process or not. field sales force is of limited functional usage. 22 supply of information as consumer decision process depends more on elaborate information search. Flour powder.
So this aspect is not critical for HUL. milk are most on demand in the 1st three hours of the day. Element of Crisis Purchase Exists If element of crisis purchase exists in the buying decision of a product (for example. For water purifier “Pure It”. These are true for HUL also (e. In FMCG goods. risk taking tendency of the consumer will be lower or consumer will be more risk averse. but have limited life. Implication for HUL The FMCG products that HUL sells are not perishable by nature. Perishability of the Product If the product is perishable (having small shelf life. 13. 12. Implication for HUL None of the products of HUL fall under this category.). this can have considerable impact if its sale starts to happen through channel members rather than by field sales force as is happening now. bulbs & tubes). In such a situation. 14. Refrigerators etc.. 15. cooking oil. availability of products of HUL is necessary for other reasons. selling depends on many cases how the company is taking care of channel members (“keeping them happy”) such that they are not lured by other competitors or directed by grievances so as to unsell the brand. Time Band Associated with the Purchase of the Product If there is seasonality/cyclicity for the demand or purchase of the product (examples – newspaper. Implication for HUL HUL is not affected for its FMCG products by this variable.g. rice etc . then its availability becomes critical. examples – newspaper. then the dimension of “speed” in reaching the end consumers becomes critical & T&L assumes great significance for the company. fruits etc). This implies that in such a case. Pond’s Intitute). Element of Risk Aversion Exists If the level of involvement of the consumer in buying decision process is higher. milk. channel members can “unsell” a brand by giving explicit or implicit suggestions. This situation is prevalent mostly in Consumer Durables (like TV. the situation does not exist per se. Nevertheless. 23 seeking to subcontracted and make consumers more loyal to the brand.
the above stated variable is significant. Oil (of the same type) is fungible. For example. especially under a . wheat. may also increase the demand for personal care items like soaps. Jewels can be readily bought and sold (the trade is liquid). Festivals like Holi etc. Indian rupee bank notes are interchangeable in London (they are fungible there). one Rs. and liquidity does not imply fungibility. precious metals. shampoos etc for a short period and distribution network should be geared up not to miss any such opportunity. It refers only to the ease of substitution of one unit of a commodity with another unit of the same commodity for all intents and purposes. in Food segment. This is over and above the regular replenishment of stocks at retailers done by distributors. They are also liquid. services intangible. Examples of highly fungible commodities are crude oil. this element of demand time band exist to a certain extent. Implication for HUL For some of the products of HUL. Fungibility Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution. A barrel of West Texas Intermediate crude oil is fungible (direct exchange) with another barrel of the same crude oil. This underscores the importance of T&L for HUL as the transport intensity between distributors and retailers increases in the 1st & 4th week of a month for the products mentioned above. 16. and currencies. Shampoo & Hair Oil etc. As an example. in segments like Laundry Detergents. but they are not easily traded there (they are not liquid in London). experiences memorable & transformations are effectual1. but individual diamonds. A good is fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place. Fungibility does not imply liquidity. are not interchangeable (diamonds are not fungible). Cash is fungible. gold coins are fungible. then high T&L and infrastructural requirements are needed for the “last mile” for the time band when demand is maximum. being unique. goods tangible. A good is liquid and tradable if it can be easily exchanged for money or for another different good. In contrast to diamonds. Branded Atta – ‘Annapurna’. It is possible to have idle capacity in the areas mentioned above outside the peak required time band. It is said that commodities are fungible. 24 grocery items are most on demand in the 1st week of the month). orange juice. Fungibility has nothing to do with the ability to exchange one commodity for another different commodity. 100/‐ bank note is interchangeable with another. Fungibility is different from liquidity.
The outcome of product fungibility is that the more fungible a product becomes. Degree of Customization Possible Degree of customization directly affects economies of scale. lower criticality of field forces from the standpoint of customization of product offerings. For example. The combination of fungibility and liquidity is one of the reasons why gold has successfully served as money for thousands of years. Negative or Positive Reinforcing Product Negative reinforcing products are those which are bought to avoid/reduce the problem (ex. – Perfumes. . costs are lower in these respects with HUL. with high visibility displays to reaffirm the feelings. 25 gold standard. – insurance. Implication for HUL “Axe” & “Rexona” deodorants are distinctly positive reinforcing products from HUL. the importance of channel members will continue. A good example of this is dematerialization (Demat) route for share trading now where there is no physical existence of shares. Vacation etc). lesser the economies of scale. higher is the chance that parts of the distribution channel it can be replaced by IT. Consumers are willing to pay higher for these brands. Also. Further. criticality of sales field force increases with customization levels of the offering. washing machine. Chocolates. including others like Lux. So these are seen in most shopping malls etc. 17. which are mass produced. Implication for HUL As branded FMCG goods are not fungible per se (branding is done to “decommoditize” & differentiate the product). Lakme etc. Shopping experience becomes a critical aspect for positive reinforcing products to reaffirm the positive feelings. car battery etc). an old coin or a currency note may assume a value which is way above its ‘face value’ due to historical reasons or due to some defects in it which makes it unique from others from a viewpoint which sees it differently than its intended purpose. such customizations are not possible and thus with higher economies of scale. 18. Positive reinforcing products are those which gratify the senses (ex. higher the customization. a fungible thing can become non‐fungible under some circumstances. Implication for HUL For FMCG products of HUL.
Higher the ratio. nearly as high as Nirma. Other major FMCG players not included in the analysis are Nestle. does not come under this purview as its major economic activity is Tobacco business which is nearly 85% of its total revenue. For example. marketing & distribution expenses of ITC as percentages to its total sales may not be directly comparable to those figures of HUL as product categories are different and the impact of above mentioned variables on these two company’s sales & distribution function is dissimilar. we mean those companies whose main economic activity. By ‘comparable‘. 2511 Cr. one major FMCG company in India. as defined in the CMIE database. main economic activity of HUL as defined in that database is ‐ “Cosmetics. This is the reason HUL has various manufacturing plants (40 in totality) located across India. Financial Analysis We have taken data from CMIE database while analyzing the performance of marketing & sales (including distribution) functions of HUL and comparable companies. cm (retailers are actually in real estate business in true sense). Value/Volume Ratio (Value Density) of the Product 26 This ratio is very important for both the company and the retailer for its two critical aspects – T&L cost and retailer ROI/sq. Britannia & Tata Tea.. Implication for HUL In general for FMCG goods and for HUL as well. we have included ITC also as its non‐ tobacco FMCG business revenue in FY ‘08 was Rs. 19. which are mostly into the Food & Beverages . but favours mechanized handling greatly. Amul. value density is relatively lower. increasing trend towards using smaller pack sizes increases the packaging density (increased packaging density increase cost to some extent. 7. Since value density is less. toilet preparations. But for the sake of comparison. Obviously. the second largest player after HUL in HUL’s chosen category. soap & washing prep”. This is a pointer to the fact most of the major FMCG players (including HUL) use contracted manufacturing dispersed across the geographic spread so as to lower transportation cost component. reducing handling costs). transportation costs will be higher and thus it is of economic sense to have manufacturing plants located closure to major markets. But the figures for advertising. better it is for both company and the retailer as higher ratio signifies lesser T&L cost per unit volume transported for the company and greater ROI per unit of shelf space for the retailer. ITC. is the same as HUL’s. In addition to this fact.
9 Sales 14937.3 1334.68 7.53 Annual Rs.41 Annual Rs.55 16.38 40.92 57.87 21.64 68.4 5. discounts.81 4.71 0.85 119.57 11.86 37.17 2.01 0.24 16.04 731.65 6.4 17.19 6.06 15.54 0.32 136.36 55. Crore Mar-08 Dist.00 6.51 15.53 12.21 4. In the following pages advertising.90 2 3 4 5 6 7 8 9 10 11 12 Nirma Dabur Colgate-Palmolive Reckitt Benckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC 2651.00 0.00 8.99 2.99 71.00 11. Crore Mar-08 Sl. expenses on direct selling agents & entertainment expenses whereas distribution expenses include outward freight. Exp.15 2128.14 2.35 9.02 430.57 Advertising Exp. Crore Mar-08 Marketing expenses 6. 1 HUL Annual Rs.79 21467.00 1.1 256. marketing & distribution expenses of major FMCG goods (in HUL’s category mostly) are being shown.70 3.96 248. though.95 0 0 427.66 16.83 1.57 922.10 4.31 42.27 14.88 70.94 65.85 40.00 18.00 9.59 4.71 1.70 4.55 10.66 11.16 3. 27 segment where HUL has relatively lesser presence (Processed Foods & Ice‐cream segments together constitute only approximately 5% of HUL’s total sales). As % of Sales 9. rebates.54 32.54 11.88 Advert.42 0.00 15.45 61. In Tea.06 10.63 548. Exhibit 1: Annual Spend in Advertising. Crore Mar-08 Advertising expenses 1422. sales promotional. As % expenses of Sales 0.07 Marketing Distribution Exp.51 207.78 586.4 102.00 4.76 1079. Company Name No. Exp.34 44.00 . as % to Sales 14.53 6.22 2.91 66.00 0.65 17. HUL is present significantly.06 16.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC 0.06 6. It is to be understood here that marketing expenses here include commissions.17 1597.46 40.84 35.53 3. As % of Sales 4.33 417.00 17.42 10.00 1.42 556.37 27. Marketing & Distribution functions in FY ‘08 Annual Rs.50 2.00 1.00 0.55 Exhibit 2: Advertising Expenses as percentage of Sales Advertising Expenses as % of Sales 20.4 0 9.
Godrej & Henkel (ITC also) have less advertising expenses (as % to sales) than HUL. On the other hand. Fair & Handsome. deodorants (“Axe”). Dettol.54%).. Vanish. TV) with famous & expensive celebrity endorsers like Amitabh Bachchan. Menthoplus etc. Boroplus cream & talc. Cigarettes & other tobacco related products which constitute approx. increasing the heat on Britannia for biscuits and taking on “Kurkure” & other snacks and chips from Pepsi. Henkel has zero advertising expenses in 2008. But while moving faster into non‐tobacco FMCG business riding high on its strength of distribution network matching or surpassing in some cases that of HUL. each of which is advertised heavily in the mass media (e. “Bingo” snacks etc). Govinda etc. Coke and others. Importantly. Reckitt‐Benckiser advertises considerably for its brands like Herpic. shampoos. which owns brands such as Navratna hair oil & talc. all relate to “intoxication” or habitual consumption patterns having intensely brand loyal consumers and thus almost no advertising (surrogate advertising is done) is needed either to reaffirm the brands or introduce new consumers to the brands (there is regulatory angle as well). done mainly to reaffirm that it’s not a soap!). Marketing Expenses As stated earlier also. Advertising expenses as percentage to sales is highest for Emami. With the introduction of home water purifier (“Pure It”). they do it voluntarily and without knowing what they’re doing. 28 We can see here that Nirma. Strepsils etc. we see regular advertising streams for Colgate toothpastes and other oral care products. ITC has started aggressive advertising campaigns (“Fiama Di Wills” shampoo. which is very low (only 1. directly focusing on marquee brands of HUL like “Sunsilk” & “Lux”. Mortein. This is apparent from its advertising expense as % to sales. “Sunfeast” biscuits. HUL advertising is done mainly in case of soaps (for example – “Dove”. “Rin”) etc. considerable advertising & promotional expenses have gone into it. Sona Chandi Chawanprash. Of late. “Vivel” soap. marketing expenses here include the following – commissions rebates . Current consumers of these tobacco products are the biggest advertising agents that ITC has and of course. laundry detergents (“Surf Excel”.g. Himani Fast Relief. in which category Colgate‐Palmolive is the market leader. ITC is altogether a different story. which may explain the fact that awareness level in consumers for Henkel brands is low. we see very little of Nirma advertisements. which is the reason for its high advertising cost as percentage of sales. Kareena Kapoor. 85% of its sales. Clearasil.
32 Here we see that the marketing expenses of HUL are among the lowest in the market (only the second lowest after Colgate – Palmolive which has very good brand pull for its “Colgate” toothpastes).01 0. has the highest marketing expenses among all others.10 4. as % to Sales 12. Neem toothpaste etc are losing out in the market. discounts sales promotional expenses on direct selling agents entertainment expenses etc. ITC mostly deals with small retailers and distributors (‘paan‐cigarette shops owners’) who have marginal bargaining power.35 6.00 4.51 8.71 29 16.68 0. Fa.00 14. Also.00 2. it is also a pointer to the fact that Henkel’s largest business share is in industrial .00 0.70 0.00 9. Another revelation is that Henkel. ITC again comes among the lowest its tobacco products require very little ‘push’ and have very high rotations.71 2. which has zero advertising expenditure. Exhibit 3: Marketing Expenses as percentage of Sales Marketing Expenses as % to Sales 18.00 4.59 4. This proves that HUL is able to maintain considerable brand pull through advertising.00 Marketing Exp.00 15.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC 1.00 7.04 0. Further. But this strategy to ‘push’ the products through the channel partners may not be a good one for Henkel as it might be losing out for the lack of visibility and thus consumer mind share and brands such as Margo.00 10.
For B2B . Mortein etc.50 3.00 6. advertising per se is not that much important. This is corroborated by the fact that these companies have some of the lowest marketing expenses (as percentage to sales) in the group.70 4. As mentioned earlier.00 4. popular brand “Loctite”. Distribution Expenses Distribution expenses include the outward freight cost to the company. as shown in the chart. volume discounts etc. which generally requires negotiations. sealants – e.00 2.g. important is direct‐selling approach.21 2.81 2.53 6.53 2.00 0.. Exhibit 4: Distribution Expenses as percentage of Sales Distribution Expenses as % to Sales 8.00 3. 30 chemicals (adhesives.55 1. which are reflected in highest marketing expenses (as percentage to sales) compared to others.19 4. it is unable to create sufficient pull for its products in India (as evidenced by the fact that marketing expenses are also relatively higher) or it’s getting stuck for the lack of sufficient distribution muscle a la HUL in traditional retail in India and suffers from lack of reach and availability at the end consumer level. this segment constitute ~44% of worldwide sales of Henkel) and for B2B.22 3. as % to Sales 5.90 4.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC .14 3.00 Distribution Exp.00 6.00 7. P&G is in between the extremes and with considerable advertising expenses also. both Colgate‐Palmolive and Reckitt‐Benckiser both enjoys very good brand loyalties and market leadership for their key brands like Colgate toothpastes and Dettol (#1 in antiseptics).16 5. Herpic.
locating manufacturing plants nearer to major markets. This can be explained somewhat from the impact of the variable. laundry detergent. but higher than Henkel. the same reasons significantly affect its distribution cost which is highest for the group analyzed. on the increased transport intensity for HUL in the last mile for some of the products like household personal care. the 2nd largest FMCG major in soaps and detergents category. Compared to HUL’s 40 manufacturing plants across India. Henkel (largely B2B) are mostly protected from this implication of the variable. HUL is lower in this respect than Nirma & P&G. Time Band of purchase. This is supported by the fact that Nirma’s higher distribution cost percentage than HUL. Another important thing to remember that value density of FMCG goods is relatively lower. This implies dispersed manufacturing. transportation cost of Nirma. So. ITC (tobacco). Emami & ITC has some of the lowest distribution expenses (as % to sales figures) & P&G has the highest. Nirma. branded atta etc in the first & last week of the moth. if it tries to cater to pan‐Indian market will be higher. has 6 manufacturing plants. all located in and around Gujarat. So one location manufacturing to get higher economies of scale and on the other hand. . trying to serve geographically diverse markets may not be economically attractive for FMCG sector. causing share of transportation costs in the overall cost structure to be relatively higher. 31 We have seen that T&L plays a very important role for HUL & others who have pan‐Indian presence in FMCG business. For P&G. Colgate‐Palmolive.
in/) 3. B. CMIE 8. 2008). James H. References 1. Colgate – Palmolive Website (http://www. Reckitt – Benckiser Website (http://www. The Experience Economy: Work is Theatre & Every Business a Stage.emamigroup. HUL Website (http://www.co. HUL CLSA Conference. Investor Presentation (24th Sept.aspx?pageid=1) 5.reckittbenckiser.in/app/Colgate/IN/HomePage. Wikipedia .co.com/Brands) 7. 32 8. 2.hul. Gilmore (1999). Published by Harvard Business Press.colgate. 4.cvsp) 6. 254 pages.com/site/RKBR/Templates/Home.. Emami Group Website (http://www. Joseph Pine.
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