COCA COLA IN INDIA: INNOVATIVE DISTRIBUTION

STRATEGIES WITH ‘RED’ APPROACH

GUIDE: PROF. DASARATHARAMAN K

GROUP 12:
AYUSH SINGH
CHAYA N. AISHWARYA
PILLI HARSHA VARDHAN
NEHA YADAV
SHIVANGI CHAUHAN
Overview

⏷ Coca Cola India (CCI) built a strong distribution system

⏷ To execute this system effectively, RED (Right Execution Daily), a

distribution plan with brand displays and visibility programmes was
introduced into urban markets

⏷ But, India was at the time predominantly a rural economy.

⏷ So, how exactly to implement RED in the rural markets?

⏷ What will be the challenges and what will be their solutions?

TIMELINE
 Started as soda
fountain
beverage in
1886 in Atlanta,
US

ORIGINS
The first of the
advertisements

Began building
its global
network since
1920s
 Entered India in
early 1950s

1950s
Leading soft
drink brand in
the country until
1977

Left India in 1977

due to pressure
from GoI to
reveal product
formula and
reduce equity
stake
 Re-entered
India in 1993
post-
liberalisation

1990s Acquired Thums

Up, Limca,
Maaza, Citra and
other brands to
increase its
assets

Realizes
potential for
growth in India
compared to any
other country
 From 1993-
2003, CCI
invested more
than $1 billion

Early 2000s
Achieved break
even in 2002
with volume
growth of 39%

Utilized unique
pricing and
distribution
strategies to
increase sales
volume
 Declining sales
volume since
2003 due to
controversies
and allegations

Late 2000s Implemented

turnaround
strategy in 2006,
registered 14% v/v
growth; ‘complete
non-alcohol
beverage’
company

Implemented
five-point growth
plan in 2007
 EXISTING DISTRIBUTION MODEL

Distribution Chain Distribution Routes

03 Customer Quantity Lead

Depot Route Type Type Time
02 Warehouse
Plant
Warehouse 04 Key Accounts
Clubs, Hotels,
Bulk 1 month
Distribution Restaurants
Warehouse
Departmental
Future
Stores, Stack 1-2 weeks
Consumption
Supermarkets
01 05
Production / Small bars /
Retail Stock Immediate
Bottler restaurants, Medium Daily
Consumption
Colleges

06 General
Neighbour As
Not fixed
Retail Shelf Outlets Required

Customer
9
IMPLEMENTING THE ‘RED’ STRATEGY
The ‘RED’ Strategy was implemented in 2006 with the objective of monitoring and improving the
merchandizing standards at individual outlet level in order to enhance revenue growth

Ensuring the Placement of Placement of Identify growth

Visibility, visi-coolers and brand hoardings opportunities by
Availability and the sequence and price improving
Activation of the of products messages at customer
brand within it store entrances knowledge

“ RED is just the power of routine. Many other companies falter at the stage of execution
through a conventional distributor-led model, with no control on brand display. ”
- CEO, HCCBPL
10
 THE OUTCOMES OF RED

GREATER ENSURED GREATER ToM HELPED CCI

CONTROL CONSTANT RECALL-VISI POST 10-15%
OVER IN- AVAILABILITY COOLERS, INCREMENTAL
STORE AND CHILLED HOARDINGS SALES
DISPLAY TEMPERATURE ABOUT PRICE ANNUALY
OF THE AND OFFERS
BEVERAGE

11
 POTENTIAL OF RURAL MARKET

INCREASING PURCHASING POWER

Leading to market growth rate 3-4% adding about 1 million new customers every year

46% SOFT DRINKS MARKET

Increasing spend on utilitarian & luxury products in rural areas

INITIATIVES TO ENTER THE RURAL MARKET

INCREASED NUMBER OF OUTLETS FROM 80,000( 2001) TO 160,000

(2003)
This led to rural market growth of 37%. But only ~25% of rural market reached.

NEW AFFORDABLE PRICES – INR 5 BOTTLE

This SKU occupied 30% of CCI’s volumes and tapped into 80% of new users in rural areas.

NEW ADVERTISEMENTS
Featuring Aamir Khan depicting different types of people with a tagline “Thanda Matlab Coca Cola”

NEW DISTRIBUTION CHANNEL

To potentially cover 627,000 villages spread across 3.2 million sq. kms. The issue of small drop sizes.
12
3-Tier Hub and Spoke model is the current distribution
strategy in the rural market
Tier 1
Large Distributors (hub) transport: Company Plant -> Large cities/towns
Large Distributors
Frequency of shipment: Weekly

Tier 2
Small Distributors (spoke) transport: Large Towns -> Adjoining Areas
Frequency of shipment: Once a week
Small Distributors
Tier 3
Village retailers (last mile delivery) receive shipments from small distributors
Frequency of Shipment: Daily
Retail Shops

CCI moved from a centralised model (urban areas) to a decentralised model (rural areas) to
address issues of low drop sizes and frequent deliveries and to reduce costs by:
• Investing in large vehicles and glass bottles
• Re-engineering the bottles to reduce its weight, thus yielding transportation benefits
• Small distributors bear the cost of transportation meaning penetration with lower costs for CCI 13
Challenges To Implementing RED
in Rural India
 ROADBLOCKS TO RURAL INDIA(1/2)

Several rural areas in India are not yet connected by road or

rail transport. Many villages have poor roads and the
TRANSPORTATION situation becomes even worse during monsoons. This leads
to ineffective distribution and raises costs.

Inventory Costs are high in rural areas and managing

INVENTORY logistics is tough due to poor infrastructure and higher
overheads .Warehousing facilities are not readily available
MANAGEMENT in rural India.

Customers want ‘cold’ drinks and not just soft drinks. Refrigeration
facilities become crucial for categories which are impulse purchases
REFRIGERATION especially for rural areas where it is mostly out of home sales.
Fridges/coolers also add to the brand visibility but it becomes really
costly to provide coolers for areas with low per capita consumption.

For proper refrigeration/cooling facilities, reliable power supply is

required which many rural areas still lack. Frequent power cuts
POWER SUPPLY affect both the retail/sales outlets and storage facilities.
15
 ROADBLOCKS TO RURAL INDIA(2/2)

Demand for items(which are not very essential) in rural markets

INCONSISTENT depends on the agricultural situation which itself is unpredictable.
Hence, the demand is not very stable. The lower per-capita income
DEMAND in villages as compared to urban areas also adds to the inconsistency

Rural population is scattered over a large land area. And ensuring

DISPERSED the availability of a brand at every corner becomes challenging.
Advertising in such a highly heterogeneous market is also very
MARKETS expensive.

Company’s sales team works with retail outlet owners to ensure

visibility, availability and activation of brand. And the cost of visiting,
VISITING & TRAINING monitoring or providing trainings is usually higher for rural areas given
COSTS the constraints like poor infrastructure for travel and communication,
language barriers, reluctant sales force etc.

Due to lower per capita consumption and sparsely located markets

in rural areas, the drop size requirements at any rural outlet are quite
DROP SIZES small when compared with outlets in urban areas. This decreases the
16
efficiency from distribution perspective.
SOLUTIONS (1/2)

Retailer training programs like ‘Parivartan’

 It is a unique, retailer capability development initiative by Coca-Cola University (CCU)
 It provides skills, tools and techniques to the rural and urban retailers, enabling them to
make their business more profitable and sustainable
 Retailers are trained on four key pillars: Shop Management, Stock Management,
Customer Management and Financial Management
 The training delivered is imparted through classrooms as well as on a mobile bus (CCU on
Wheels). These customized buses reach out to retailers in rural and semi-urban areas and
are fully equipped

Refrigeration alternatives
 Brine solution: In electricity-deficient areas shops can have coolers that operate with brine
solution. This ensures that the product stays chilled up to 12 hours without electricity.
 Trade agreements with local ice makers.
 Solar powered ice boxes like eKOcool Solar Cooler Programme: These coolers harness sunlight
and solve for the refrigeration in electricity deficit areas
 Ice boxes instead of refrigeration: Tin boxes for new outlets and thermocol boxes for old outlets

17
SOLUTIONS (2/2)

Transportation
 Use of ‘Jugaad Vehicles’: In order to address the issue of incurring significant transportation
cost for small drop sizes, CCI can deliver some cases through vehicles such as dairy trucks
which make frequent trips to the most remote areas for delivery.
 eStore Platform: Common Services Centres in partnership with Coca-Cola India to list Coca
Cola products on its Grameen eStore platform providing availability to affordable SKUs in the
rural areas of Andhra Pradesh & Telangana, Tamil Nadu, UP and Haryana

Manual Distribution Centre (MDC) Model

 A central point for warehousing of product, with a manageable coverage area
 Distribution of product is mostly manual (e.g. by pushcarts) to keep costs at a minimum
 Outlets served are typically low-volume with high service frequency requirements and limited cash
flow
Due to the above three features, the MDC model that was tried by Coca Cola in the African markets such
as Ethiopia and Tanzania provides a good use case for trial with respect to rural outskirts that are not
easily accessible and need low volume high frequency supply due to poor storage infrastructure

18
 MDC : POTENTIAL SOLUTION TO CHALLENGES IN RURAL INDIA

Facilitates delivery in ‘poor road’

settings
The MDC model allows for access to areas
that are hard to reach by large trucks, such
as crowded urban settings where roads are
not built, are too narrow to be accessible, or
are in disrepair.
Smaller drop sizes & better inventory
management
The close proximity of the MDCs to their retail outlets
allows them to make frequent, small deliveries,
enabling outlets to carry less inventory and to
purchase more on a demand-driven basis,
addressing some of the financial and space
limitations that the retail outlets face

Feasible replication
MDC model initially operated in
Ethiopia & Tanzania. Research
Handling inconsistent suggested its expansion and replication
Demand in Africa and elsewhere. Small retailers
Unlike the traditional model, where rule the African retail landscape.
retail outlets have to wait for Modern trade, such as Shoprite and
infrequent truck deliveries and risk Carrefour, contributes a small
running out of supply, outlets have percentage of sales in most African
constant access to products under countries and thus it is similar to India
the MDC system (12 hours a day/six or in some respect.
seven days a week). 19
Source: https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/cri/files/other_10_MDC_report.pdf
 It has been rumored
that Coca-Cola
created the modern
day Santa as a part
of their marketing
strategy.

Thanks!
20
https://www.moneycontrol.com/news/world/coca-cola-and-the-story-behind-how-the-modern-day-santa-claus-came-into-being-2468099.html