Understanding Sales and Distribution

of ITC Ltd.
Introduction
About the Company Business Segments
• Indian conglomerate Fast moving consumer goods
headquartered in Kolkata (FMCG)

• Established in 1910
Hotels
• Annual turnover of US$ 8.31
billion and a market
capitalization of US$ 45 billion
Paperboards & Packaging
in 2012-13

• Employs over 25,000 people at

more than 60 locations across Agri Business
India

• Part of Forbes 2000 list Information Technology

FMCG Categories
FMCG Business

Cigarettes & Cigars Personal Care Foods

• W.D. & H.O. • Essenza Di • Aashirwad

Wills Wills • Sunfeast
• Gold Flake • Vivel • Bingo
• Navy cut • Fiama Di Wills • Kitchens of
• Insignia • Engage India
• Classic • Superia • Mint-O
• Bristol • Candyman
Distribution Channel

ITC

Distributor

Retailer Wholesaler Stockist

Retailer Retailer
Distributor
Profile
•Exclusive distributor (carries no other brand); exclusive territory for each distributor
•Carries all ITC FMCG products
•IT system of ITC in place - contains classification of retailer & wholesaler
• Selection criteria: Investment capability, market reputation and ability to service the
market

Economics
•Margin for food and personal care products for a distributor is 3% while that for
Cigarettes is 1.45%
•Average ROI for a distributor is 25-30%
•No credit is extended to distributor by ITC however distributor offers credit to
wholesalers and retailers
•Distribution expenses like salaries of the sales persons, fuel costs of the vans, etc. are
initially borne by distributor which are then reimbursed by the company subsequently

Key Responsibilities
•Supplying to Retailers, Wholesalers & Stockists
•Achieving annual targets received from Assistant Sales Manager
Wholesaler
Profile
•Independent wholesalers - free to sell various product lines of different brands
•No exclusivity – multiple wholesalers in a particular area
•Wholesaler serves to increase the penetration of ITC products

Economics
•Gets all categories of products – Personal care, Food and Cigarettes from ITC
distributors at a price which is 1% lower than the price at what the distributor sells to
the retailer
•Selling price of the wholesaler is not fixed & hence they can sell at any price (even
below his purchase price – Loss leader)
•Credit terms if any offered to the wholesaler may depend on the distributor serving
him and he may or may not pass that credit facility to the retailers

Key Responsibilities
•Supplying products to retailers, however wholesaler being independent and non
exclusive has no obligation to achieve a certain level of sales (targets)
•Sales at the wholesaler level is more due to the pull of the products
Stockist & Retailer
Stockist
Profile
•Independent (can carry multiple brands) & exclusive territory, generally assigned to a
geographical area which has a population of 30,000 to 50,000
Economics
•Margin for food and personal care products is 4% while that for Cigarettes is 2.45%
Key Responsibilities
•Serving maximum number of retailers in his area

Retailer
Profile
•Beedi shops, mom-n-pop stores, etc.
•Minimum purchase value per month for a retailer to be serviced by a distributor
Economics
•Gross margins range from 9-15% depending on the product category
•Promotional schemes, display schemes for retailers
Key Responsibilities
•Maintaining correct inventory levels, proper display of ITC products, product
knowledge to the end customer
Sales Force Structure
Rationale for the structure
Branch Manager • Separate sales team within ITC works
according to the product categories
• This helps in implementing the
ASM
ASM various decisions and objectives of a
(specific for a
product
(specific for a
product category
particular product category at the
category)
ground level
• ITC’s objective is to cover maximum
Area Executive Area Executive retail outlets directly through
(4-5 per product (4-5 per product
category) category) distributors so that maximum product
push can be achieved
• To meet this objective ITC reimburses
Distributors Distributors the sales and distribution costs to
(6-7 in number) (6-7 in number
distributors
• However ITC decides which retail
outlet to be covered through
Sales Executives Sales Executives distributor so that it can keep a check
on its overall costs
Sales Force Structure
Sales Force Size
• Determined using workload method
• Average no of calls per day by Salesman– 25 to 30
• Calling frequency – Once per week
• A salesman covers approx. 180 – 210 retail outlets

Compensation & Performance evaluation of sales force

• Average salary of sales person per month – 5k to 11k
• Dual Reporting to Area executives and distributor
• ITC runs incentives schemes on parameters like lines cut, bills per day,
bill value etc.
 Issues
&
Recommendations
Realisation of lower ROI by distributors
• ROI generally obtained 20% or less against the Expected ROI of 25-30%
• Approximate Cost of capital 12 to 14%
• pressure from the retailers to offer lower prices
• To meet targets often distributor has to offer the products at lower prices
• Lenient credit terms increases his investment in working capital
• Territory conflict between distributors

Recommendations
• Ensuring better control over distributors so that they cater to their own territory only
• Ensuring the faster collection of damaged and expired goods from the distributor and
crediting the amount as quickly as possible to the distributors account
• Slabs for the volume based schemes should not be large and these should be tightly
monitored and controlled so that few distributors do not have an unfair advantage

Implementation Issues and Solutions

• Monitoring territories is a problem as the number of retail outlets is very large; this can
be ensured by effectively using the IT systems
• Currently no module in the IT system at distributors end to take care of damaged goods
that are taken back; as such an IT module to be added to the existing IT system
Impact due to emergence of the modern trade format
• Delhi NCR has a high dominance of modern trade channels – they drop prices of certain
products quite low
• Retailers demand lower prices from the distributors in order to compete with modern
trade channels
• Distributors are not able to meet sales targets due to the emergence of the modern
trade channels

Recommendations
• Effectively monitor the modern trade channels ensuring that they do not drop the
prices below a certain level
• Company should ensure that the additional benefits given to modern trade stores like
liquidation budget should be used only when it is absolutely necessary
• In order the avoid the channel conflict ITC should come up with some SKUs specific to
certain store formats

Implementation Issues and Solutions

• Detailed monitoring of schemes like liquidation budget , promotional budget etc. is
difficult; as such ITC can utilize its IT systems effectively for monitoring the behavior of
Modern trade channels
Issues with Personal Care Category
• The personal care category does not enjoy similar market reception like cigarettes and
foods
• Persistent pressure from the company on channel members to meet their targets
• Lack of branding support by the company as informed by distributors and retailers
• Company reduces prices to push products in this category but this causes some retailers
with old unsold stock to bear losses to match prices with other retailers

Recommendations
• The company should maintain the prices steady in this category as frequent price
fluctuations hamper every channel member’s performance
• Instead of pushing the products in this category efforts should be concentrated towards
creating a pull for the products
• Selective stocking of products should be done according to the category of the retailer

Implementation Issues and Solutions

• Categorization of retailers for selective stocking is a major challenge
• Database of the retailers to be utilized in selection of retailers for selective stocking of
the personal care products
Rate cutting due to emergence of parallel channels
• Parallel channels in terms of cash and carry stores and distributors both offering
similar products to the retailers this results in price cutting done by both the
channel members
• However these channels differ in offering services to the retailer such as pick-
up, credit terms, returns etc.

Recommendations
• Effectively monitor the prices and the services which the cash and carry stores
offer to the retailers
• In order the avoid the channel conflict ITC should come up with some SKUs
specific to certain store formats

Implementation Issues and Solutions

• Monitoring of the prices and services poses a challenge
• Technology systems to be used for better and effective monitoring
Frequent new product launches
• ITC launches new products very frequently in the market to remain competitive. At
times these new products are not well accepted by the market and hence a lot of capital
of channel members is blocked

Recommendations
• Additional incentives like extended credit period or additional margins to be provided
for limited periods until the product is well accepted in the market
• ITC should spend on increasing the visibility during the new product launches
• Focus should be on creating pull for the new products rather than focusing on push

Implementation Issues and Solutions

• Providing special credit for new products is a bit challenging as ITC deals with
distributors on advance payment terms. IT systems located at the distributors to be used
for implementing the credit policy. Benefits of promotional schemes to be passed in the
same manner as sales and distribution costs
• Third party merchandisers to be employed for managing the in store visibility during the
new product launches
References
• Kunal Shah – Assistant Sales Manager, ITC Ltd.
Contact No.- 9501106856

• Leela Krishna Ahuja

Shri Ram Sales Corporation (ITC Distributor) – 08826777888
Shop No- 4-5/ 24, Basai Road, Near Bhuteshwar Temple, Gurgaon

• Dilip Kumar (Salesman)

Contact No. – 8802256951

• Gurgaon Sector 14 and Sector 17 retailers covered

• (The above mentioned persons were contacted in person and information collected
from them)

• www.itcportal.com
Thank You