You are on page 1of 14

 

 
Submitted  to  :     Prof.  Nalin  Jain   Submitted  by  :   FMG  19  A  (  Group  3  )   Tarun  Bansal  (191016)   Jatin  Batra  (191027)   Mahima  Gupta  (191029)   Manan  Batra  (191030)   Nitish  Taneja  (191038)   Pulkit  Kaushik  (191045)    

Table  of  Contents  
NESTLE’S  DISTRIBUTION  CHANNEL  ..............................................................................................................  3   CASH  DISTRIBUTORS  .................................................................................................................................................................  4   SUPER  STOCKISTS  ......................................................................................................................................................................  4   REDISTRIBUTORS  .......................................................................................................................................................................  4   RETAILERS  ..................................................................................................................................................................................  4   SALES  FORCE  AT  CD  POINT  ......................................................................................................................................................  4   SALES  OFFICER  ...........................................................................................................................................................................  5   ACTIVATION  OFFICER  ...............................................................................................................................................................  5   ROUTE-­‐TO-­‐MARKET  OFFICER  .................................................................................................................................................  5   WHY  SUCH  A  CHANNEL?  ....................................................................................................................................  6   NESTLE’S  SALES  FORCE  ......................................................................................................................................  7   DISTRIBUTOR  SALESMAN  (DS)  ...............................................................................................................................................  7   Tasks  and  Responsibilities   ..................................................................................................................................................  7   Salary  and  Incentives  ...........................................................................................................................................................  7   Workload  ...................................................................................................................................................................................  8   Performance  Evaluation  .....................................................................................................................................................  8   MERCHANDISER  .........................................................................................................................................................................  9   Tasks  and  Responsibilities   ..................................................................................................................................................  9   Salary  and  Incentives  ........................................................................................................................................................  10   Workload  ................................................................................................................................................................................  10   Performance  evaluation  ..................................................................................................................................................  10   CHALLENGES  IDENTIFIED  IN  NESTLE’S  DISTRIBUTION  CHANNEL  ...................................................  11   DISTRIBUTOR  SALESMAN  WORKLOAD  ................................................................................................................................  11   DISTRIBUTOR  SALESMAN  INCENTIVES  ...............................................................................................................................  11   POOR  VISIBILITY  OF  NESTLE  PRODUCTS  AT  CERTAIN  OUTLETS  .....................................................................................  11   COMPLAINTS  FROM  RETAILERS  ............................................................................................................................................  12   LOWEST  MARGINS  IN  THE  INDUSTRY  ..................................................................................................................................  12   COMPETITOR  :  CADBURY  ................................................................................................................................  13   ANNEXURE  ...........................................................................................................................................................  14    

 

 

   
Nestle’s  Distribution  Channel    

 

   

The  company  has  a  Regional  Sales  Manager  (RSM)  who  generally  covers  one  state.    There  may   be  more  than  one  RSM  in  a  state  depending  on  the  size  of  the  market  and  state.  There  is  Area   Sales  Managers  (ASM)  working  under  a  RSM.  They  control  smaller  areas  compared  to  an  RSM.    

 

 

 
Cash  Distributors  
The   company   supplies   goods   to   the   Cash   Distributor   (generally   called   CD   points   in   Nestle).   These   are   exclusive   Nestle   distributors.   They   get   a   margin   of   5.8%.   Cash   distributors   further   supply  the  goods  to  the  retailer  or  the  redistributors.    

Super  Stockists  
The   cash   distributors   who   also   supply   to   redistributors   are   also   called   as   Super   Stockists   at   Nestle.    

Redistributors  
Redistributors  (generally  referred  to  as  RD  points  in  Nestle)  are  usually  present  in  smaller  towns   such   as   Manesar   where   it   is   not   feasible   for   the   cash   distributor   to   directly   supply   to   the   retailer.   The   redistributors   supplies   to   the   retailers   in   these   small   towns.   The   margin   for   the   redistributors   is   4%   and   this   1.8%   is   accounted   for   the   transportation   and   other   expenses   for   the  Super  Stockists.  

Retailers  
Retailers  are  generally  the  outlets  Nestle  sell  to.  At  Nestle,  the  retailers  are  also  classified  under   various   channels   like,   Grocery   Large   outlets,   Grocery   Small   outlets,   Supermarkets,   Convenience   stores,  Pan-­‐Plus  stores  et  cetera.  

Sales  force  at  CD  point  
The  distributors  have  their  own  Distribution  Salesmen  (DS)  who  have  a  fixed  beat  plan  to  follow   every  week.  The  salesperson  we  spoke  to  in  Gurgaon  has  to  cover  nearly  30  retailers  in  a  day.  In   a  week,  he  has  a  different  beat  plan  every  day  thus  covering  almost  150  retailers  in  the  week.   This  cycle  repeats  every  week.  He  has  an  order  book  with  all  the  SKUs  (125  for  the  person  we   spoke  to)  written  on  it.  He  takes  order  for  each  SKU  at  every  retailer.  The  book  has  a  page  for   every  retailer.  The  delivery  boy  delivers  the  orders  on  the  next  day  morning.   The   company   has   a   merchandiser   who   visits   the   retailers   according   to   a   different   beat   plan.   He   does  not  visit  all  the  retailers  but  only  those  where  there  is  a  need  for  merchandising  and  the  

 

company  has  bought  some  shelf  space.  He  is  responsible  for  the  visibility  of  the  product  inside   the  stores.  60%  of  his  salary  is  paid  by  Nestle  while  the  rest  is  paid  by  the  distributor.   Nestle  has  certain  employees  who  are  responsible  for  the  proper  functioning  of  the  channel.      

Sales  Officer  
 A  sales  officer  is  the  point  of  contact  for  a  distributor.  He  works  along  with  the  distributor  to   ensure   smooth   functioning   of   supply   to   the   retailer.   He   is   also   responsible   for   handling   any   issues  that  might  arise  in  the  channel.  Some  of  the  problems  handled  by  a  sales  officer  are:   • • • • • Issues  arising  from  delay  in  supply  of  goods  from  the  company  to  the  distributor   Issues  arising  in  delivery  of  goods  to  the  retailer     Issues  with  respect  to  the  beat  plan  of  salesmen   Handling  conflicts  between  retailers  and  salesmen   Issues  with  respect  to  billing    

Activation  Officer  
The  purpose  of   an  activation  officer  is  to  improve  the  visibility  of  Nestle  in  a  region.  He  handles   brand   activation   by   organizing   various   events.   To   the   person   we   spoke   to,   who   was   handling   the   free   trial   of   Coffee   made   with   coffee   shaker,   he   would   let   the   public   interact   with   the   product  thus  increasing  the  visibility  of  both  Nestle  and  the  new  product.  He  had  also  done  the   promotion  in  schools  for  Maggi  Fun  Aloo.  There  is  generally  one  Activation  Officer  for  a  region   under  an  ASM.      

Route-­‐to-­‐Market  Officer    
A   Route-­‐to-­‐market   officer   (RTM   officer)   is   the   officer   responsible   for   locating   newer   avenues   where  Nestle’s  products  can  be  sold.  His  job  is  to  identify  new  markets  and  new  outlets  in  the   region   he   supervises   where   the   Distributor   salesman   can   book   orders.   There   is   generally   one   Route-­‐to-­‐Market  Officer  for  a  region  under  an  ASM.  

 

 

Why  such  a  channel?  
  The  channel  followed  by  Nestle  is  the  most  popular  channel  for  FMCG  companies.  Nestle  has   exclusive  distributors.  Exclusive  distributors  are  more  focused  and  penetrate  the  market  much   faster.   The   channel   push   is   higher   in   case   of   exclusive   distributors.   This   helps   Nestle   in   having   a   better   control   over   the   channel.   On   the   other   hand,   Nestle   can   afford   to   have   exclusive   distributors  because  it  is  a  large  company  with  high  sales  volume.  Therefore,  it  is  viable  for  a   distributor  to  sell  only  Nestle  products.  Nestle  doesn’t  have  direct  selling  as  it  is  not  feasible  for   an  FMCG  company  of  such  size  to  reach  directly  to  the  retailers.  The  present  channel  also  helps   in  sharing  the  risk  with  other  channel  members.  Direct  selling  is  considered  more  feasible  for   high  involvement  products  where  selective  distribution  is  suitable.  FMCG  products  are  always   better  to  be  distributed  through  intensive  distribution  because  the  consumers  are  not  willing  to   travel   long   distances   for   these   products.   For   intensive   distribution,   the   company   cannot   do   direct  selling  efficiently.   The   margins   given   by   the   company   are   somewhat   lower   than   other   large   FMCG   companies.   One   reason   could   be   the   good   reputation   of   the   company.   The   distributors’   salesmen   have   a   beat   plan   according   to   which   they   visit   every   retailer   once   a   week.   The   frequency   of   visit   is   suitable   for   an   FMCG   company   because   these   products   move   fast.   Therefore,   it   is   important   to   replenish  the  stock  frequently.        

     

 

 
Nestle’s  Sales  force  
Distributor  Salesman  (DS)  
 A   DS   is   a   distributor-­‐appointed   salesperson   who   is   on   the   payroll   of   distributor   and   is   responsible  for  servicing  the  retailers.  

Tasks  and  Responsibilities  
Every   DS   has   a   market   beat   plan   under   which   he   is   given   the   different   regions/   markets   he  has  to  cover  by  himself.  A  DS  works  for  6  days  in  a  week  and  each  day  he  has  to  cover   a  beat.  Beat  is  the  collection  of  30  -­‐40  shops  in  a  particular  region(s),  which  have  to  be   covered  by  retailer  daily  for  the  purpose  of  seeking  the  orders  from  retailers.   For  every  beat  DS  has  to  carry  a  separate  Dealer  Card,  which  consists  of  the  record  of   every  outlet  within  that  area.  Currently,  Nestle  is  having  125  live  SKU  and  a  DS  has  to  ask   about  the  orders  for  these  SKU  from  the  retailer  and  accordingly  the  Dealer  card  is  to  be   filled  for  every  retailer.  

Salary  and  Incentives  
Typically,  a  DS  is  paid  Rs.  4000-­‐5000  per  month.  It  is  the  fixed  income  which  a  DS  gets   and   is   not   linked   to   the   volumes   that   he   delivers   in   that   month.   Nestle   on   a   monthly   basis  runs  a  push/  activation  scheme  where  all  DS  are  guided  to  push  4  products  chosen   by  the  company  out  of  the  entire  portfolio.  For  achieving  the  targets  for  the  4  chosen   products,  DS  gets  Rs.250  each  for  every  product.  These  products  keep  on  changing  for   different   months.   So,   every   month   there   is   a   different   motivation   for   DS   to   get   incentives.   The   problem   with   this   kind   of   compensation   system   is   that,   a   DS   has   no   incentive  to  generate  high  volumes  for  the  entire  portfolio  of  Nestle.  Every  month  he  is   on   a   new   mission   to   push   4   different   products.   Due   to   this,   his   focus   is   to   meet   the   target  for  those  products  only.    

 

Workload  
Every  day  a  DS  has  to  visit  30-­‐40  shops  in  some  markets,  which  may  not  be  very  close   and  accordingly  require  time  for  commutation  from  one  place  to  another.  At  every  shop   he   is   supposed   to   ask   the   order   for   125   SKU,   which   means   approx.   4375   SKU   orders   per   day.  The  numbers  clearly  show  that  a  DS  has  a  very  heavy  workload.  This  may  lead  to   retailers   asking   for   the   orders   for   selected   SKU   which   they   feel   are   bought   by   the   stores   generally   which   may   lead   to   a   loss   in   sales   for   other   SKU   which   could   have   been   purchased.   Probably,   the   products   which   have   a   good   pull   in   Nestle’s   portfolio   get   ordered  by  retailers  more.  The  products  which  require  push  by  DS  may  lose  out  due  to   heavy  workload  for  a  DS.  

Performance  Evaluation  
Performance   evaluation   of   DS   is   done   regularly   by   the   immediate   superior.   Nestle   follows   two   concepts   of   measuring   the   performance   of   DS   i.e.   productivity   and   effectivity  (efficiency).     Productivity  means  how  many  shops  within  a  particular  beat  the  DS  could  visit.  Often,   there  are  times  when  certain  shops  in  a  beat  are  closed  due  to  afternoon  time  or  any   other  reason.  So,  these  shops  are  left  uncovered  by  DS  during  his  market  visit.  Let’s  say   a   DS   visited   20   out   of   30   shops   in   a   beat,   so   his   productivity   would   be   66%   for   that   beat   on  a  particular  market  visit.   Effectivity   (Efficiency)   means   from   how   many   shops   he   could   actually   take   the   order   for   supply.   Certain   stores   may   not   place   order   because   of   underlying   inventory,   low   sales   etc.   So,   these   shops   may   order   next   time   when   the   DS   covers   that   beat   again.   The   effectivity  is  dependent  on  how  many  retailers  actually  placed  the  orders  with  the  DS.   So,  if  10  out  of  20  shops  visited  in  a  beat  ordered  for  the  products,  then  effectivity  of  the   DS  will  be  50%  for  the  beat  during  a  particular  market  visit.    

 

Merchandiser  
 Merchandiser  is  the  person  responsible  for  putting  up  the  displays  in  the  selected  shops   and  maintaining  them.  He  works  six  days  a  week  and  everyday  he  has  a  different  beat   plan   which   is   to   cover   a   certain   number   of   shops   and   ensure   that   displays   are   in   proper   shape.  Though  they  are  at  the  bottom  in  the  designation  pyramid,  they  are  responsible   for  a  very  valuable  activity,  that  is,  in-­‐store  promotional  activities.  

Tasks  and  Responsibilities  
Te   main   task   of   a   merchandiser   is   to   set   up   the   displays   in   the   selected   shops   in   a   particular   area   for   that   a   beat   plan   is   prepared   which   is   to   select   few   shops   in   a   particular  area  (as  there  may  be  30-­‐40  outlets  in  a  given  area  where  one  CD  is  supplying   the   stocks   but   some   of   them   might   be   too   small   to   consider   for   in-­‐store   promotional   activities   plus   it’s   not   economically   viable   also   to   choose   every   shop   for   displays).   At   Nestle,  there  are  generally  six  different  beat  plans  for  each  day  in  a  week  and  thus  all   the  selected  outlets  under  one  CD  can  be  covered.   Now  there  can  be  two  kind  of  tasks  for  a  merchandiser;  first  is  to  maintain  the  existing   displays   in   an   outlet   second   is   to   put   the   displays   in   newly   selected   outlets.   Three   important   factors   which   a   merchandiser   keeps   in   mind   while   maintaining   the   existing   displays  are:   Hygiene:   To   see   that   all   products   are   in   proper   order   and   that   a   competitor’s   product   is   not  in  the  shelf  space  bought  for  the  company’s  products.   FIFO:  To  make  sure  that  products  which  are  coming  first  are  also  getting  out  first.  This   we  can  understand  by  the  following  example,  suppose  one  product  is  kept  at  the  front   part   of   the   shelf,   now   suppose   the   new   stock   of   the   same   product   and   same   SKU   has   arrived  so  what  generally  happens  is  that  shopkeeper  put  the  new  stock  at  the  front  of   same  shelf  space.  Now  the  old  stock  would  be  at  the  back  part  of  the  shelf  and  when  a   customer   comes,   shopkeeper   would   give   him   product   from   the   front   part   and   thus   chances   of   old   stock   not   being   sold   would   increase.   This   is   the   reason   merchandiser   has   to  make  sure  that  stocks  which  are  coming  first  should  go  out  first.  

 

Planogram:   It   is   a   plan   which   specifies   which   product   should   cover   more   space   and   which  should  less.  Suppose  if  company  has  decided  that  visibility  of  “maggi”  should  be   60%   and   that   of   “everyday”   should   be   40%   (considering   that   these   are   the   only   two   products   available   in   a   particular   shop)   then   merchandiser   has   to   make   sure   that   visibility  is  according  to  the  planogram.  

Salary  and  Incentives  
Salary  is  structured  in  such  a  way  that  60%  of  the  salary  is  borne  by  the  company  while   CD  bears  the  remaining  amount.  Salary  is  around  INR  2500-­‐INR  3000  which  is  very  less   considering  the  time  and  efforts  put  in  by  the  merchandiser.  

Workload  
 A  merchandiser  has  to  cover  around  10-­‐15  outlets  among  30-­‐40  outlets  in  an  area  in  a   given   day.   Generally   new   set   up   takes   around   45-­‐60   min   and   maintaining   an   old   display   takes  15-­‐20  minutes.  Traveling  time  contributes  most  in  the  overall  time  as  outlets  are   not  very  close  to  each  other  also  a  merchandiser  is  suppose  to  have  his  own  vehicle  and   company  don’t  pay  for  traveling  so  almost  all  the  merchandisers  have  their  cycles  as  its   most  economical.  Thus  a  merchandiser  works  more  than  8  hours  in  a  day.  

Performance  evaluation  
 There   is   no   strong   mechanism   so   that   the   performance   of   a   merchandiser   could   be   judged  as  it’s  practically  not  possible  for  a  sales  officer  to  visit  each  outlet  to  see  how   merchandiser   is   carrying   out   his   job.   Though   there   are   occasional   visits   by   the   sales   officer  but  those  don’t  show  much.    

 

 

Challenges  identified  in  Nestle’s  distribution  channel    
Distributor  Salesman  workload  
Analyzing   the   workload   of   the   Distributor   Salesman   (DS),   the   number   of   active   Stock   Keeping   Units  (SKUs)  in  Gurgaon  are  130  SKUs/outlet.  Also,  the  average  outlets  in  market  beat  plan  of  a   distributor   salesman   are   35   outlets/day   with   the   range   being   between   20   and   40   depending   upon   the   kind   of   market   he   is   given.   From   this   information,   the   DS   workload   turns   out   to   be   around   4550   SKUs   per   day,   which   means   that   he   has   to   read   out   4550   SKUs   from   the   dealer   card  to  the  retailers.     From  our  market  working  with  a  Distributor  Salesman,  we  realized  that  he  is  overloaded  with   work  and  is  unable  to  read  out  the  whole  SKU  list  to  the  retailers.  üHence,  the  focus  of  the  DS  is   on  the  products  with  a  pull  from  the  market,  rather  than  products  requiring  push  as  that  would   take  more  effort  and  time,  without  any  benefits  for  the  salesman.  

Distributor  Salesman  Incentives  
Currently,  each  Cash  Distributor  receives  an  input  sheet  from  the  sales  officer  which  specifies   the  incentives  to  be  given  to  the  Distributor  salesman.  Currently,  Nestle  has  incentive  of  Rs.250   for  volume  achievement  for  4  products  each  month.  They  are  not  given  any  incentives  for  the   overall  sales  achievement  or  on  the  basis  of  their  evaluation  by  the  sales  officer.   From   our   market   working,   we   realized   that   generally   the   DS   are   not   motivated   enough   to   push   the  sales  of  the  whole  range  of  products  of  Nestle  and  are  concentrating  on  the  products  which   have   incentive   in   that   particular   month.   The   incentive   schemes   for   other   competing   FMCG   companies  had  a  component  for  the  total  turnover  as  well  as  number  of  bills  generated  by  the   company.  

   
Poor  visibility  of  Nestle  products  at  certain  outlets    
From  our  visits  in  retail  outlets  in  Gurgaon,  we  realized  that  the  displays  bought  by  Nestle  were   not   maintained   properly   and   they   scored   low   on   hygiene   and   adherence   to   planogram.  

 

Merchandiser   is   the   person   responsible   for   putting   up   the   displays   and   maintaining   them,   week-­‐in  and  week-­‐out.     As   the   merchandiser’s   performance   is   not   measurable,   it   is   not   possible   to   make   his   work   accountable   which   results   in   slack   of   work   among   some   merchandisers.   Hence,   the   main   challenge   lies   in   the   fact   that   the   merchandiser’s   productivity   and   effectivity   is   currently   not   measured   hence   his   performance   cannot   be   measured   unlike   Distributor   Salesman   whose   turnover  is  an  important  input  for  performance  evaluation.  

Complaints  from  retailers  
Retailer  drives  the  growth  for  Nestle  as  he  is  the  seller  to  the  customer.  This  makes  focus  on  the   retailer   very   critical.   From   our   market   working   and   interaction   with   the   retailers,   we   realized   that  the  retailer’s  expired  and  damaged  goods  were  not  returned  timely  at  various  retailers.     The  main  reason  cited  by  them  was  that  low  expired  goods  translate  to  a  good  performance  for   Sales   Officer,   which   drove   them   to   reduce   the   expired   goods   taken   back   by   the   salesman.   Also,   the   merchandising   display   payments   to   retailers   were   delayed   at   several   outlets.   This   was   mainly   due   to   the   fact   that   distributors’   claims   were   not   being   cleared   timely   which   was   in   effect,  delaying  payments  to  the  retailers.  

     

 
Lowest  margins  in  the  industry  
Nestle  gives  out  the  lowest  margins  to  the  distributor  in  the  industry.  Hence,  the  margins  to  the   retailers  are  also  reduced.    

 

 
Super   Stockist     Sub   Stockist     Total      

Perfetti    

Cadbury    

Nestle    

Lotte    

Wrigley’s    

Colgate   Palmolive    

Reckitt   Benckiser    

2.5     4     6.5    

2     4     6    

2     3.8     5.8    

2.5     6     8.5    

2     5     7    

2     5.62     7.62    

2     5     7    

If  we  consider  the  motivation  of  the  retailers  to  keep  Nestle’s  products,  the  throughput  or  off   take  of  Nestle’s  products  is  very  high  and  most  retailers  would  be  keen  to  maintain  they  baskets   of   goods,   the   low   margins   are   a   dampening   factor,   as   mentioned   by   a   few   retailers   in   our   interactions.      

Competitor  :  Cadbury  
The   distribution   strategy   of   Cadbury   is   entirely   different   from   Nestle.   The   various   features   of   Cadbury  Distribution  Network  are  mentioned  below  :   • Unlike   Nestle,   Cadbury   supplies   its   most   of   the   products   directly   to   the   wholesalers   and   retailers.   • This  helps  them  to  reduce  the  time  spent  on  making  the  product  available  from  factory   to  end  user.   • • • Margins  paid  to  wholesalers  and  retailers  are  much  better.   This  network  includes  over  2100  wholesalers  and  450000  retailers.   They  follow  an  intensive  distribution  network.  

 

Annexure  
Name  of    Student                                                    Roll  Nos.       1.  Tarun  Bansal     2.  Jatin  Batra     191016                          191027                            191029                          191030                          191038                          191045  

3.  Mahima  Gupta   4.  Manan  Batra     5.  Nitish  Taneja     6.  Pulkit  Kaushik    

1.  Name  of  Company  Visited    :  Duggal  Enterprise        Role  in  Channel  (Manufacturer,  Distributor  etc.)  :  Distributer   Name  of  Person  Contacted  :  Mr.  Rajan   Designation/Status  :  Owner                       Address  :  R  505,  New  Rajinder  Nagar,  Delhi.