Distribution network for Britannia

Britannia has 4 production or manufacturing outlets which are in Delhi Calcutta Chennai Rudrapur in

Uttaranchal Gwalior which are owned by Britannia and employees more than 4400 people Besides its self

owned units Britannia also uses the facility of more than 60 contract points for biscuits breads cakes etc

where in the labour used for manufacturing is not owned by Britannia but the technology and raw materials

are provided by Britannia itself

In this project we are analyzing the distribution network for Britannia biscuits for Delhi

The first rung in the distribution network for Britannia is the transport of the goods from the manufacturing

plants in Delhi to the 2 CFA s carrying and forwarding agents located at Neb Sarai and the other one at

Mundka mother depot

The CFA maintain the inventory on behalf of the company and when the goods are supplied from Britannia

to the CFA s it is not considered a sale but a transfer and therefore there is no change in ownership CFA

gets commission on the basis of transaction i e on no of boxes held in the inventory CFA has to bear labour

cost and his godown cost The cost of transport from the company to CFA is born by Britannia itself And the

cost of transport from the CFA to distributor is also borne by Britannia only

One of the reason that Britannia uses the facility for CFA is that because of its wide spread sales all over

India and with one production unit not manufacturing all the variety itself so through the channel CFA

Britannia manages to save a lot of behalf of not having to pay central sales tax 4 So therefore for example if

50 50 is manufactured only in Calcutta than it can be sent to the CFA in Delhi as well as other state CFA

without having to pay 4 CST

The second rung in the distribution network for Britannia are the authorized distributors and authorized

wholesalers as termed by a company rep In total there are 54 authorized distributors in Delhi and NCR

Britannia does not incorporate stockist in its distribution network because of the large number of distributors

already present in the network which are sufficient to cover the wide regions Distributors have their own

sales force labour transportation facility Each salesperson allowed covering max of 40 outlets everyday The

reason is that it is felt that it is not within human capacity to cover more than 40 outlets a day and if done so

then the salesperson might be exhausted enough and not spend enough time on each counter required by

him for building up relations with the shopkeeper

Distributor s salesperson is the one who takes orders from the retailer and wholesaler He goes once a week

to all the retailers and wholesalers in his territory to take the orders and gives that order to the distributor

Distributor assesses his stock situation and all short stock is ordered to the CFA keeping in mind the

minimum order limits

The areas for the Distributors are divided in such a manner to prevent overlapping if overlapping is found

then penalty ranging from Rs11000 Rs 21000 can be charged to that particular distributor Max 0 4 of the

total invoice bill of the distributor is allowed as replacement by the company

The distributor is also given a certain amount of monthly sales target by Britannia The cost of transport from
the distributor to the retailer wholesaler is borne by the distributor itself Distributors sell mainly in cash and it

is very rare to have credit sales and that also for those who have a long term relationship with the distributor

The margin for the authorized distributor is of approximately 4 5 5 and after expenses like labor

transportation etc he is left with a margin of 2 2 25

In case of selling to wholesaler distributor passes on 1 of his margin to the wholesaler This is done by giving

the wholesaler a discount on the billing rate Billing rate is the rate at which the distributor sells to the retailer

To illustrate this better we can take this example

Suppose the distributor obtains a packet of Britannia 50 50 from the CFA at a price of Rs 5 85 so now for

selling it to the wholesaler he will add only a 4 margin and pass the 1 of his margin to the wholesaler that is

5 85 4 5 85 6 08

Practically this is done by giving the wholesaler a discount of 1 on the billing rate i e 6 14 6 14 1 0 0614

around 6 paisa

And in case of selling to the retailer the distributor will take a complete 5 and sell to retailer at

5 85 5 of 5 85 Rs 6 1

The third channel member is the wholesaler The wholesalers are supplied directly by the distributor

He gets the discounts as well as the schemes The wholesaler not only keeps the other competing biscuits

brands but also complementary products like chips namkeens etc the wholesalers are basically located in

places like chawri bazaar kharibaoli sadar bazaar and other local wholesale markets like janakpuri

wholesale market uttamnagar wholesale market etc

The margin for the wholesaler is the 1 2 passed to him by the distributor He gets this margin because of his

bulk purchases This margin can vary depending on the quantity purchased by the wholesaler and his

bargaining power that depends on how critical he is for the company This margin can well go up to 2 5 of the

billing rate in some cases

Huge margins are passed on to the wholesalers when the distributor is in need of cash to make payments to

the co to get further stock The wholesalers demands higher margins because they pay in cash huge

amounts and hence charge opportunity cost of that money or the interest Distributor does that because of

two reasons

He needs cash to make payments to the company before ordering new stock His stock gets sold and hence

he meets the turnover obligations

Taking the above example the wholesaler gets the packet of 50 50 for Rs 6 08 from the distributor and adds

his 1 and sells to the retailer at

6 08 1 6 08 6 14

One of the very interesting things that we noticed in the dealings of the wholesalers was a pricing technique

called undercutting that was used by the wholesalers Under this the wholesaler who gets 1 1 5 discount or

margin from the distributor keeps only a 0 5 1 margin with himself and forwards the rest of 0 5 1 margin to

the retailer
And also any additional scheme that the distributor passes on to the wholesaler

is passed by the wholesaler to the retailer either partially or fully in terms of price reductions

Since the retailer gets an additional 1 discount from the wholesaler he prefers

buying it from the wholesaler rather than buying from the distributor at the normal billing rate This

phenomenon is known as undercutting by the wholesaler This kind of situation is worse for the company

salesman because he cannot get orders at the billing rate from the retailer

Company sometimes tackles this situation by giving some additional schemes to the retailers that are not

given to the wholesaler hence prompting the retailer to buy from the company salesman rather than the

wholesaler

Loreal s solution to wholesaler s undercutting was that it started supplying only to the retailers

at the billing rate and ceased the supply to the wholesaler s

The fourth and the most important link of the distribution network is the retailer The retailers get their supply

either from the distributor or the wholesaler This distinction comes due to the size of the retailer The big

established retailers are provided with the supplies by the distributors It is a downward flow They place their

order with the distributor and are then supplied once a week or twice a week depending on their orders and

their turnovers

Whereas the small retailers pan hawker etc go to the wholesalers and buy small quantity s from them and

this is an upward flow and not belonging to the original distribution flow which is downward moving

The retailer sells at a margin of minimum 12 and maximum 22 on one piece

Taking the above example again suppose the retailer gets a packet of 50 50 from the distributor for Rs 6 14

and now he adds his 14 margin and sells to the final consumer for

6 14 14 6 14 Rs 7

The final consumer now gets this pack of 50 50 for Rs 7

Modern trade chain

Today apart from the normal small retailer there is a trend of food super stores like big bazaar that keep

almost each food item apart from others These superstores can not be covered by the usual distribution

network Therefore there is a separate distribution network that covers these super stores institutions like

colleges schools hospitals railway stations etc

Under this network the CFA is the same like the one for the company s main distribution network but

generally there is a separate distributor appointed who caters only to these super stores and institutions

He takes care of these institutions and the price charged is different for them This distribution network is

called the modern trade chain In the modern trade chain like the modern bazaar the margins of the store are

determined on the basis of the shelf space they allocate for the Britannia and where exactly is this shelf

space allocated like at the entry of the store in the range of the eyes or in the upper most or the lower most

shelf The bargaining power of the store is also determined by the quantity of the order and the fame of the

store
Display commission or margins is a major source of revenue for the modern bazaars Since the modern

bazaars do not buy quantity in bulk vis a vis wholesalers and have a high turnover they require a regular and

frequent supply Due to this reason the company generally assigns the task of supplying to them using

separate distribution network But sometimes the same distributors that are supplying through the normal

channel can also be used when the demand expected is not significant to assign a separate channel

Britannia s Weaknesses

Inventory management

Britannia has a large variety of biscuits and this variety brings with it the problem of inventory management

Britannia does not give its salespersons PDA s and the distributors are also not too tech savvy vis a vis the

Hindustan Lever Distributors Due to this various problems arise which lead to situation of stock outs with the

distributors and CFA s It leads to bulging costs of the company which has to provide all the necessary

requirements of distributor from the CFA that could have been met from another distributor

Improvement in distribution channel Continuous Replenishment System CRS should be brought in so that

when distributors enters his closing and opening stock of each variety then automatically company will come

to know which variety has to be supplied to each distributor According to norms set by the company

distributor has to keep minimum quantity of each variety This system will help in saving time reduce order

taking mistakes and reduce dependence on manpower At present this system is only partially used as some

distributors still place their orders with company on telephone or to Territory sales in charge This will also

help in proper inventory management by this system mother depots will easily come to know the

requirement of each variety depending upon distributor sales

The company can benefit from proper inventory management by using this CRS system The stocks to the

distributor who needs particular variety can be supplied to him from the other distributor s godown who has

excess stock of that particular variety of biscuits Hence saving on the time and cost and preventing revenue

losses simultaneously

It was found that there was a delay in production cycle and all the varieties does not reach on time with

mother depots which leads to loss of revenue

Less variety with the retailers

The retailers only keep a selected stock of biscuits with them only the ones which command a high demand

Biscuits are a product that requires high trial and this cannot be possible if the variety is not available at the

nearby retailer

Company should induce the distributor by giving him good incentives in order to push all the varieties Along

with that company should take further initiatives to popularize different varieties They should ensure that the

retailer keeps as much variety as possible and include in the kitty less popular biscuits like nicetime

milkbikies etc

No Periodic Meetings with Distributors

It was found that distributors meeting with company members rarely takes place More frequent meetings

should be held which will help in knowing the need of retailers and hence customers need

STRENGTH

Their strong distribution channel that gives them wide market coverage Availability of Britannia biscuits

everywhere from small pan shop to big bazaar vast market coverage by distributors makes its distribution

channel stronger This uniqueness would also help in distributing newly launched product new category like if

Britannia ventures into production of toiletries as both products are non durable and they need market

penetration by its distribution channel which Britannia already has

Strong relationship with distributors and the retailers that can be leveraged upon at the time of introduction

of new products

DISTRIBUTOR

CARRYING AND

FORWARDING AGENT

FACTORY OUTLET

WHOLESALER

RETAILER

CONSUMER