DISTRIBUTION STRUCTURE OF NESTLE INDIA

Made by
Gurdit Singh Ajmani - 10
Meherzad Dalal - 12
(NCR ONLY)

Mother Godown at
Ghaziabad, Delhi –UP

Respective C&F Agents

Distributors as per
assigned territories

Wholesalers in their area. Retailers in their respective territories

End Consumer

FORMAL STRUCTURE

INFORMAL STRUCTURE
Note: Wholesalers are not a part of the formal structure of Nestle India’s distribution
network for NCR .They make bulk purchases from the distributors directly thereby
leveraging on the margins.

OWNERSHIP TRANSFER

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Stocks manufactured at the factories and co-packers reach the C&S through mother
Godowns. The stocks stored at C&S are the property of Nestle. Encashment of stocks are
done through Invoicing to Cash Distributors C&S as per the guidelines given to them.
They also receive and store support materials like give aways, stickers and
complementary items etc.

• Transportation
From the factory to the distributor stage the company ensures that there is availability of
cool chain for transportation. At the mother godown (Located at Sahibabad) there is
temperature control by hired cold storage.

For the purpose of transporting chocolates from the mother godown to the Cash
Distributor Dedicated Air Conditioned Vans are used (especially for the summer seasons)

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The following is the transportation system followed by the company:

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TRANSPORTATION SYSTEM

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• Company Policy and Guidelines
o The company has created two kinds of distributors, namely Trade and
Chocolate. The former deals with the Maggie range, Nestle dahi, Aquafina
etc. Chocolate deals with all confectionery items like chocolates, sweets
etc.

o A representative of each distributor goes to the various outlets, once or

twice a week (depending upon the area), takes the order and then either
delivers the goods there and then, or on the same day.

o It has been realized that a retailer has a limited pocket for a days purchase.
If one sales representative goes for an order with 50 SKU’s the retailer
will only buy what his pocket allows, for a one-time purchase. Whereas, if
two different sales people go, representing different distributors there is a
possibility both will get an order and the company will witness better
sales.

o The company has also taken an initiative for deeper reach and penetration
into the market with its operation “STING”. Whereby the sales
representatives on the company go on bicycles and try to fulfill the order
of small ignored and unserved outlets. For example the panwallas, the
kinara stores etc.

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Selection of distributors
Criteria are:
1) Capital investment-
This is dependent not only on the present required turnovers but also on the
estimated future capital investments that will be required by the distributor (based on
company’s growth plans in the area). Amounts required vary from area to area and
markets to markets.

2)Relevant experience-
It is imperative that the distributor has had some prior experience as a channel
member in the FMCG sector so that no training is required to be imparted to him on
aspects of the business. The distributor should not be dealing in competitor’s products
and should be able to function as a dedicated channel for Nestle. For example, while
deciding on a distributor for chocolates, an obvious preference would be an existing
distributor for other products of Nestle This is because he will pay attention to the entire
range of the chocolates and not focus on any particular SKU only.

3) Infrastructure-
Appropriate infrastructure(depending on the market served and overall volumes )
Should be there-
a) Godowns / storage space. For chocolates, air conditioned godown space (with wooden
padding will be required).
b) Delivery vehicles
c) Salesmen

However there are no written guidelines that are fixed for the above criteria and the
company exercises its discretion based on markets to be served. Distributors Record Card
(Annexure –A) is attached which mentions the relevant details about the distributor for
their records.

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Incentives to the distributors
1) Margins

MARGIN LAYOUT

Company

5.8 %
Distributor

11.5 % Flexible

Retailers

Wholesalers

Negotiable

Retailers

2) Schemes spread over 2-3 months . These schemes encourage specific target
achievements. Targets are given as indexed growth rates based on weights. For example
the meaning of 10% growth for a distributor having slaes of Rs.20000 will have a
different meaning from one having sales of Rs. 1 lacs.

The prizes in the schemes can be monetary- for example additional 2% margin on
turnover

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Or non monetary – for example free T.V. sets on achievement of targets. It is attempted
to keep in mind the monetary benefit to distributor in case he sells the gift given in kind
( for example T.V.)

3) Certificates-
Certificates of acknowledgement for achieving the targets for a name like Nestle are
priced by the distributors. They frame them and display them in their offices.

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Motivation of Channel Partners – “Proud to be Nestle”
The company consistently comes up with schemes for it channel partners to motivate
them. One of their successful schemes was “Proud top be Nestle – Supper awards for
super achievers!” launched on March 30, 2002. This contest was open for the following:
i. Area Sales Managers
ii. Sales Officers
iii. Cash Distributors
iv. Pallet Salesmen (a S.O. may have 2-3 Pallet salesmen reporting to him to
enable him cover a wider territory.)
v. Distributor Salesmen (These salesmen are the employee of the distributor,
but are under indirect pay roll of Nestle, since their salary is reimbursed by
the company.)
vi. Merchandisers

How does it work

Step 1: The qualifying criteria for the contest is :

- 100% achievement of internal target for Qtr III (invoicing)
- Minimum 10% RDBN turnover growth over the last year Qtr II.
- Duration :
o Invoicing: 01/04/2002 – 29/06/2002
o RD: 02/03/2002 – 23/06/2002

Step 2: All ASMs who fulfill the above criteria were then ranked on the basis of an Index
INDEX = % RD turnover growth * absolute value increase

Step 3: Top ASMs (as fixed by the branch) win prizes.

P.S. Cash Distributors and Sales Officers performance monitoring Sheets have been
attached as Annexure B & C.

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The winning team comprises of:
- All SOs in the ASM team
- Two top ranked CDs in each SO Zone
(Index = %RD growth * absolute turnover increase)
- Two distributor salesmen in each of the top two CD
- One Merchandiser in each of the top two points ( performance will be
assessed by S.O. on quality of merchandising achieved)

The top ranked ASMs (Nos. as fixed by the Branch) and their teams take home the
following prizes:

RDBM T/O SO CD PS DS Merchandisers

growth
achieved
20% + 5500 3500 2300 2000 1200
15-19.99% 4500 2500 1800 1500 1100

10-14.99% 3500 1800 1300 1000 1000

The Top ranked ASM team also wins a TEAM TROPHEY and certificates.

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Evaluation
Once a distributor is appointed the company generally does not take away business from
him, except when the underperformance has been observed over long periods.
While evaluating his performance, his targets performance is studied relative to that of
other distributors in the nearby area (because growth patterns may by regions)

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Distribution in Practice (DIP) Training
There are proper training programs for the C&S agents as well as distributors. Following
are the modules included in the program:
- Nestle Quality System
- Good Warehousing Practices (GWP)
- Good Distribution Practices.

Major aspects of the program include:

1. Stacking as per norms:

FIFO basis of Inventory management is used.
Stocks are kept in pallets away from the walls. Godown. Stacking is done in an
orderly fashion and the different batches are visible. There must be moving space
between various stacks.

2. Good Warehousing Practices

 Security
 Fire Fighting: Appropriate provisions are made to handle emergency
caused due to breakage of a fire.
 Cleanliness
 Pest Control
 Temperature record and maintenance at A.C. Godown
 Proper ventilation
 The required Licenses as per the local laws have been obtained. For Eg.
Sales tax etc.
 Transportation: Effective, reliable and quick transport is available to and
from the warehouse.

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  Proper Loading / unloading: The labours have been properly trained to
ensure that no damage to the goods take place at the time of loading /
unloading.
 Remittance: Timely deposits of remittances are ensured.
 Proper records are maintained with regard to Sales tax and exemption
certificates.

3. Accounting
A stock register is maintained to record receipts and dispatches with detail of
accompanying documents. Shortages (if any) are accounted for separately. Sales
tax and Octroi are handled by C&S.. A separate register is maintained for
materials which are meant for free distribution. All the related expenses that are
incurred are paid by C&S and are subsequently reimbursed by the company.

4. Handling of Bad Goods:

The bad goods are separated and marked “saleable” or “unsaleable” appropriately.

5. Temperature control for chocolates: is ensured not only at the time of

storage but also at the time of transit.

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 Channel Conflicts

Earlier large areas used to be assigned to the distributors and there used to be some scope
for confusion or conflict due to overlapping. However, now the number of distributors
have increased and there is clear earmarking of the areas as well as markets for each
distributor by the company and there is hardly any scope for conflicts based on areas.

There are a few sources of channels conflicts like-

A) WHOLE SELLERS

As discussed above, these are not a part of the formal structure of Nestle India’s
distribution network for NCR .They make bulk purchases from the distributors directly
thereby leveraging on the margins. Typically the wholesaler gets a margin of about 2%-
3% from the distributor , of this he retains 1 % and passes on the remaining 2% as
discount to the retailer. It is this discount which induces the retailers to buy from
wholesalers in areas like sadar bazaar in old Delhi etc.
Such sales based on undercutting can be a source of irritation to the distributors who are
not supplying to the retailers but are suffering due to selling by the whole seller in their
areas.

RETAILER AND DISTRIBUTORS SURVEY –KAROL BAGH, DELHI

Out of the 5 retailers covered, only 2 bought from the company distributor. These 2
retailers are: Bhasin Bakery Shop and Frontier Bakery.

The other 3 retail outlets namely Cool Palace, Ashoka Stores and Sindhi Corner are
purchasing from the wholesalers in their market.

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The distributor for the area is Duggal Enterprises, who also looks after Patel Nagar,
Rajinder Nagar & Nariana.

The main issue in this area of survey has been the prominent presence of wholesalers
who sell Kit Kat to the other 3 retailers. It is important to note that these wholesalers buys
the chocolates in bulk from the distributor and sells to these retailers at a better margin as
compared to the former.

Reasons to buy from the distributor:

The 2 retail outlets have a good business and they purchase in ample quantities from the
distributors. They have the shelf space to showcase the company offering and thus the
company (distributors) provides them with a display in the form of discount of Rs.150
every month. This Display discount varies in the range of Rs.150-400 (depending on the
sale of the retailer).

 Distributors provide these people with good service, replacement of spoilt

products, occasional credit and maintain good cordial relations with them.

 Since these people buy in good quantities (2-3 cartons), they usually don’t
face a stock out. Thus the system of 1visit per week suits as long they are
provided with their requirements on call, occasionally in case of urgent
need.

 The ‘big’ outlets are also provided with dispensers frequently as compared
to the smaller shops in the same market. (same is the case with fridges)

Reasons to buy from the Wholesalers:

 The wholesalers, as compared to the distributors, provide higher margins.

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 These small shops can purchase the minimum required quantity as and
when needed.
 There is a convenience factor as there is “order on call” facility, all round
the clock.

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Nestle Distributor Survey - Ghaziabad
Name of the Distributor: Kumar Brothers
Kumar Brothers is the sole distributor of Nestle for District Ghaziabad, Uttar Pradesh.
Beat Plan for the Distributor: The distributor has segregated complete Ghaziabad
District into 6 divisions (6 working days of the week Tuesday is an off). The sales force
of the distributor is divided into 3 heads namely:

 Milk Products
 Chocolates
 Other Products

All the 3 teams visit the retailers once in a week; the days of visit have been specifically
kept different. The collection is done by the same team for the goods supplied.
The sales force is complimented by a weekly visit to the district by the sales executive of
the company. The idea behind the visit by the company personnel is to supplement the
lags in the distribution by wholesaler and in certain specific cases to push extra stock in
the market; the mission is achieved by allowing higher margins to certain prominent
retailers.

Credit Policy
Nestle India Limited: The distributors are termed as Cash Distributors because the
company charges the distributors before the stock is delivered; the company has
connected the distributor online and the transactions happen online.

The Distributor: The distributor sells goods on credit; the period of credit ranges from 1-2
week. The wholesaler allows discount of 1% on cash payment (policy followed by the
wholesaler).

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Stock Policy:
As per the company regulations the distributor is supposed to maintain a stock of 3
weeks; the distributor maintains a stock of 3 -3.5 weeks in monetary terms it equals to Rs.
30 lakh for the distributor.
The stock is formalized by the company; the dealer can negotiate on 3-4 end days, the
stock policy is formed for the month.
The distributor to push in slow moving SKU’s clubs them with fast moving SKU’s for
the retailers.
DUMPING: the company dumps significantly on the distributors, the distributor has to
mange the supply by the company. The distributor has some resentment on the issue but
has to content with it, the result is the stock gets blocked and distributors stores it till the
expiry and then return it; result: cash crunch for the distributor and loss for the company
in the long run.

The Undercutting
The major problem that the wholesaler has to contend with is the problem of
undercutting; Ghaziabad is one of the closest places to the main distribution market Delhi
and that results in retailers buying from Delhi at higher margins which wholesalers are
incapable of providing. The wholesaler contents with this as a problem with every
company so it is a part of the market.

Lead Period
Wholesaler: The lead periods in providing stocks to the dealers differs from the SKU and
quantity ordered; some SKU’s are delivered correspondingly with taking order but some
are sent from the warehouses. A higher quantity ordered has to be replenished from the
warehouse.

Company: The stock from the company is provided every month but company keeps
replenishing stocks at the requests of the distributors. It takes 2 days for company to
replenish stocks.

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Return Policy
The company follows a policy of return when the product has past its expiry date,
damaged or has a defect; the replenishment is done with cash and happens at the end of
every six months.

Return On Investments
The company does not gives any guarantee to the distributor with regard to returns on his
investment which is in line with the market credentials of the company; the distributor
has invested Rs. 60 lakhs in the whole business.

Storage Policy
The distributor maintains Cold Storages and Deep Freezers for the storage of the
products; the investment in infrastructure is considerable for he company to maintain
such infrastructure.

Sales Force
The company does not have a policy to train the staff of the distributor, the distributor
trains his own sales force. The remuneration and all other expenses are borne by the
distributor.

Promotion Policy
The company follows a policy for consumer promotions but as regard the trade
promotions they are scant rather negligible, the promotions put in extra pressure to push
more quantity. The problem of maintenance of the promotional item is considerable and
takes in huge energies and money.

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Observations

1. As seen earlier, the wholesalers are a cause of conflict in the distribution system.
However, the company does not objects to the unwarranted existence of wholesalers as
they serve as means to improve the distribution of company’s products and the
undercutting done by them helps to push up sales in the long run at times.
An example in this context is that of Nestlé’s Éclairs. The sales of éclairs were
disappointing till 1998 in spite of various attempts by the company to alter packing, size,
prices etc. Then the company offered the wholesalers QPS (Quantity Purchase Schemes)
margins ( or even T.V.s) on bulk buying by them over a period of time.
They pushed the product into the retail channel and once sold at the retailer’s end, repeat
purchases followed. Henceforth the official route set in , the distributor could ensure
repeat sales by building upon the previous successful sales of éclairs by the retailer.

2. The company introduces contests to motivate their channel partners regularly.

In 2001 the company had launched a contest “Khulja Sim Sim - Supper awards for
super achievers” similar to “Proud to be Nestle”.

3. Training of Sales force of Distributors should be taken over by Nestle to ensure

optimal performance.

4. The company dumps huge stocks of slow moving SKUs to achieve targets, but in the
long run, it results into dissatisfaction of distributor and losses for the company.

5. The selection of Distributors is a very crucial decision for the company. A lot of
time and effort is spent to train them. Also, they are not frequently changed.

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