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
NESTLES 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 NESTLES 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 NESTLES 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


Nestles 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 Nestles 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 doesnt 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.


Nestles 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 Nestles 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. Lets 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 its 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 competitors product is not in the shelf space bought for the companys 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 dont 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 its 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 dont show much.

Challenges identified in Nestles 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. Hence, 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 merchandisers 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 merchandisers 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 retailers 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

Wrigleys

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 Nestles products, the throughput or off take of Nestles 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.