North

Summer Project 11th April 6th June

Remapping the distribution system of Haryana

By Syed Mehtaj 10PGDM113

Executive Summary

The project was run for Perfetti Van Melle India for duration of 2 months (11th- April 6nd June) in the state of Haryana as a Summer Training Project. The objective of the project was to remap the distribution system of the state and identify potholes. The procedure followed was to visit as many sub-distributor and Super-stockist towns possible. The resultant observations were then processed to remap and suggest improvements regarding the sales and distribution network.

Acknowledgements

I would like to acknowledge the contribution of all those who have been instrumental in helping and guiding me in course of the project. My special thanks to Mr. Pradip Kaul, Mr. Ashish Kapoor, Mr. Yogesh Dutta and Ms. Neha Chhabra who were there whenever I required any assistance. I thank Perfetti Van Melle India (PVMI Ltd.) for this opportunity to work and learn in their organisation.

Company Background

Perfetti Van Melle India, a subsidiary of the global conglomerate, started operations in 1994. A confectionery company of notable repute, it leads the Indian sugar confectionary of notable repute, it leads the Indian sugar confectionary market with more than of the value share of the market, takes care of the development of the South Asian markets and exports to other Asian countries. With a basket of 13 main brands, the company strives to leverage the international brand portfolio, while adapting flavours and blends to the local tastes. Center Fresh was the first brand offering, followed by Big Babol and Alpenlibe in 1995.

Perfetti Van Melle India has doubled its turnover and is today the undisputed market leader in the Indian confectionery market.

Vision
We will enhance our world leadership in confectionery by creating value for people through delightful and imaginative high-quality products.

Mission
We at Perfetti Van Melle :

Develop manufacture and market high-quality and innovative products for our consumers through efficient use of our resources and in partnership with our customers. Create a fulfilling workplace for our employees built on trust, mutual respect and appreciation of their diversity. Value the role we play in our communities, as socially and environmentally committed organization. Generate economic value through superior growth and profitability.

Values
Achieving Excellence We pursue quality in everything we do. We strive for continuous improvement in the way we operate. Unremitting attention is given to details at every stage and resources are used in the most effective way.

Dedication to the consumer We will meet and surpass the differing needs and expectations of our consumers, delighting them with high quality, state-of-art and innovative products.

Care for our people We are committed to creating a global workplace where teamwork, involvement, open communication, flexibility and fun exist. We treat our people fairly; we value different styles, experiences and backgrounds and acknowledge them to take

initiative and expect them to approach their jobs with passion and commitment. We offer our people training opportunities and ongoing development so that each individual; can reach his or her full potential.

Social and environmental responsibility We will conduct our business as responsible members of society, respecting the laws of countries in which we operate, contributing to the progress of the local communities in line with the legitimate role of the business. We will operate safely, responsibly, and with sound environmental practices, aimed at minimizing our impact on the environment and working toward long-term sustainability.

Independence We are committed to achieving ambitious business goal while securing our companys profitability thus ensuring our independent growth.

PVM in India

Perfetti Van Melle exploded onto the Indian market way back in 1994 With single brand, Centre fresh, when gums category confectionery stood at 40 crores. In the last 10 years we have traveled from having a single brand to having 14 brands today. Since then, Prefetti Van Melle has contributed extensively to the

total gums market. We have now become one of the most significant names in the Indian confectionery market.

Perfetti Van Melle operates with the largest distribution network among any confectionery company in India. We have 4 branch offices in Delhi, Mumbai. Kolkata, and Bangalore to mange sales in the regions. We are market leaders in all categories, in which we exist. Perfetti Van Melle has rated the fastest growing FMCG MNC and among the 10 fastest growing FMCGs in India by AC Nielson 2002 survey. Perfetti Van Melle has changed the way confectionery was marketed in the country. We made innovations not only in our products but also in our packaging, communication, and distribution.

CSR

As a responsible corporate citizen, PVM India is committed to improve the welfare of the people in neighbouring communities, thereby strengthening the goodwill of the company.

Our objective PVM India has identified in children, the future of the society, one of the main objectives of its welfare initiatives. PVM India thus intends to work with children, to provide health services and to impart vocational training. This will be done with active involvement of the employees, in co-operation with NGOs and Industry associations, by identifying opportunities which directly translate into benefit for the community.

Project for children Organization Project : Khushhboo Welfare Society :The inauguration of new school in gurgaon on Decebmer 8,

2003. Institution opened in January 2004 with the new physiotherapy unit. Objectives : To help the organization and its school for the physiotherapy

treatment of the mentally otherwise disabled children. PVM India Involvement : Perfetti Van Melle provided equipment for the

physiotherapy unit as welll as a generator for uninterrupted service, we also undertake the maintenance of the building.

Organization Project Objectives

:Sankalp : The inauguration of a new school in Gurgaon in March 2004. : To help support the organization and its school for the educational

needs of the children. PVM India Involvement: Perfetti Van Melle provided school stationery such as notebooks and drawing sheets for the school.

Project for Community Organization : SNS Foundation/Women and Children Foundation Project Objectives Chennai. PVM India Involvement: Prefetti Van Melle bears the cost of all medical services and related expenses. : Mobile health care van for general health services. : To help provide medical treatment to nearby villages in Manesar and

Organization : Goonj Project Objective : To help contribution camps. : To help re-uitilies materiels such as clothes, shoes etc

PVM India Involvment: Prefetti Van Melle organizes camps in its loacations in order to faccilitiate the donation of clothes, papers, carpets.

Project for youth Organisation : Deepalaya/ Loyala Institute of Technical Education Prject Objectives : Industrial Traininng Program in Manesar and Chennai Factory. : To provide practical experience in order to help the youth enter the

workforce community. PVM India Invlovement: Prefetti Van Melle takes care of the training and development needs for selected individuals.

Organisation : Deafway Foundation Project : To recruit physically challenged youth in housekeeping and

promotional packaging. Objective : To help reinstate the youth in the community

PVM India Involvement: Perfetti Van Melle Provided employment to the young men.

Project for the elderly Organisation : Helpage India Project Objective : Walkathon in October : To help create amongst the youth and the children for the elders.

PVM India Involvement: Perfetti Van Melle has co-sponsored the event for the last three years.

MARKET SCENARIO : A Nielsen survey pegs the per capita consumption of sugar confectionery for every Indian at close to 200 grams per year, translating to about 50 pieces of candies and gums per Indian, per year. Compare this to traditional Indian sweets and the number is likely to be significantly higher. So a country of a billion consuming 50 pieces of confectionaries like candies and gums may be small, but it presents both opportunities as well as challenges. The sugar confectionary market then was of low quality and undifferentiated offerings. Our estimate of the size of the market then was around 300 crore and we were looking at not only acquiring marketshare but also expanding the market, he says. In the over 3,700 crore non-chocolate (confectionary) market in India, PVMI according to market estimates commands over 25 % with the rest divided between ITC, Parle, Wrigley and Cadbury among others. EXISTING SYSTEM AND STRATEGIES :
Consequently, a salesman typically visited outlets only on weekly. Two years ago, Perfetti had 18-20 SKUs and that number hasnt changed significantly. We realised that if we doubled the sales call to each outlet with different set of products each time, it gave the small store more opportunity to buy, explains Dhingra. And so it did.

However, the dual system called for a re-look at the brands. No retailer would want to buy the same brands twice a week, which meant the company needed to give him different offerings at each sales call. The fact that some products in the Perfetti basket could pose competition to each other encouraged the company to take this step. For instance, during sales visits to the retailer, the latter would naturally opt for one out of Centerfresh and Chlormint and almost never picked on both. This was because, as distributors point out, both were non-sweet, freshbreath chewing gums. Cofitos and Alpenliebe original met the same retailer response because of perceived similar taste and textures. Perfetti worked out a solution. In 2002, it divided its 11 brands into two groups P1 and P2. Non-conflicting brands like Alpenliebe original, Chlormint, Big Babol and Centerfresh were grouped under P1. CenterShock, Chlormint gum, Mentos, Marbels, Fruit-tella and Happy Dent were planted in P2. Then, based on location and the type of market, distributors were also classified under both groups. The system met with a few problems. For instance, the company risked alienation from distributors when it announced its realignment plans. Says one distributor, It was difficult to understand why the company wanted to take away some of the brands from me while the neighbouring distributor would be given the remaining brands.

The company has also done numerous innovations in distribution and packaging to gain share of wallet. While most FMCG companies cover retail outlets and service them once a week, to maximize SKU / brand placement and facilitate better rotation of money from paan/bidi oulets, PVMI services retail outlets at least thrice a week We have the largest distribution reach among FMCG companies in India, claims Suneja. Their distribution model divides the entire brand range among three distributors called P1/P2/P3 and the same outlet is serviced by all three distributors every week, but with a different range of products. Apart from the

distribution structure, brands are available in multiple flavours, packaging formats at different price points in pouch, small jar, bigger jar depending on the type of outlet, the retailer keeps the SKU. However market observers believe that distribution will be a challenge in the time to come for companies like Perfetti. The kirana, grocery store and even the local chemist shop space today commands a premium with FMCG, pharmaceutical and even food brands seeking the retail shelves. In such a scenario, an impulse item at a low price point may feel a space crunch inside the store, remark market observers. Centre Fresh is the largest confectionary brand in India with sales close to Rs 240 crores and Centre Fruit is the fastest growing brand in sugar confectionary for the past two years, according to Nielsen. Another challenge for Perfetti is looking at upgrading Indian consumers to a price point higher than 50 paise and Re One. Competition,is also trying to push the price points but have found the going difficult. In gums, Perfetti,already operates at the Re 1 price point and have recently launched Fili Folly which has been priced at Rs 10. In addition to this, they have innovative formats like the blister, stick packs, fliptop and the pocket bottle that are selling at the Rs 5, Rs 10 and the Rs 30 price point. To that effect there is a lot of work underway to upgrade price points. So far in the confectionary category profitability has been dependant on increase in volumes, whether PVMI can change this by increasing the ticket size remains to be seen. An industry observer makes an observation,Perfetti is a fierce competitor and knows the confectionary business extremely well.
Ever since Perfetti revamped its distribution strategy, the company has doubled its depth of distribution. And it shows. Consider these numbers. Previously the company sold stock worth Rs 150-200 to a small retailer per week; today it supplies stock worth over Rs 400 to the same outlet. An outlet that stocks products of closest competitor Parrys buys only Rs 60150 worth. Perfettis distribution network has also increased substantially: it has over

2,700 distributors now, compared with Parrys 1,850 and Joycos 1,900. The turnover figures also bear out Perfettis success. At present, the company sells confectionery worth almost Rs 400 crore, up from almost Rs 200 crore in 2000. The Spanish Joyco has grown to Rs 200 crore from Rs 110 crore in 2000, while Parrys turnover, has fallen from Rs 106 crore to Rs 95 crore over the same period. Even Cadburys confectionary business is just Rs 100-odd crore (after the global acquisition of the Adams brand), compared to Rs 70-odd crore in 2000. Moreover, in the Rs 1,200-odd crore (13 lakh tonnes in volume) confectionery market, when volumes are growing at a slow 3 per cent, Perfetti has put in a growth rate of 14 per cent, according to ORG-MARG ACNielsen retail audit 2003. Perfetti managed to grow in spite of a slow market, solely because of the way it innovated on its distribution system, shares a competitor. However, finding its way through the distribution maze in India wasnt too easy for Perfetti. The companys initial years in India, after its entry in 1994 as a solo player, werent too inspiring: unorganised confectionery manufacturers dominated with a market share of over 80 per cent. The biggest advantage they had was price, with candies priced at 25 paise and even lower. In comparison, organised players were retailing theirs at upwards of 50 paise. And then, Perfetti India also faced a peculiar problem of alienation. Distributors could not even pronounce the companys name, leave alone wanting to sign up, recalls Ashok Dhingra, director, sales and marketing, Perfetti Van Melle.

Confectionery cannot move away from 50 p and Re 1 price points because of coinage issues," Mr Suneja said. Perfetti Van Melle and

rival Wrigley are reducing the grammage of their products to retain margins Brands are localised not just for India but most countries that the company has operations in. It is of paramount importance to alter product recipe to appeal to the local consumer as it results in far greater acceptance." explains Suneja. Besides localisation, PVMI house has also developed many brands specifically for the Indian market like liquid filled gums Center Fresh/Center Fruit, filled candies Alpenliebe Mangofilz/Creamfils SUPPLY CHAIN MANAGEMENT
Sify's supply chain management solution for managing their distribution operations in India over the Internet. The projects for both organizations are commencing with limited pilot implementations targeting a few select supply chain partners. The pilot programs will help smoothen business-process and user-acceptance issues and will also help address configuration details that would be critical for long-term success of the projects. The scope of the project will be extended to cover their key distributors contributing to a large part of their national revenues by both organizations on successful completion of the pilot phase. Sify expects to grow these projects to their full potential over a period of about 18 to 24 months. Once implemented, distributors of these manufacturers would use Forum for their Sales, Distribution and Inventory Management functions including billing, goods receipts, inventory monitoring and generation of sales reports. Distributors would be able to connect securely to the Internet for a short time at the end of each day to exchange information online with their principals. Forum is a unique supply chain solution that enables seamless connectivity with supply chain partners, and is a powerful, easy to use and cost-effective tool for managing retailing and distribution

operations over the Internet. Forum enables organizations, both large and small to: --Reduce inventory and costs while significantly improving efficiencies in distribution management. It has a comprehensive sales and distribution management software to help make businesses more profitable. --Automatically collates stock and sales information from branch offices, distributors and retail outlets by means of a simple, userfriendly, seamless and online process. --Significantly improves process efficiency by enabling two-way communication between organizations and their distributors / depots. For example, invoices can be delivered online to distributors, or Stock Transfer Notes could be delivered to depots online. Not only would details be delivered on time, the need to re-enter data on stock receipts is eliminated. --Makes supply chain partners more profitable with continuous replenishment mechanisms to help reduce inventories of supply chain partners, cut their operations costs and make them more efficient. --Helps build a bridge for seamless connectivity between existing applications, with its ability to work with legacy applications, for integration of supply chains with minimum disruption to preexisting IT infrastructure. One of the large organizations who have adopted Forum for managing their supply chain is GlaxoSmithKline Consumer Healthcare for their operations in India. Corporates are using Forum at their distribution points for integrating their supply chain. Distributors are using Forum to improve their businesses, to integrate operations of their branches and to interact with their principals. Retailers are using Forum as a complete business solution supporting bar-code enabled Points-Of-Sale (POS), re-ordering mechanisms and a whole range of other modern practices. All that is required is to connect over the Internet with a dial-up connection for a short time at day's end for exchange of critical information.

The pricing of Forum is flexible to suit the needs of even small businesses based on the configuration of the solution. So Forum can scale to the needs of a retailer, a distributor, a C&FA or a large organization with thousands of channel members

Nature of problem Super Stockist operations The super stockiest operations in Haryana were started two years ago.The overall sales of the state have not been impressive and not according to the set targets.The direct and indirect towns have not been properly identified. Objective (s) of the study The objective is to find the right mix of direct and indirect towns so that the sales of the particular area comply with the set targets. Methodology All the 9 super stockists in the state and their respective sub-distributor towns were visited and the audit forms were used as a powerful tool to achieve the above mentioned objective.The list of towns visited are provided in the annexures.