Evolution of distribution systems
Upcoming SlideShare
Loading in...5
×

Like this? Share it with your network

Share
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
264
On Slideshare
250
From Embeds
14
Number of Embeds
3

Actions

Shares
Downloads
11
Comments
0
Likes
0

Embeds 14

http://dleonov.com 8
http://test.neocode.pro 4
http://www.dleonov.com 2

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Evolution of distribution models and sales strategies
  • 2. It seems, that everything is OK And every day…
  • 3. The model was successful and profitable Manufacturers solve similar tasks But in the new conditions the model is not working. And the issue is not the crisis We need to grow both topline and bottomline 1 2 3
  • 4. But perhaps not all of us accept the real problems The market has changed, but our mindset is the same Distribution Model Segmentation TradeTerms Something has happened with our sales – “crisis, it seems”
  • 5. Retail chains are growing: Revenue ’10: $11 bln Q1 ‘11: + 50 % revenue + 64 % EBITDA X5
  • 6. 2000 2010 Retail chains Distrbutors Manufacturers The market has changed irreversibly Retail chains are growing and competing for the best prices The margin is going from production to retail From distribution the margin has already gone Those who do not feel it today – will confront it to-morrow Manufacturers, overstepped $1mlrd, escaped from this problem How the other producers must behave on the new market ? Margin split
  • 7. In sales — as on the boat
  • 8. How not to crash in the first days…
  • 9. And how to become the leader in the next days…
  • 10. Business Models are developing If you don’t improve yours, you leak
  • 11. What to do?
  • 12. Start from the right model !
  • 13. Which has strong musts * * Distribution models
  • 14. Flexibly adjustable Sails* *Trade terms
  • 15. Route *, which will bring you to the correct port X * Segmentation
  • 16. What does our boat consist of ? Distribution model Trade terms Business processes Training and development Segmentation The captain Communications
  • 17. Distribution model Transfer to another 1 big The best 100 Trade terms Segmentation
  • 18. Route to the market — is the answer to the question : «HOW ?» 230 000 outletsManufacturers
  • 19. The are three “route to market” models Local distributors Transfer to another manufacturer National Distributor
  • 20. Transfer to another manufacturer Another manufacturer distributes your product
  • 21. Another manufacturer distributes your product
  • 22. Distribution model Transfer to another 1 big The best 100 Trade terms Segmentation
  • 23. In 90s importers were called distributors
  • 24. 0 5 10 Megapolis SNS Kubanopt Pivdom CDK 2006 2007 2008 2009 In 2000s new type of Pan-Russia distributors appeared …and caught up in turnover key manufacturers and retailers Megapolis: 190 branches 140 000 outlets covered 13 000 employees $ mlrd / year
  • 25. 0 5 10 Megapolis SNS Unimilk konditery Russkoe more 2006 2007 2008 2009 National distributors show better growth than producers Objedinennie $ mlrd / year
  • 26. 0 5 10 Megapolis SNS Auchan Magnit Х5 2006 2007 2008 2009 And compete with key retailers $ mlrd / year
  • 27. 2006 2010 Will FMCG catch up pharmaceutical market in consolidation ? Pharmaceutical Others TOP 5 distributors FMCG 2006 2010 8% 70%
  • 28. Consolidation of distribution – was one of the ways to save the margin Vertical Integration Retail Chains Own brands production Enter new product categories Enter new territories Warehousing Logistic Horizontal integration Services
  • 29. Horizontal integration of distributors is initiated by producers Manufacturers, overstepped $1 mlrd, decrease number of their distributors The best distributors get new cities on expense of the weak ones
  • 30. Horizontal integration of distributors is initiated by producers Manufacturers, overstepped $1 mlrd, decrease number of their distributors The best distributors get new cities on expense of the weak ones Then they organize “general price”, it can be used by other producers
  • 31. Except sales, merchandising function has also changed Retailers planogrammSales Producer planogramm Share of shelf Additional space
  • 32. And merchandisers also became national Shared services (1 person merchandises several producers) was the reaction to reduction in the functional There are national agencies with salary fund $10+ mln a year Why are their services cheaper ? Due to scale effect they organize processes better than manufacturers Merchandiser spends more time in the outlets and less on the way
  • 33. Distribution model Transfer to another 1 big The best 100 Trade terms Segmentation
  • 34. Strata Population N of cities А over 1 mln 13 В 500’000 – 1 mln 22 С 100’000 – 500’000 132 D less 100’000 Why100 distributors? 24 City-satellite 44 Administrative center 63 Remote city
  • 35. Strata Population N of cities А over 1 mln 13 В 500’000 – 1 mln 22 С 100’000 – 500’000 132 D less 100’000 24 City-satellite 44 Administrative center 63 Remote city 100∑= Why100 distributors?
  • 36. These 100 cities «weigh» 75% of the market There are 230.000 outlets in Russia 100.000 of them are in these 100 cities 100 cities are covered by distributors The other cities are covered by wholesale 40% 75% Numeric Weighted the other cities TOP 100 cities Outlets distribution
  • 37. Usually one distributor is selected in the city The strongest one ! Many manufacturers hired sales representatives Then manufacturer has to be the “preferred supplier”
  • 38. Service of distributor is: Warehousing, delivery, cash collection Additional credit Legal flexibility Fast decisions
  • 39. Agent drives the truck with product, when he gets an order, he collects it and delivers to the outlet Agent takes the order, passes to warehouse, and it is collected and delivered the next days Delivery can be provided by two types: Pre salesVan sales
  • 40. In each city there can be three models DSD Direct Sales and Delivery DS3 Direct SalesThird party delivery 3PD Third Party sales and Delivery Warehousing and delivery Manufacturer Distributor Distributor Sales management Manufacturer
  • 41. What system is this ? One national distributor over Russia 1000 merchandisers of manufacturer Two persons come to the outlet: To take the order To merchandise
  • 42. What system is this ? Distributor opens entity, which sells only manufacturer product Sales agents are in distributors headcount, but fully managed by manufacturer Manufacturer approves of distributor’s P&Ls and ensures bottom line
  • 43. Control over shelves Cost to serve What system to use ? DSD 3PD DS3 Fast development with minimum investments Cheap non branded products low sales, low marginal product 3PD High sales, high marginal product Short shelf life products DSD
  • 44. DSD 3PD DS3 Control over shelves Cost to serve Cost to serve vs. control
  • 45. Cost to serve vs. control — many have high cost low productive model DSD 3PD DS3 Control over shelves Cost to serve High investment, No result
  • 46. Control over shelves Cost to serve vs. control and only specific get distribution for free DSD 3PD DS3 Cost to serve «Creep - product»
  • 47. Usually models are adequate to turnover and margin Control over shelves Cost to serve DSD 3PD DS3
  • 48. 3PD distributors are not manageable In the past the targets were like this We have to convert operations to DS3 Hired 500 sales representatives 50 000 outlets covered 1 2 3
  • 49. Conversion to 3PD — is adherence to the route The model should be “easy to sell” to distributors The model should allow manufacturer to get ROI in a year “General price” “mixed” teams “ballast” product Exclusive teams
  • 50. 900 Euro manufacturer contribution Sales per agent 30.000 Euro Distributor’s markup 3% = 900 Euro Distributor’s contribution Sales increased twice up to 60.000 Euro In a year 3% = 1.800 Euro distributor contribution Agent wages 1.800 Euro and stops investments of manufacturer in a year DS3 model should be “easy to sell” to distributors … Agent wages 1800 Euro
  • 51. Nowdays DS3 inTraditionalTrade became less effective Sales per outlets dropped – delivery cost increased Quantity of shops decreased, traffic jams intensified – effectiveness of routes decreased So agent’s salary eats the margin Only those who overstepped $1 mlrd do not feel it yet
  • 52. How to make DS3 cheaper ? If your average order less than minimum delivery lot If you already can not pay the salary to the agent Then mixed teams — is your solution !
  • 53. How to organize and manage mixed teams ? The products should : Not compete among themselves To be within one category To have similar sales per outlet Belong to markets with equal volatility Have similar consumer loyalty to brands
  • 54. Your contribution to agents wages: For the Euro of your sales agent gets commission more than for the other products Ideally they pay fix part, and you pay bonus :-) Hoe to organize and manage mixed teams ? The products should : Not compete among themselves To be within one category To have similar sales per outlet Belong to markets with equal volatile Have similar consumer loyalty to brands
  • 55. Distribution model Trade terms Discount FederalTrade Law Should retail chains get back to distribution ? Segmentation
  • 56. Discounts classification Condition No condition Retrospective Prospective Pay for performance Pay for compliance Tangible Intangible
  • 57. Methods of Regulation of rebates On invoice discount Cash bonus (noVAT) Free product Marketing services agreement (bank transfer or cross cancellation of debts)
  • 58. Tax code On invoice discount < 20% Each channel has its price list Discounts are accompanied with the documents
  • 59. Discounts classificator – important sales instrument Name of discount Condition of charge Retrospect / Prospect Method of regulation Budget owner Maximum value . . . Prepayment Transfer is on our account Retrospective On invoice discount Sales director 3% . . .
  • 60. I recommend to evaluate discount annually Sales volumes Depth of discounts А В
  • 61. I recommend to evaluate discount annually Sales volumes Depth of discounts А В ВА
  • 62. Regional pricing Landed cost influence: transshipments Retail Shelf Price P&Ls of regions Convenience for retail chains Fight with competitionВладивостокСмоленск Производитель Дистрибьютор
  • 63. Distribution model Trade terms Discount FederalTrade Law Rebates RSP Distribution Should retail chains get back to distribution ? Segmentation
  • 64. Before the law Price for distributor Retail Shelf Price TraditionalTrade Local chains National Chains Manufacturer Price for retail Unified national invoice price Personal Rebate
  • 65. Retail Shelf Price TraditionalTrade Local chains National chains Price for distributor Manufacturer Price for retail Unified price is destroyed, RB converted to discount On-invoice discount After the law
  • 66. Retail Shelf Price TraditionalTrade Local chains National chains Price for distributor Manufacturer Price for retail Unified Price remains, RB converted into marketing Marketing services After the law
  • 67. Transit of rebates into marketing If rebates were not converted to discounts, they were transited into marketing Transit of money into marketing services rose prices by 30% In conttrast to cash bonus, marketing agreements are imposed by 38% tax
  • 68. Saved Unified National Price Converted extra RB into marketing Huge manufacturers with strong competitors How did it influence the market players ?
  • 69. Huge manufacturers who dominated in the category unalternatively won As they did not have RB over legal 10% Even if they had — RB decreased down to 10%
  • 70. Small manufacturers are washed away from shelves Because they can not develop brands during such a growth of prices on promotion instruments
  • 71. Due to the Law we will decrease the distance withWest Europe Set of brands onWE shelves is repetitive The Law «thins out» number of small producers in Russia
  • 72. Promo actions forecasting turned into casino You produce promo product, and retail chains do not purchase it
  • 73. If marketing will be prohibited ….. Chains increase “service level” By penalties chains can take the leftover of RB, and it can not be parted from supply contract
  • 74. Distribution model Trade terms Discount FederalTrade Law Rebates RSP Distribution Should retail chains get back to distribution ? Segmentation
  • 75. Government price regulation was before the Law Bunge 2007 Price was frozen for 6 months The market price increased by 20% The same happened withWimmBillDan
  • 76. Formation of commodity market prices starts from the crop Since buckwheat was the usual crop failure Crop failure - the only way the farmer "recapture" loses in the years of overproduction Only in the EU government during overproduction buys crops at a fixed price 0 50 100 Январь Февраль Март Апрель Май Июнь Июль Август Сентябрь Октябрь Ноябрь Декабрь Rur/kilo Raw materials 2010 Q1 Q2 Q3 Q4
  • 77. 0 50 100 Январь Февраль Март Апрель Май Июнь Июль Август Сентябрь Октябрь Ноябрь Декабрь Rur/kilo Raw materials Retail shelf price Retailers markup depends on: 1. other retailers RSP for KVIs 2. And average market mark up for niche products When producers feel bankrupt they choose penalties for underdelivery, and the shelf increase exceeds “legal” 30% But on the shelves of retailers market prices ends 2010 Q1 Q2 Q3 Q4
  • 78. «The buckwheat criminal case» was raised Federal Law #381 Implemented since august 2010
  • 79. Distribution model Trade terms Discount FederalTrade Law Rebates RSP Distribution Should retail chains get back to distribution ? Segmentation
  • 80. Everybody can buy distribution contract now ст 9 п 10, ст 13 It is impossible to prohibit or charge change of owners of the contract In conjunction with the illegal restriction of the territory, theoretically “Pan Russia distribution” can be purchased
  • 81. And you can not oblige distributor to sell : ст 9 п 12 promote all SKUs place POSM motivate sales agents set responsibility for distribution translate retail promos serve clients )
  • 82. …and now it’s a soother Earlier you could read distribution agreement
  • 83. Who wins, if relationships move to the shadow ?
  • 84. Кey Аccounts Мanager Who wins, if relationships move to the shadow ?
  • 85. Distribution model Trade terms Discount FederalTrade Law Rebates RSP Distribution Should retail chains get back to distribution ? Segmentation
  • 86. Trade terms change the market
  • 87. WIll retail chains return to distribution ?
  • 88. Vertical integration into retail chains – was one of the ways for distributors to save the margin Vertical Integration Retail Chains Own brands production Enter new product categories Enter new territories Warehousing Logistic Horizontal integration Services
  • 89. And distributors soon … Tander Uniland Sweet Life R-Modul PalladaTorg
  • 90. Turned into a beautyfull retailers Magnit Dixi Spar NN Monetka Sberegaika Tander Uniland Sweet Life R-Modul PalladaTorg
  • 91. Fragmentation of supply will continue further more the price distance with TOP retailers 1 x One city – one distributor
  • 92. Fragmentation of supply will continue further more the price distance with TOP retailers 1 x 5 x + direct deliveries to DCs of local and national retailers 1+ 2 + 2 One city – one distributor
  • 93. So, will chains return to distribution ? Distribution centers work perfectly Prices are lower than distributors’ Price is “washed” from rebates Direct supply contracts with producers Distribution can be “bought” Distributors Chains Chains - distributors
  • 94. Resources are restricted — where to invest ? OPEX and CAPEX of national start up even for 2.000 SKUs can be compared with hundred discounters Should distribution be in perspective as profitable as retail ? There is space for retail brand developing – who is ready to invest in non profile business ?
  • 95. There are also mental barriers Will the shops allow to depend on one supplier ? Will the shops buy from competitor ? How long will it take to convert Buying organization into Selling ?
  • 96. Sanctum is under the risks – the business processes efficiency Stock level will grow — forecasting deteriorates when you do not manage the shop Transshipments, commodity … pricing solutions are to be taken quickly and locally Orders return to warehouse, assembling and delivering apiece, cash collection …
  • 97. Distribution model Trade terms Segmentation Intro Retail Distribution People
  • 98. Segmentation: — Subject — Process — Parameters
  • 99. Subject of segmentation Employees Distributors Wholesellers Retailers ….
  • 100. Segmentation process identify analyze prioritize develop plan realize plan analyze again
  • 101. Segmentation parameters Sales parameters Sales volumes Market share Price segment Growth rate Sales channel parameters margin speed to market risks Retail outlet parameters Format Marketing value
  • 102. Segmentation matrix changes rapidly Before: 50 meters, 60 km/hour
  • 103. Segmentation matrix changes rapidly Before: 50 meters, 60 km/hour Today: 10 meters, 100 km/hour
  • 104. Coefficient of investment performance =Investment index Revenue Index Market share indexх You need to evaluate investments annually
  • 105. Coefficient of investment performance Parameter Sample 1 Revenue Index 80 Investment index 100 Market share index 90 Coefficient of investment performance 72
  • 106. Coefficient of investment performance Revenue and market share dropped with the same level of investments Parameter Sample 1 Revenue Index 80 Investment index 100 Market share index 90 Coefficient of investment performance 72
  • 107. Parameter Sample 2 Revenue Index 115 Investment index 105 Market share index 110 Coefficient of investment performance 120 Coefficient of investment performance
  • 108. Parameter Sample 2 Revenue Index 115 Investment index 105 Market share index 110 Coefficient of investment performance 120 Coefficient of investment performance Revenue and market share growth overruns growth of investments
  • 109. Distribution model Trade terms Segmentation Intro Retail Distribution People
  • 110. Segmentation by retail formats Hypermarket Supermarket Discounter Grocery Kiosk
  • 111. Segmentation by sales volumes # of retail outlets 100%25 50 75 SalesVolumes А В С D Segment А
  • 112. Segmentation by sales volumes # of retail outlets 100%25 50 75 SalesVolumes А В С D Segment А Segmentation by sales volumes — volumes of your product or your category?
  • 113. 2-D segmentation with price segments Price segment Объем D C B A Low Medium Premium
  • 114. 2-D for premium products Price segment Volume D C B A Low Medium Premium
  • 115. 2-D for premium products Price segment Volume D C B A Low Medium Premium
  • 116. 2-D for value products Price segment Volume D C B A Low Medium Premium
  • 117. 2-D for value products Price segment Volume D C B A Low Medium Premium
  • 118. Retail investments need to be optimized too There are 22 500 modern trade retail outlets in Russia They form 50% of the market - 10 000 South North Non active Active clients with investments Active clients with investments AND profitable Active clients with investments AND NOT profitable # of outlets
  • 119. - 10 000 South North Non active Active clients with investments Active clients with investments AND profitable Active clients with investments AND NOT profitable Retail investments need to be optimized too There are 22 500 modern trade retail outlets in Russia They form 50% of the market # of outlets Transfer of investments improves bottom line and topline
  • 120. Distribution model Trade terms Segmentation Intro Retail Distribution People
  • 121. All distributors are different — how to compare an apple with an orange ?
  • 122. All distributors are different — how to compare an apple with an orange ? 3 key parameters Power of distributor Efficiency of manager Size of distributor
  • 123. 3PD distributor’s Profile Territory coverage ModernTrade TraditionalTrade Wholesale Opportunity to promote product Sales reps motivation is effective Promo for retail is effective All your SKUs are in matrix General Growth vs LY Price architecture Finance discipline
  • 124. Distributors power and managers’ efficiency 0% 50% 100% Distributor’s power Managers’ efficiency
  • 125. Distributors power and managers’ efficiency 0% 50% 100% Distributor’s power Managers’ efficiency
  • 126. Distributors power and managers’ efficiency 0% 50% 100% Distributor’s power Managers’ efficiency
  • 127. 0% 50% 100% To cover Russia effectively you need 100 distributors.You have more ? # of distributors SalesVolumes Last 15% clients weigh 3% sales 100%
  • 128. You can segment the problem and solutions : To grow To consolidate To convert to sub-distributor The only client at regional center Second client at regional center Remote city
  • 129. Distribution model Trade terms Segmentation Intro Retail Distribution People
  • 130. If your DS3 are more expensive every year … Chicago To develop NewYork Philadelphia # active clients per sales agent Salary / Sales per agent Florida Oklahoma Washington San-Hose To convert to 3PD 100 50 10%
  • 131. Perhaps, DS3 is not so effective, as you did not allocate territories properly … Producer Distributor “General price” DS3 sales agent KAM DS3 Traditional trade, city Modern trade, cityTraditionalTrade, suburbs Wholesale
  • 132. Or sales organigram does not correspond to the business model ?
  • 133. The organigramm can be as this: Boss Assistant Sales Force
  • 134. Or based on the objectives Objectives –V, MC, MS Route to market model # of people in the field Organigramm to support field force management
  • 135. Distribution model Trade terms Segmentation
  • 136. So we have three key parts of our boat … Distribution Model Trade terms Segmentation
  • 137. So we have three key parts of our boat … Distribution Model Trade terms Business processes Learning and development Segmentation The Captain Internal communications But the synergy comes when you get the others
  • 138. In sales — as on the boat
  • 139. But there are no similar yachts, as well as similar companies.Your strategy should be based on your competitive advantages In sales — as on the boat
  • 140. Administrative resourse * ? * 0% taxes
  • 141. Unique construction * ? * 100 km / hrs
  • 142. Muscles ?
  • 143. Special sail – spinnaker ?
  • 144. I wish you find your spinnaker!
  • 145. Thank you !