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  • 1. Term Paper on ITC Distribution Strategy SUBMITTED TO: Dr. Rajendra Prasad Sharma Sales and Distribution Management Term PaperPage 1 SUBMITTED BY: Hitesh Bharti- Roll No. 24
  • 2. Acknowledgement We would like to extend our special gratitude to our professor, Dr. Rajendra Prasad Sharma, for his tremendous support and guidance all through the second Semester of EPGDIM 2014. We would like to thank him once again for her dedication and commitment that ensured all our concepts were cleared. We would not have been able to finish this term paper without her guidance and encouragement. Thank you very much Sir. Sales and Distribution Management Term PaperPage 2
  • 3. Table of Contents: S No. Contents Page Number 1 Scope of the term paper 4 2 About the Company 7 3 ITC – Distribution Network 8 4 Innovation Special — ITC e-Choupal 11 5 ITC: Distribution Network- Product specific 13 6 Conclusion 17 7 References 17 Sales and Distribution Management Term PaperPage 3
  • 4. Scope of the Term Paper This term paper is focused on the distribution strategy of ITC India, one of the most premium brands in the India. This term paper talks about ITC- its history, its brand lineage, its product portfolio and its value proposition. It aims to clearly define the distribution channels and network for ITC. Its lists down the objectives, the USPs of the distribution network and the challenges involved. It lists down the competition set across some identified product categories and also shares an industrywide mapping for these identified product categories. Sales and Distribution Management Term PaperPage 4
  • 5. About The Company ITC Ltd (ITC) was incorporated in August 1910 as Imperial Tobacco Company of India and shared ancestry with Imperial Tobacco, United Kingdom. It acquired its present name of Indian Tobacco Company in 1974. As of today, this conglomerate has a turnover in excess of USD 7 billion. This public listed company is headquartered in Kolkata, West Bengal. The company was formed with the vision of enhancing its contribution to the country’s financial, environmental and social capital. It strives to blend the core competencies residing in various businesses to enhance the overall competitiveness of the brand. ITC operates in various sectors like FMCG, agri-business, hotel, paper boards & packaging and information technology. The FMCG business is further sub-divided into cigarettes, foods, personal care, lifestyle retailing, education and stationary, matches and incense sticks. It entered into the lifestyle retailing business in 2000 with the launch of the Wills Lifestyle brand and its retail outlets in the country. Wills Lifestyle retails relaxed wear, formal wear, designer wear and evening wear for both men and women. It also offers an exclusive range of fine fragrance and bath & body care products for men and women. Besides, it sells fashion accessories such as ties, cuff links, caps, hand bags, wallets, belts, eyewear and shoes. Wills Lifestyle markets its products under the brand names Wills Sports, Wills Classic, Wills Signature and Wills Clublife. ITC’s lifestyle retailing business also own brands like John Players, a men’s wear brand introduced in 2002 and Miss Players, a fashion brand for young women introduced in 2007. ITC also retails its brand –Fiama di Wills, a personal care brand that offers shampoos, conditioners, bathing bars, shower gels and fragrances. ITC is headed by Mr. Yogesh Chander Deveshwar. It employs over 29,000 people at over 60 locations across the country. While ITC is a market leader in its traditional businesses of Hotels, Paperboards, Packaging, AgriExports and Cigarettes, it is rapidly gaining market share in its not so-popular businesses like Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. Sales and Distribution Management Term PaperPage 5
  • 6. Growth over the years Over the last 16 years (FY 95-96 to FY 2011-12), ITC’s net revenue has increased from Rs 2,536 crores to Rs. 24,798 crores, a CAGR of 15.3%. The market capitalization of the company has risen by 24.1% in the last 16 years. Amongst all listed private companies on BSE, ITC ranked 5th in terms of PBT as well as PAT and 3rd in terms of market capitalization. ITC’s businesses have created sustainable livelihoods for more than 5 million people, a majority of whom are the poorest of the poor in rural India. Its agri-business is one of India’s largest exporters of agricultural products. ITC is one of India’s largest foreign exchange earners (US $3.2 billion in the last decade). ITC: A valuable and admired brand Over the past very many years, ITC has been considered to be amongst one of India’s most admired and valuable companies. As per Boston Consulting annual survey, ITC was ranked 6th amongst global consumer goods companies in sustainable value creation during 2005-2009. As per the BT-Stern Stewart Survey, the company was one of the first in the private sector in terms of sustained value creation, operating profits and cash profits. ITC is the only Indian FMCG company to feature in the Forbes 2000 list. It also featured in the Forbes 2011 ‘Asia Fab 50’. The company was awarded the prestigious ‘World Business and Development Award 2012’ for its transformational rural initiatives in social and farm forestry programmes in the country. It was the only Indian company to receive this honor at the historic Rio+20 UN Summit 2012. ITC was awarded the FICCI Outstanding Vision Corporate Triple Impact Award 2007 for its invaluable contribution to the triple bottom line benchmarks of building economic, social and natural capital for the nation. ITC’s e-choupal initiative has been recognized and appreciated, not only in India but also across the globe. It was published in World Bank’s World Development Report 2008. ITC became the first Indian company and the second company in the world to win the Development Gateway Award 2005 for this initiative. Sales and Distribution Management Term PaperPage 6
  • 7. ITC: Great brands are created by great leaders  Mr. Y.C Deveshwar, CEO, ITC is a renowned name in the industry. He is one of the key brains responsible for the success of ITC  He has been ranked as the 7th Best CEO in the World and No. 1 amongst the Indian CEOs by Harvard Business Review. He has been conferred with Padma Bhushan for his unparalleled contribution to the industry  Mr. Deveshwar was conferred with the Global Leadership Award by the US India Business Council of the US Chambers of Commerce  Ms. Meera Shankar joined the board of ITC Ltd as the first women director in its history. She is an additional Non-Executive Director of the cigarettes-FMCG-hotel major. Sales and Distribution Management Term PaperPage 7
  • 8. ITC: Distribution Network ITC is a conglomerate that offers products across multiple categories. The supply chain and distribution network for ITC is extremely complex. It can vary basis the product category. ITC maintains separate manufacturing units for different product lines. It follows the contract manufacturing model for some of its businesses like food. ‘Backward integration’ is the norm at ITC. Also, ITC believes in the power and potential of rural India and hence, has been promoting e-choupals in a huge way, to help drive sales and distribution. ITC is responsible for the storage of all its products. Key Objectives of the ITC Distribution Network:  Reach out to the masses  Rural penetration- Since rural India offers a huge opportunity, rural penetration was one of the key objectives of ITC  Diversification across new product categories  Gain a competitive advantage in the FMCG space  A robust distribution network should include the right number of skilled manpower, defined promotional campaigns to make the right impact on the target audiences, have the right infrastructure, credit and stocking to smoothly run the distribution network ITC Distribution Network: Points to be kept in mind:  Perishable/ Non-perishable product: The distribution network is designed depending on the product in consideration. For a perishable commodity, a shorter distribution network is preferred. The lot size is kept small in this case. The freshness of the products is given umpteen importance  Convenience: The distribution network is so designed to keep in mind the convenience of the customers. The convenience goods need intensive distribution to ensure availability at all times. This might imply different distribution strategies for different locations  Waiting Time: The customer is generally an ‘impatient’ lot. He does not like to wait for the products that he is paying for. The ITC distribution network has been designed to keep the waiting time to minimal  Product Assortment: This is a strategy that has paid off really well for ITC. Its assorted set of products has been a hit and helped enhance revenues across categories that were not doing that well in the marketplace  Quality: Quality is a key parameter for success of any brand. The quality of the goods is given primary importance at all times in the ITC Distribution Network Sales and Distribution Management Term PaperPage 8
  • 9.  Variety: The ITC Distribution network is designed keeping in mind that the variety of products is available for customers at all times. If the company offers 4-5 variants for a particular product, the network ensures that all of them are available at all times Highlights of the distribution network:  The distributor network is based on the population being targeted  A dedicated stock of all the FMCG products needs to be maintained (except stationary)  The distribution network essentially comprises of an exclusive Distributor, Wholesalers, Retailers, Panwallas and Retail Outlets (like malls etc.)  The Distributor is selected on the basis of some key criteria. These include his infrastructure capabilities, the fleet of delivery vans available, IT Infrastructure, and sales force available (in context to the total population being targeted). The price point agreed upon for selling, the warehouse conditions etc. also play a role in the selection process  Paanwalas are the key for some ITC product categories, like cigarettes and FMCG products like chips and biscuits, as it can allow the deepest penetration possible  ITC has e-choupals that function like interactive business villages. They help the company to surf differentiated products with differentiated quality  Frequency of orders: Distributors are allowed to place their orders on a weekly basis. They can place their orders online. The Retailers are allowed to place their orders twice a week. Paanwalas have the privilege of placing orders on a day-to-day basis. The periodic orders placed by the wholesalers, retailers as well as paanwalas are collected by a team member of the Distributor  The ITC traditional distribution strengths have been convenience outlets that sell, among other things, tobacco products. This helped ITC build on its confectionary business The ITC Advantage: The ITC Distribution network has an edge over its competitors due to benefits it offers to all the companies/ players that become a part of its distribution network. Joining hands with one of India’s most admired brands is not only a matter of pride for them, but also it allows them to avail a series of benefits in return. These include:  Higher brand credibility  Higher margins vis-à-vis competitive brands  No credit- only cash payments in some categories like cigarettes  Cash gifts (in case of special instances)  Freebies basis the sales target achieved Sales and Distribution Management Term PaperPage 9
  • 10. Sales and Distribution Management Term PaperPage 10
  • 11. A simple distribution model looks like this: Sales and Distribution Management Term PaperPage 11
  • 12. Innovation Special — ITC e-Choupal From Mandi to Market When tobacco giant ITC flagged off its agri-business in 1988, it was operating in a protected economy, procuring agri-products from mandis and exporting them. However, the '90s saw the opening up of the Indian economy, bringing opportunity for many—along with more than a few challenges. According to S. Sivakumar, Chief Executive, ITC Agri Business, it was a tense situation and the challenge was to innovate or perish. "We did not have the resources to compete with the global majors with multiorigin sourcing capabilities and neither did we want to follow the business model prevalent in the unorganised sector, which gets its margin through contract defaults and tax evasions." ITC realised that by owning the agri-product procurement value chain, they could serve the needs of the end customer better and reduce their "true cost of contract." Because ITC maintained oversight of the goods for a broader part of the chain, buyers were able to realize substantial savings in their true cost of contract, which included, apart from the product cost, other elements like quality variability, cost of delays, warehousing, packing and shipping costs. Key Challenge To build a unique and competitive channel to reach farmers, this is different from the model used by unorganised players and MNCs. Innovation An Internet-based two-way platform to procure from and sell to farmers, which has evolved into a mobile-based channel that offers services too. This was the birth of e-Choupal—a shift in the business model of procuring from mandis to directly procuring from farmers. It led to substantial reduction in procurement costs, and also brought consistency and predictability in the supply chain. Today, there are some 6,500 e-Choupal centres and all of 4 million farmers who use the e-Choupal platform across 40,000 villages in 10 states. However, fewer people are aware of the extent to which the agri business division of ITC has continued to innovate around the original model, evolving it to its current form as a true platform for engaging rural consumers and producers. Because platforms typically host an array of commercial partners and serve a wide range of customers, they cross many types of innovation; this is certainly true of e-Choupal. For ITC, e-Choupal was originally a channel innovation that was able to extend its reach through a VSAT based IT network, even in villages with no proper road connectivity. In each village, a trusted community member is appointed as a sanchalak to man the e-Choupal; this helps faster awareness of e-Choupal brand through word-of-mouth. Since the sanchalak is equidistant from ITC and the rural community, he plays a different role than a typical channel partner such as an end-retailer or a distributor would. However, the innovation did not stop here. ITC realized that to earn greater profits from the channel infrastructure it had built and better protect the business model; it could create a more dynamic, two-way flow of goods through that channel. Between 2005 and 2007, e-Choupal began offering third-party access to rural India. Currently, there are 160 partners from domains as diverse as seeds, consumer products, finance, insurance and Sales and Distribution Management Term PaperPage 12
  • 13. employment who sell their products to rural consumers through e-Choupal's channel. ITC leverages brand "e-Choupal" to promote these partners. Charging for access to the platform helps ITC recover substantial costs of infrastructure and operations. Second, coupling its core offering of "terrain expertise" (which was initially built through the commodity procurement chain) with "domain expertise" of its network partners, e-Choupal is able to offer new products/services to its village customers, which broadens their access to useful goods and opportunities. For the network partners, e-Choupal is a cost-effective way to access the rural consumers without building their own distribution channel. This was e-Choupal. But the innovation did not end there: The procurement network that was transformed into a product platform is now getting amplified into a service platform. E-Choupal is actively looking at employment, training and agriculture services business (productivity enhancement options that could double yields, respond to climate change, etc.) as new anchor businesses. As the model evolves, it is equally conscious of the need to address the most pressing problem in the agri-space: producing abundant food that is safe and healthy, yet climate-friendly. The next level of innovation that ITC e-Choupal is engaged in focusses on ways to align small farmers with the war against climate change. At ITC, the innovation imperative has come from two sources. The external environment (like when the Indian economy began opening up or, more recently, the negative effect of high food prices and the resultant government intervention on e-Choupal's anchor procurement business) has caused ITC to learn how to adapt quickly and innovate under duress. At the same time, the internal approach to innovation—multi-dimensional, quick to leverage internal capabilities in a cross-functional way and learn how to apply them in new situations— gives the e-Choupal team the conviction to try radical new ideas over time. The impact of this model is widespread. Other than its wide reach, the e-Choupal model has led to 4-7 per cent reduction in the true cost of contract for different buyers in the commodities business. For ITC, there has been a 40 per cent reduction in transaction costs of procurement. These channel throughputs more than Rs. 2,000 crore in sales for ITC and its partner companies. Through e-Choupal, which will personalize crop management advisory for farmers, crop yields could potentially double. ITC: Distribution Network- Product specific Category 1: Cigarettes ‘Cigarettes’ is one of the flagship business units for ITC. There are numerous brands available under ITC portfolio. These include Benson & Hedges, India Kings, Gold Flake, Classic, Navy Cut, Players, Capstan, Wills Ultra Milds, Wills Milds, to name a few. The company enjoys market leadership in this vertical and has a robust portfolio catering to a varied set of customers. It enjoys market leadership in all segments, both in terms of geography and price. The company has world-class state-of-the-art technology and products, especially for this specific product category. Key Competitors: Sales and Distribution Management Term PaperPage 13
  • 14.  Godfrey Philips  Beedi manufacturers  Smokeless tobacco Industry Mapping  Cigarettes account for less than 15% of the tobacco consumption in India, unlike the world pattern of 85%  Annual per capita adult cigarette consumption in India is approximately one tenth of the world average  The annual per capita consumption of tobacco in India (in grams per year) is 60% of the world average  According to Global Adult Tobacco Survey India 2010, 48% of adult Indian males consume tobacco. Only 10% smoke cigarettes as compared to 16% who smoke biris and 33% who use smokeless tobacco Distribution Network:  The company boasts of an extensive FMCG network that is directly servicing 1,00,000 markets and over 2 million retail outlets  The sale network includes the big retail marts like Big Bazaar to the smallest of panwallas at the farthest corner of the city  ITC sells its safety matches (brand name: AIM) complementary with cigarettes  The retailers and paanwalas also stock ITC’s candies, potato chips and finger snacks because of the higher margin as compared to its closest competitor, Frito Lays Sales and Distribution Management Term PaperPage 14
  • 15. Category 2: Branded Packaged Food Introduction ITC boasts of one of the fastest growing foods business in the 6 chosen categories, namely, Staples, Biscuits, Snack Foods, Noodles, Confectionary and Ready to Eat (RTE). Some of the marquee brands in the packaged food category include:  Aashirvaad- Staples (Wheat Flour, Salt and Spices), RTE  Sunfeast- Biscuits, Noodles and Pasta  Bingo!- Snack Food  Mint-O and Candyman- Confectionary  Kitchens of India- RTE, Premium conserves and chutneys Sunfeast The ‘Sunfeast’ brand was launched in July 2003. The brand has a wide portfolio comprising of varied categories of biscuits including glucose biscuits, Marie, Butterbite and Cream The brand has a growth rate of 53% over the past decade. It has a turnover in excess of Rs 1000 crores. Competition The key competitors for ‘Sunfeast’ brand include:  Parle  Britannia  Priya Gold Industry Mapping  This is an extremely competitive industry with intense competition and high customer service expectations  This industry operates on low profit margins  Fast and effective sales ordering process is the key to a strong foothold in this marketplace  Compliance standards are very strict Distribution Network The distribution model and network in this case is slightly different from that of cigarettes, mentioned above. Sales and Distribution Management Term PaperPage 15
  • 16. Some key points to be kept in mind in the case of perishable edible items that make up this category are as under:  Since these are food products, volume plays a major role vis-à-vis value  24x7 Availability at all points of purchase makes all the difference in the market share at the end of the day  The supply of products is to the retailers is more or less done on a daily basis in fixed/ variable amounts, basis their requisitions and/or demands/forecasted demand basis the past data Some of the highlights of the model are as under:  ITC has adopted a FIFO (First In First Out) model in this case to reduce wastage of products due to expiry (we are dealing with perishable items in this case)  The goods are kept on constant move from low sales area to high sales area  ITC collects all the expired goods 4 times in a year and destroys them, thereby, avoiding the possibility of sale of expired products  The retailers are expected to return the expired/ damaged products within six months from the date of expiry. This is closely monitored to ensure that retailers do not take this norm lightly  ITC provides branded materials, POS materials, display stands etc. to the retailers so that they are able to display the materials in a proper fashion Bingo! Bingo is ITC’s fifth major line of food business. It offers an array of products, both in potato chips and finger snacks category. It was launched in 16 flavors. Its potato snack has 4 innovative flavors while the finger snacks have 6 variants. ITC has invested heavily in R&D for this segment. It has an in-house research team of 8 members that does thorough research on the home made snacks like bhelpuri, gol gappas etc. The new flavors have been dished out by the combination of existing delicacies. Innovation is the differentiator for ITC in this market. ITC drove an exhaustive promotional/ branding campaign for Bingo! It was launched close to the World Cup and a series of advertisements within a month of the launch ensured high brand recall for this new product. Competition Sales and Distribution Management Term PaperPage 16
  • 17.  Pepsi- Frito Lays  Parle Agro- Hippo  Marico  Dabur  Haldirams  Nestle  Bikano  Unbranded snack market Industry Mapping  The snack food industry (that includes biscuits, namkeens and ready to eat snacks) is about $3 billion  There are more than 1000 different snack products available in the market  The annual average per capita consumption is 500 grams  This market is growing at a rate of 30%  The market is estimated to be $344 billion in 2025 Distribution Network  ITC utilized the distribution network of cigarettes to ensure aggressive/ intensive distribution of this category of products  The Bingo chips are available at most neighborhood pan shop  The company has retail tie-ups with Biyani’s Future Group- Big Bazaar  Availability at local retail shops and kirana stores  Numerous promotional campaigns were organized to reach out to the target audiences e.g. Bingo Remix nights in clubs Recent developments: ITC Foods As per recent updates (April 2013):  ITC Foods has increased distribution in rural areas. It is targeting a growth rate of 28-30% because of the expansion in the distribution network as well as new product launches Sales and Distribution Management Term PaperPage 17
  • 18.  The number of stocking points will be tripled to ensure availability of its product range in small towns and villages  ITC will be adding new wholesalers and stockists in its fleet  ITC will tap its e-choupal network for this. This would involve working with the farmers directly on obtaining materials and delivering products  Sales and Distribution Management Term PaperPage 18
  • 19. Conclusion ITC has been amongst one of the top FMCG companies in India. It kick-started its journey with the cigarette business and it has diversified its portfolio from Apparel industry to IT sector. The diversification of portfolio has been a gradual process and has been molded well in its 100+ years of existence. ITC has the privilege of having one of the most robust supply chain systems and one of the most widespread distribution networks in the world. With access to more than 6500+ villages, it is ranked amongst the top 3 FMCG majors in India. ITC maintains separate manufacturing units for different product lines. It follows the contract manufacturing model for some of its businesses like food. ‘Backward integration’ is the norm at ITC. Also, ITC believes in the power and potential of rural India and hence, has been promoting e-choupals in a huge way, to help drive sales and distribution. To conclude, ITC has grown from a cigarette company started 100 years back to a $7 Billion turnover company which has presence in Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and Agri Business. The success story of ITC can be an example of how a robust and efficient distribution channel can change a company’s fortune over a period of time. It also highlights how a company can leverage the strengths in its distribution channel to its advantage. References 1. www.itcportal.com 2. www.facebook.com/itcportal 3. Marketing & Advertising Magazine – Campaign India, Pitch etc. 4. http://en.wikipedia.org/wiki/ITC_Limited 5. News Archives of mainline and financial dailies like Economic Times, Times of India, Hindu Business Line etc. 6. Information shared by Senior Marketing professionals of the relevant industry 7. www.imcri.org Sales and Distribution Management Term PaperPage 19
  • 20. Sales and Distribution Management Term PaperPage 20